Who must file re capital gains

[Greenbriar]

Is the gross proceeds or net capital gain used for determining filing requirements? I thought it was gross proceeds because the IRS doesn't know if there is a gain or loss and they generate those CP2000 letters. I read recently that "capital gains" is used to determine who must file. I have a elderly client who must file based on 1099B proceeds but had all losses which puts her under the filing requirements. thanks.

[Greenbriar]

Disregard - sorry

Just read IRC 61(a)(3) and cites gains from sale of property which must included investments reported on 1099B. Should have check their first.

[dyne]

This is an interesting questions which was discussed before on this or another message board. It appears from 61(a)(3) that a tax return need NOT be filed if the overall GAIN is less than the filing requirement. However, if a return is not filed I imagine that IRS will send a letter asking why it was not reported. Also if a net loss is reported it might be wise to file tax returns so that the loss carryforward would be on record if needed in future years.

[Greenbriar]

Daughter's situation is magnified

Her daughter, also my client, age 50, has approx.150,000 in gross proceeds but 61k in net losses, and otherwise does not have enough gross income to file. I wonder what others would do. I'm inclined to file anyway because of the big numbers.

[gkaiseril]

Gross is income without adjustments for returns, basis, or expenses. IRS assumes zero adjustments, zero basis, zero expenses.

[New York Enrolled Agent]

Her daughter, also my client, age 50, has approx.150,000 in gross proceeds but 61k in net losses, and otherwise does not have enough gross income to file. I wonder what others would do. I'm inclined to file anyway because of the big numbers.

I would suggest you read SCA 200018051 which gives a through analysis of your original post but in the interim, I'll paste the concluding paragraph which should address your concern in this post. (underlines added)

[start]We understand that your inquiry comes from Customer Service. Customer Service may want to know more than just the technical answer, which is that a taxpayer would not have a filing requirement. To provide greater assistance to a taxpayer, Customer Service should explain to the taxpayer that when the Service receives the Form 1099-B from the taxpayer's broker and a return is not filed, it will likely trigger an audit of some type. So if the taxpayer wants to head off any questions from the Service regarding the gross proceeds from the Form 1099-B, he or she could file a return that would show that no tax is due because of taxpayer's offsetting basis. [end]

[Greenbriar]

That's what I thought

but the Code 61(a)(3) says 'gains derived from dealings in property', so am I missing something here?

[Greenbriar]

Thanks for the cite.

I appreciate it.

[gkaiseril]

When 'property' is used without qualification, I would assume that covers tangible (cars, boats, land, etc) and intangible (stocks, bonds, various rights, etc). And one would need to total up all transactions within the year to obtain the gross amount and compute the net amounts, As later noted, one wants to file a preemptive return providing the details as to why one does not need to file a return. It will also allow you to prove that there is no ATM tax due and if your client is subject to any state taxes you will should also be able to determine if a state or states return(s) is required or not.

[Davc]

When 'property' is used without qualification, I would assume that covers tangible (cars, boats, land, etc) and intangible (stocks, bonds, various rights, etc). And one would need to total up all transactions within the year to obtain the gross amount and compute the net amounts, As later noted, one wants to file a preemptive return providing the details as to why one does not need to file a return. It will also allow you to prove that there is no ATM tax due and if your client is subject to any state taxes you will should also be able to determine if a state or states return(s) is required or not.

You don't use totals for determining whether or not a return is needed. Gains are used but not loses. A TP with two sales, one sale a gain of 50K and the other a loss of 200K is technically required to file even if there would be no penalty.

I explain the certainty of a letter and let the client decide. I have a couple that in recent years wait for the letter and send a copy of the gains/loss statement from the broker every year.

[gkaiseril]

On Schedule D you have an entry for the total gains for both short and long term sales, so this number will help you determine the total sales or gross proceeds for computing total gross income for the Federal filing requirement.

If you have both 1099-B reportable sales and other sales, you may need to reconcile the 1099-B totals and the non-1099-B totals, since the IRS does try to match only the totals for the 10-99-B forms.

You may need to perform some extra analysis for the states of residence or location of the property to determine any state filing requirements that may be triggered by the sale of property. And this may need to be either gross or net depending upon the state.