Schedule D

[JON]

I am sure some of you had the same E's sent to you. Cindy Vanderpool, Chief, Stakekholder Relations, National Public Liason is replying to questions on the details required. She can be reached at Cythia.Vanderpool@irs.com. She is trying to answer while not really doing it, but saying nothing has changed we were wrong as preparers. She is answering, or should I say responding. She irratated me a little by suggesting we were somehow trying to avoiding our "burden"? Can we use 8435, attach schedules with the information? I tried to ask her that again. (Gear Up says 8435 with attachments is not appropriate???).

[Armando Beaujolais]

I am sure some of you had the same E's sent to you. Cindy Vanderpool, Chief, Stakekholder Relations, National Public Liason is replying to questions on the details required. She can be reached at Cythia.Vanderpool@irs.com. She is trying to answer while not really doing it, but saying nothing has changed we were wrong as preparers. She is answering, or should I say responding. She irratated me a little by suggesting we were somehow trying to avoiding our "burden"? Can we use 8435, attach schedules with the information? I tried to ask her that again. (Gear Up says 8435 with attachments is not appropriate???).

I'm going to throw a factor out there and see if other people have had the same experience that I have.

In all my years and all my returns, I've never had a return audited for Schedule D. I've had them look at Schedule D when they were auditing for something else, business losses, dependency, etc., but I've always had the impression that the IRS just doesn't audit those forms. That seems strange considering how many basis entries are taken off the ceiling of the tax preparer's office.

1. Is this one more phase in the IRS initiative to turn tax professionals into government agents?
2. Is the IRS really going to scrutinize these forms more than they have in the past?
3. Is this just noise in an attempt to prod taxpayers into filing more accurate returns?

Remember, the Internal Revenue Code does not list a single form or schedule. It does use phrases like "under regulations which the Secretary may prescribe." But look at court cases. They don't say "The taxpayer filed Form 1040 with Schedule C and Schedule D." The court cases are looking to see whether the correct amount of tax was paid based on taxable income. For most purposes, you could fill out an income figure on the back of napkin and send it in with the proper payment and you'd be fine.

[Disclaimer, the above was an EXAGGERATION. But you get the point]

I don't believe the IRS can force t's to be crossed and i's to be dotted in a certain way assuming the proper income is reported and tax paid. However, they certainly can decide to audit whatever returns they choose, and if they choose to audit Schedule Ds that aren't reported like they want, that will drive behavior. I just hope they're not continuing to go down the road of forcing me to do their job for them.

[OldJack]

attach statements

I agree Armando, I can't remember an audit because of Sch-D items or form 4797 for that matter. I expect this is to get ready for computer checking after I retire. The good think that might come from this is the brokers may start doing a better job of providing cost and detail with their statements. Most of my client's brokers do that now but I think they charge extra for it but clients don't seem to care as I have insisted that provide it cause I am tired of tracking down old cost transactions. And for those statements that are traders with lots of detail transactions... guess what? they are going to get attached to my clients Sch-D at least for the year 2005.

[jainen]

Fair or not

Fair or not, it isn't good client service to draw scrutiny by leaving out information the IRS so pointedly asks for. The simple fact is that a taxpayer can't file a correct return without assembling this data about the purchase and sale of stock. So what possible objection could you have to including it with the return, other than inconvenience to yourself? Even that objection is vapid, because you have always been able and are still able to use a worksheet generated by the client or the broker. Of course it has to include the right information, but if it doesn't then why would you WANT to use it?

[ecb34691]

It's not an audit, but client got 18 page letter recently on 2004 asking for cost basis of his $1.8 million in stock sales. Now mind you, client did Mark-to-Market election with Form 3115 in 2002 which allows him to report on 4797, part II. Return was e-filed and acepted in April 2005. Do they (IRS) really know what they are doing?

[OldJack]

Ordinary Loss?

ecb34691 your taxpayer's audit, so to speak, appears to be because of large losses on the 4797 offsetting ordinary income. That is quite different than Sch-D loss with its limit and I would imagine the IRS would like to look at that size loss. How well is your taxpayer prepared to respond with documents? I'm sure there are many here that would like to know the outcome as the situation proceeds.

[Unregistered]

losses

ecb34691 your taxpayer's audit, so to speak, appears to be because of large losses on the 4797 offsetting ordinary income

OLDJACK, Where do you get large losses from ecb34691 post?

[OldJack]

OLDJACK, Where do you get large losses from ecb34691 post?

Market to Market method is usually selected because the investor is a trader and does not want any net losses limited to the $3,000 per year limitation from Sch-D.

The market has generated losses for most traders in the last couple of years. However, this case could be a gain. I only assumed it was a loss that caused the IRS to question his transactions as I would think the IRS would be less interested or have no interest if he was showing a gain.

[Matt Sova]

Schedule D

The clients I have that have had large amounts of stock sales in the past have gotten only a few lines on the Schedule D such as:

Merrill Lynch short term gains (with various in the dates and then total sales & total basis)
Merrill Lynch short term losses (with same info)
Merrill Lynch long term gains
Merrill Lynch long term losses

Now, assume that the above tax return with this Schedule D costs my client $250. If I list out the litany of trades that happened within that ML account the fee would be $750.

I keep hearing "attach the broker statement" how do you do that with an electronically filed return? The gist of it is that the information is correct, the tax amount is correct and if the IRS sends out a letter for more detail we will supply it.

[JON]

Attached???

We are guessing means 8435, but they do not what the brokerage statements unless it presents the data in the same fashion as D or D-1. Previously the IRS has said this is not an appropriate 8435 attachement...

[OldJack]

I only do my business executives 1040s so I don't efile and thanks be that I don't have to deal with all the problems of efiling, rejection codes, etc. Attaching to paper returns shouldn't be any problem. Of course efiling is great for those that do simple walk off the street type 1040 clients.

[Matt Sova]

Are you stoned

Of course efiling is great for those that do simple walk off the street type 1040 clients.

Or just being sarcastic? I completed over 450 1040 returns last year, the majority of which are very complex (Sched C, D, E, etc, etc) hardly simple walk off the street types. And, I had only 5 rejections - 2 were fixed immediately and refiled no problem. The other 3 were clients whose child decided to claim themselves on their 1040EZ because they had a summer job and did not need the deduction anyway.

I will continue to report the same way I have in the past.

[Bird Legs]

Sched. D

IRS has issued a statement that attachments to the 1040 are OK for reporting Capital gains & Losses.

[taxmandan]

Sch D

Don't put "See attached statement" on lines 1 & 8, rather put the totals on line 2 & 9. Attach the statement and title it "Continuation sheet for Schedule D."

[OldJack]

Sarcastic... yep at times.

Yep! Matt I get sarcastic at times...sorry. Really, I only do about 50 tax 1040s as I have been working toward retirement and only doing clients that I have had like 20 years or more. I got rid of clients that were headaches years ago and that has made tax season much easier. Most of my returns are somewhat complex with lots of data as my clients are mostly old folks with lots of dividends, stock sales, etc. Many of my 1040s take a full day to prepare.... yes maybe its just me being slow as everyone says there is no tax return that should take a day. Ha! But hey, I get paid for a day and the client doesn't complain.