Travels with FatCatAir

Monday April 14, 2008

I owe what?

So this is a little story in anticipation of tax day tomorrow.

Last Thursday I came home to find a rather thick letter from the IRS. Umm this does not look good. I opened the letter to find that the IRS was claiming that I owed $22,820 in back taxes for 2006. I was immediately relieved since this was clearly a mistake. Now if it was something like one or two thousand I might have been worried, but $22k, can't be.

On further reading it turned out that the dispute was the result of a 1099b that I apparently failed to report for a sale of $48,295 in a Fidelity mutual fund. I thought "well maybe I did miss that". I wasn't worried since I knew that that money was a result of selling Sun ESPP shares in anticipation of paying for my Velocity kit. I sold those shares a few months before I needed to pay Velocity and I parked result in a mutual fund for 3 months while I waited for the kit to be delivered. I figured at worst I might owe $100, much better than the $22.8k they wanted. The IRS's calculation was based on a cost basis for the mutual fund of $0 which results in taxes of $17k, penalty of $3.5k and interest of $1.7k. Now if I only could figure out how to get shares for zero dollars...

So I went and dug up the 2006 return. No sign of the 1099 which explains why I left it off. Looking further I found the records of the sale and discovered that I in fact lost $71 on that sale (no wonder I forgot about it). So instead of owing ther IRS almost $23k they owed me. I drafted a letter explaining all the numbers along with a copy of the documentation of the proper cost basis.  At the bottom of the letter I wrote:

Based on this the IRS owes me a refund of $18. I'm sure that the President will be sorry to see the windfall of $22,820 he expected from me to help pay for the war evaporate, but he must be used to disappointments by now.

I thought about telling them that they couldn't pay me on the installment plan but figured I better not push my luck.