IRS needs to work on their computer comparison program

[taxea]

I didn't file a return for a client because the only income he had was SS and a 1099 for a home he sold. The sale proceeds was 495K. His basis was in excess of 250K. The rules say don't report if there is no cap gain taxable. The SS was way under 25K. I don't understand why he got a letter when none of his income was taxable. I do understand they questioned why the 495K wasn't reported but they say don't report sale of residence when it doesn't create taxable income and don't report when there is no taxable income.
What?????
In my opinion this just causes the client unnecessary fees to explain to the IRS that he didn't need to file. Frm now on I am going to send them the sale of residence included in a return that shows no filing was necessary. I wish they would get their act together when it comes to their comparisons.

[Gary2]

... 1099 for a home he sold. ... The rules say don't report if there is no cap gain taxable.

The rules used to say that, but not anymore. Actually, what they used to say was not to report it unless you're not excluding all the gain or "You have a loss and received Form 1099-S". But with the 2011 version of Pub. 523, it now says "You received Form 1099-S." In other words, the 1099-S must always be reported, while closing attorneys (or escrow companies in states that use them) are now given the option of omitting the 1099-S if the seller signs an affidavit asserting that they have no taxable gain.

I don't know which year is involved for your case, but it could be the IRS is just getting a little ahead of themselves.

[taxea]

It is 2009. Seems to me that if you report the 1099 in order to prove there is no tax due then you would have to also submit the sale of residence form....do you agree?

[Gary2]

It is 2009. Seems to me that if you report the 1099 in order to prove there is no tax due then you would have to also submit the sale of residence form....do you agree?

I'm not quite sure what you're asking. The current rule is that if you get the 1099, you must report it, regardless of whether any of it is taxable. If by "sale of residence form" you mean the worksheet in Pub. 523, that's just a worksheet. It's not required when filing the return, but it's certainly a reasonable thing to include when responding to an IRS inquiry concerning the transaction.

[FEDUKE404]

Which form?

It is 2009. Seems to me that if you report the 1099 in order to prove there is no tax due then you would have to also submit the sale of residence form....do you agree?

Sale of residence form??

Sometime many moons ago the IRS had Form 2119, but I thought that form went the way of the rotary phone long ago.

FE

[Jiggers]

The IRS doesn't know what the basis in the home is, so how are they to know that the income is not taxable?

[ChEAr$]

Gary's got the rights of it.

If it were truly sale of personal residence and seller furnished affidavit, signed a form, whatever, that this was the case and sale price under 250k, then a 1099s was not needed to be issued.

Doesn't matter of course whether or not seller's attorney goofed or not. The fact that a 1099 was issued mandates reporting.

[taxea]

Gary's got the rights of it.

If it were truly sale of personal residence and seller furnished affidavit, signed a form, whatever, that this was the case and sale price under 250k, then a 1099s was not needed to be issued.

Doesn't matter of course whether or not seller's attorney goofed or not. The fact that a 1099 was issued mandates reporting.

The 1099 was for 495K as stated in OP. So this post doesn't apply.

[taxea]

I'm not quite sure what you're asking. The current rule is that if you get the 1099, you must report it, regardless of whether any of it is taxable. If by "sale of residence form" you mean the worksheet in Pub. 523, that's just a worksheet. It's not required when filing the return, but it's certainly a reasonable thing to include when responding to an IRS inquiry concerning the transaction.

I totally agree and what I was saying is they should adhere to their rules for the year that applies. In this case they say one thing and do another. If they wanted documentation in the year in question they should have included that in the instructions. At least a Sch D with an explanation should be the requirement. I think it is the computer that has not been programmed properly.