Handling notice of insufficient tax payment

I received a notice from the IRS that they believe I understated my tax
liability for 2004 by $15K and with penalties and interest they want a total
of $19.5K.

All of the understated income is related to securities sales during 2004.
When I entered the data into my software I was off a couple days in the
transaction date for for a couple of trades. I do not file electronically
so this must have been a manual audit, compaing broker information against
my Sch D.

Although in one case, a $26K sale they highlighted is very clearly listed on
the Sch D on the "correct" date and for the correct amount. I assume the
audit clerk just missed it. It was the very first one listed under short
term gains/losses.

There is one transaction they high lighted that clearly is missing from my
Sch D with a gain of about $500. There is another transaction missing from
my Sch D that they did not catch with a net loss of about $100.

As near as I can figure what happened is when I did the import from MS Money
into TaxCut the two above mentioned transactions were not imported and I did
not catch it during my "audit" before filing. Guess I've put too much
reliance on the software doing the right thing and not checking closely
enough.

I redid the Sch D manually in the TaxCut software and the recalculation put
my tax liability at ($40) instead of the $153 I recieved as a refund for
2004.

Actually my question is, how detailed should I be in my reponse to the IRS.
Should I just send in the revised Sch D. Or, should I write a detailed
letter explaning everything, include broker sale/purchase confirmations,
broker 1099s with transaction records, etc.

I agree now that I under payed $113. I have no idea how to calculate
interest and/or penalities. Would I be wise to just include a check for
$113 and let them tell how much more I owe? I want this to go as smoothly
as possible.

Thanks in advance for any useful suggestions.

Bishoop....



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Relevant Pages

  • Re: Handling notice of insufficient tax payment
    ... All of the understated income is related to securities sales during 2004. ... on the Sch D on the "correct" date and for the correct amount. ... There is one transaction they high lighted that clearly is missing from my ... put my tax liability at instead of the $153 I recieved as a refund ...
    (misc.taxes)
  • Re: Handling notice of insufficient tax payment
    ... All of the understated income is related to securities sales during 2004. ... on the Sch D on the "correct" date and for the correct amount. ... There is one transaction they high lighted that clearly is missing from ... put my tax liability at instead of the $153 I recieved as a refund ...
    (misc.taxes)
  • One more detail
    ... All of the understated income is related to securities sales during 2004. ... so this must have been a manual audit, compaing broker information against ... on the Sch D on the "correct" date and for the correct amount. ... There is one transaction they high lighted that clearly is missing from my ...
    (misc.taxes)