Hit with $10k tax bill from 2013, given 3 weeks to pay

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sunny_socal
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Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

Tonight when I got home I found a letter from the IRS:
- Supposedly owe $9800 more from 2013 tax bill. There is no form for this, it's just a 9 page stack of paper.
- The papers came from the IRS in Fresno CA
- Includes $1500 penalty for underpayment and $400 of interest. (The interest is calculated from Oct 1, 2011 for some reason @ 3%)
- I can either pay, or dispute it and send in supporting documentation; payment can be installments if I wish
- I can also request more time to respond (current deadline Aug 26), but will accrue interest if I am in the wrong

It all seems to arise from $25k of income that came from RSUs: IRS says this income was not declared. However I have a statement from etrade showing the $45k of 'income' and that $20k worth of shares were withheld at the same time.

What to do? At this point I'm thinking of hiring someone to redo my 2013 taxes and see what they come up with. What kind of tax pro should I hire?

:|
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Taylor Larimore
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Taylor Larimore »

sunny_socal:

I know it is an unpleasant shock to receive a letter from the IRS notifying you that you owe them money. This is my suggestion (I am a former IRS Revenue Officer):

* If you believe the IRS is wrong, and you have the evidence to prove it, simply reply as instructed and send them supporting documentation. (This appears to be your situation.)

* If you believe your accountant made an error preparing your tax return, take your letter to the accountant and follow his/her advice.

* If you prepared the return, and do not have evidence to contradict their findings, I would pay the tax or go to an accountant and seek professional advice.

* Do not ignore the IRS letter.

* Keep written copies of all correspondence. You have a right to appeal.

Best wishes.
Taylor
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by abuss368 »

Also, do not forget "First Time Penalty Abatement"! Little known IRC Section. This is huge if you have to pay!
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jane1
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by jane1 »

How did you report the RSUs on your tax return?
Did you sell the remaining shares that got vested in the same year?
Typically the amount vested as well as the amount withheld get reported on your W2. Can you verify if that was the case?
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bogleblitz
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by bogleblitz »

I received similar letter about 12k regarding my employee stock options a few years ago.

I sent a letter with all the supporting documentation. IRS removed all the fees and fines so it is all good in the end.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

jane1 wrote:How did you report the RSUs on your tax return?
Did you sell the remaining shares that got vested in the same year?
Typically the amount vested as well as the amount withheld get reported on your W2. Can you verify if that was the case?
- The RSUs were shown as separate income on my W2 (ie. the face value of the shares)
- The tax withholding (ie. taken as shares) was done by etrade, but this does not appear to be on my W2. I have a separate statement for the tax withholding.
- Yes, I sold the remaining shares immediately

I did the return myself with turbotax, and it always runs the included "audit check" at the end. The return looked good when I filed it.
Hazel-Rah
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Hazel-Rah »

I wish I would have gone through with getting an accountant for my 2014 taxes. I sell my RSU's at the first opportunity and my employer includes it as part of my compensation in Wages in my W2. The taxes (~40%) are withheld immediately by Etrade. Yet, when I reached out to an accountant and explained that I think I would be double taxed if I reported on my personally prepared HR Block form he said that I definitely needed to do it. I wish I would have met him face to face instead of trying to do it via email. Let us know how it goes.
jane1
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by jane1 »

Did you enter the 20K withholding anywhere on your tax return? I.e. Which line on Form 1040 Pg 2, is it included?
What kind of official tax form (1099-B, W2, etc) did you get that shows the withholding?

Maybe e-trade sent you a 1099-B showing the 45K proceeds on the sale of stock, but no cost basis. Did you report that on Sch D with the same cost basis (as proceeds), essentially showing zero capital gains? That might be what triggered the IRS letter.

If there was indeed a 20K withholding that didn't get reported, or the 45K proceeds (with 0 capital gains) you are likely to be okay. Might require a detailed letter and/or amended return. IRS is quite reasonable and written correspondence is all that might be needed.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by celia »

sunny_socal wrote:- The tax withholding (ie. taken as shares) was done by etrade, but this does not appear to be on my W2. I have a separate statement for the tax withholding.
Did you attach a copy of the W2 as well as the separate statement to the return you filed? If you have to file for your state, did you attach for them too?

However, this doesn't jive as the IRS is claiming you should have paid about $8,000 more (plus interest and penalty) when you had $20,000 sent to them.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

jane1 wrote:Did you enter the 20K withholding anywhere on your tax return? I.e. Which line on Form 1040 Pg 2, is it included?
What kind of official tax form (1099-B, W2, etc) did you get that shows the withholding?
The RSU withholding is not on my 1040 - I think that's the root cause here.

I got from etrade:
- A 1099 that doesn't show the withholding
- A 'release confirmation' that does show the witholding: Tax payment method = withhold shares, Shares traded = X, Total to participant = Y
(I definitely didn't get the full value of the shares in my bank account!)
If there was indeed a 20K withholding that didn't get reported, or the 45K proceeds (with 0 capital gains) you are likely to be okay. Might require a detailed letter and/or amended return. IRS is quite reasonable and written correspondence is all that might be needed.
Can I file an amended return? Something is definitely amiss. The thing is that year I also had a big energy tax credit and perhaps it served to wipe out this large tax that should have shown up when I was preparing the 1040.
celia wrote: Did you attach a copy of the W2 as well as the separate statement to the return you filed? If you have to file for your state, did you attach for them too?
I didn't attach anything, it was electronic.

Ok I'm planning to hire a tax pro to go over the return and all my paperwork.
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ResearchMed
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by ResearchMed »

sunny_socal wrote:
jane1 wrote:Did you enter the 20K withholding anywhere on your tax return? I.e. Which line on Form 1040 Pg 2, is it included?
What kind of official tax form (1099-B, W2, etc) did you get that shows the withholding?
The RSU withholding is not on my 1040 - I think that's the root cause here.

I got from etrade:
- A 1099 that doesn't show the withholding
- A 'release confirmation' that does show the witholding: Tax payment method = withhold shares, Shares traded = X, Total to participant = Y
(I definitely didn't get the full value of the shares in my bank account!)
If there was indeed a 20K withholding that didn't get reported, or the 45K proceeds (with 0 capital gains) you are likely to be okay. Might require a detailed letter and/or amended return. IRS is quite reasonable and written correspondence is all that might be needed.
Can I file an amended return? Something is definitely amiss. The thing is that year I also had a big energy tax credit and perhaps it served to wipe out this large tax that should have shown up when I was preparing the 1040.
celia wrote: Did you attach a copy of the W2 as well as the separate statement to the return you filed? If you have to file for your state, did you attach for them too?
I didn't attach anything, it was electronic.

Ok I'm planning to hire a tax pro to go over the return and all my paperwork.
If you have paperwork that does show that the proper taxes were indeed withheld, so you don't actually owe anything (or interest or penalties), then THESE documents are what you need to send to the IRS in response to their letter.

It shouldn't require filing another return, and that may not clear up things anyway.
And you might not need to pay an accountant, if it is this simple.

Just make sure you don't miss the deadline, and you might call the IRS to tell them that the proper documentation is on its way to them.

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tainted-meat
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by tainted-meat »

Something similar happened to me a couple years ago although the amounts were much smaller :D

I called the IRS agent listed and went over the forms. It took 15 minutes and I didn't owe anything. The agent was actually very helpful.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

I was able to dig through the RSU plan details work:
- Turns out that while my employer lists the income on the W2, they do not show the tax withheld
- Etrade sends a 1099 showing the final amount of RSU proceeds when I sell, but also does not show the shares withheld for tax
- The tax withholding is only shown in an etrade "Confirmation" sheet following the sale.

Seems I must have missed a tax form or something :| (I'm a big time turbotax user, this is the first time something like this has happened)
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by stoptothink »

I've gone through something similar each of the last three years. It can be pretty unnerving to receive an unexpected bill from the IRS, but if you have documentation it will EVENTUALLY be cleared. Last year I had to send in the exact same documentation about 5 separate times, had my CPA write them two separate letters (including the documentation), and then eventually had the state tax advocate handle it. Not because it was a particularly difficult situation or that I did not have very definitive documentation, but because (in my experience) the IRS tends to misplace paperwork you mail them - no matter how much post office documentation you have that someone there received and signed for it. Maybe I just have bad luck, but moving forward I will go straight to the state advocate so I don't have to deal with the situation for 6+ months again.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by pshonore »

The IRS matches all 1099B forms with Sched D. If you did not fill out a Sched D, they will do it for you and assume your basis is $0 (assuming non-covered shares). Do the gross proceeds from all 1099B forms you received equal the gross proceeds on Sched D?
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by jebmke »

stoptothink wrote:IRS tends to misplace paperwork you mail them
I was about a year into my 2009 tax year inquiry and they lost my entire file. I had to resend them a new copy of supporting documents sent in response to their inquiry. It pays to keep good files and always get POD. They eventually caught up with everything but the whole cycle from first IRS letter to resolution was 18 months. Patience is needed on these.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by jane1 »

It is worth your time to learn how taxes work, a very useful skill for years to come, even if you end up going to a pro.

1. double check that W2 Box 2 (Fed withholding), and Box 13 (State withholding) & SS/Medicare don't include the 20K withheld? You can see your pay stubs just before the vesting and after the vesting to see YTD change. First step, would be to call your Payroll/HR/Benefits department and ask them how the withholding is reported by them to you/IRS. Others at your company would have run into the same issue.
2. Next check if the proceeds from 1099-B with full cost basis are reported on your schedule D? Since the entire RSU vested amount is part of your W2 income, that is your cost basis. Any shares sold (for tax withholding and all you wanted to sell) is subject to capital gains only above your cost basis. Since you sold everything on the day it was vested, it should be zero capital gains, but still needs to be reported. Else, as someone else pointed out, IRS assumes it is all gains (I.e. Zero cost basis).

It seems your return needs to be amended, whether by you or IRS, would be based on what is missing.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Cheyenne »

They do lose things. A few years ago I mailed my Fed. tax return with a check for the balance due on April 15th via Certified Mail with return receipt which I received back about a week later. In early May I noticed that my check had not been presented for payment which is unusual. Then I received a letter from IRS stating that I had filed my return about three weeks late and there was included a bill for about $7.00 late charge or interest. Even though I had a signed Certified Mail receipt I just went ahead and paid the $7.00 as go away money. Why rattle their cage? When I related this story to a postal clerk he told me that he used to work in a Post Office where a large accounting firm mailed a lot of letters, and they never sent the IRS anything via Certified or Registered Mail because they said they will not honor it. If they says it's late, it's late. He recommended using a Proof of Mailing form which is not a legal document, but at least it's something to present and they don't honor anything anyway.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by MarkNYC »

abuss368 wrote:Also, do not forget "First Time Penalty Abatement"! Little known IRC Section. This is huge if you have to pay!
v
The First Time Penalty Abatement Program (FTA) only applies to specific types of penalties. For individuals. it only applies to penalties for late filing and late payment. It appears that the OP has been assessed a 20% accuracy related penalty for substantial understatement of tax, so the FTA program would not apply.

In this case, an assessment of the substantial understatement of tax penalty gives a clue to the problem. It suggests that the issue is not a discrepancy in tax withholding, but additional tax due to unreported income. So it seems likely as previously mentioned that the problem may be that the shares sold to cover the withholding were not reported as sold (with essentially no gain/loss) on the tax return. This omission happens sometimes with both employee stock options and RSUs. If this is the actual problem, a letter of explanation to the IRS should resolve the problem, and get the assessment fully cancelled. A revised Schedule D might be required.
PoppyA
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by PoppyA »

Call the IRS and talk to them. They are helpful, and you want to make this right. They will help you.
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Call or write?

Post by Taylor Larimore »

PoppyA wrote:Call the IRS and talk to them. They are helpful, and you want to make this right. They will help you.
Sorry to disagree. This could be a complicated situation and the person who answers the phone is unlikely to know the answer -- even if you manage to get a representative. Worse, they may give you a wrong answer which they are not responsible for.

I worked inside the IRS. It is true we try to be helpful, but we struggle with over 60,000 pages of rules, regulations and interpretations. I strongly advise you to do all correspondence (in a case like this) in writing and keep a copy.

Best wishes.
Taylor
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Nebster »

I've had RSUs in two recent scenarios, so I went back and looked at mine to remind myself.
sunny_socal wrote:I was able to dig through the RSU plan details work:
- Turns out that while my employer lists the income on the W2, they do not show the tax withheld
That doesn't seem right to me. Your company is required to withhold 25% for fed taxes on RSU vesting events, plus all the other earned income taxes (state, FICA, etc). Also, when shares are withheld to cover taxes, they can't get it to exactly 25%, because they can only liquidate an integer number of them for you at that time. So there're always a few bucks of underwitholding, which they then need to account for separately by withholding an additional amount from your next paycheck. You should see them tracking this additional withholding on your paystubs. (For that matter, they should also be issuing pay stubs for each RSU event. Have you gone into ADP or whatever your company uses and looked?)

If you're still employed there, I'd go talk to HR and ask them what's up.
- Etrade sends a 1099 showing the final amount of RSU proceeds when I sell, but also does not show the shares withheld for tax
That's how mine look, too. However, you should have a separate document (from Etrade but also likely a matching one from your company) that shows the price at the time of vesting.

By the way, contrary to what someone wrote above, it is also fairly likely that you didn't sell instantaneously -- you sold a few days later, when your vested shares settled into your Etrade account. The W2 income for the vested shares should be equal to the stock's closing price on the day of vesting. Your sale price will be a little different a few days later, so you'll have a short term gain or loss to report on each sale.

It's pretty straightforward, and everyone else already told you that you'll get it sorted out no problem. But the concerning thing to me is that your company sounds like they're doing a somewhat slipshod job of reporting on your equity compensation.
Last edited by Nebster on Sun Aug 02, 2015 11:08 am, edited 1 time in total.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

Nebster wrote: That doesn't seem right to me. Your company is required to withhold 25% for fed taxes on RSU vesting events, plus all the other earned income taxes (state, FICA, etc). Also, when shares are withheld to cover taxes, they can't get it to exactly 25%, because they can only liquidate an integer number of them for you at that time. So there're always a few bucks of underwitholding, which they then need to account for separately by withholding an additional amount from your next paycheck. You should see them tracking this additional withholding on your paystubs. (For that matter, they should also be issuing pay stubs for each RSU event. Have you gone into ADP or whatever your company uses and looked?)

If you're still employed there, I'd go talk to HR and ask them what's up.
Just double checked the ADP online paystub: shows RSU income, but not RSU tax. I'll get in touch with HR :|
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by cherijoh »

sunny_socal wrote:Tonight when I got home I found a letter from the IRS:
- Supposedly owe $9800 more from 2013 tax bill. There is no form for this, it's just a 9 page stack of paper.
- The papers came from the IRS in Fresno CA
- Includes $1500 penalty for underpayment and $400 of interest. (The interest is calculated from Oct 1, 2011 for some reason @ 3%)
- I can either pay, or dispute it and send in supporting documentation; payment can be installments if I wish
- I can also request more time to respond (current deadline Aug 26), but will accrue interest if I am in the wrong

It all seems to arise from $25k of income that came from RSUs: IRS says this income was not declared. However I have a statement from etrade showing the $45k of 'income' and that $20k worth of shares were withheld at the same time.

What to do? At this point I'm thinking of hiring someone to redo my 2013 taxes and see what they come up with. What kind of tax pro should I hire?

:|
I'm a big fan of TurboTax, but you have to be very careful with non-standard situations. If you ran through the "interview" process you may have neglected to click on one of those boxes listed after a "Do any of these situations apply to you" questions. Without that cue, you would never see the questions related to RSUs. Then Turbo tax may not have generated a schedule or worksheet that was required. (I haven't dealt with RSUs but have gotten caught by not paying enough attention to detail with TT questions. :( )

Was 2013 the first year you had RSUs that you sold? You may need to review your tax returns for every year involving RSUs. I would definitely consider consulting a financial professional. When I turned my condo into a rental property, I hired a tax professional the 1st year and the year I sold, but did my own taxes the intermediate years since I could use that first year's schedule E as a guideline for what was "normal".
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

cherijoh wrote: I'm a big fan of TurboTax, but you have to be very careful with non-standard situations. If you ran through the "interview" process you may have neglected to click on one of those boxes listed after a "Do any of these situations apply to you" questions. Without that cue, you would never see the questions related to RSUs. Then Turbo tax may not have generated a schedule or worksheet that was required. (I haven't dealt with RSUs but have gotten caught by not paying enough attention to detail with TT questions. :( )

Was 2013 the first year you had RSUs that you sold? You may need to review your tax returns for every year involving RSUs. I would definitely consider consulting a financial professional. When I turned my condo into a rental property, I hired a tax professional the 1st year and the year I sold, but did my own taxes the intermediate years since I could use that first year's schedule E as a guideline for what was "normal".
Yes, 2013 was my first year. I went through my 2014 paperwork and it has the same problem - no RSU taxes shown on W2.

I'm taking all my records to a CPA today. Possibly I'll even get some money back from the IRS if it turns out that I had indeed paid enough taxes? (I mostly 'broke even' both of those years even with the unreported RSU tax.)
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

Went to the CPA:
- He was very rushed and didn't take any payment from me (30min talk) [Don't look a gift horse in the mouth - right?]
- Suggested to fill out a Schedule D with FMV and cost basis equal, and the net gain $0
- I brought up the issue of the missing RSU tax withholding in both my paystubs and W2 - he suggested to "contact HR." So I'm guessing my scenario isn't normal :|
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by spectec »

He's probably not interested on "one-shot" clients. I turn away almost all DIY'ers unless the issues are significant and the project is large. Just isn't worth the time & trouble to set up an administrative file and risk having to handle follow-ups when it's apparent that a profitable long-term relationship isn't in the cards. Can't charge enough to make it worthwhile, so sometimes it's best to offer a little free advice, dodge any potential liability, and everyone can move on.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by wfrobinette »

sunny_socal wrote:I was able to dig through the RSU plan details work:
- Turns out that while my employer lists the income on the W2, they do not show the tax withheld
- Etrade sends a 1099 showing the final amount of RSU proceeds when I sell, but also does not show the shares withheld for tax
- The tax withholding is only shown in an etrade "Confirmation" sheet following the sale.

Seems I must have missed a tax form or something :| (I'm a big time turbotax user, this is the first time something like this has happened)

My current and past employers list all RSU and NQSO income and taxes withheld.

found on TAXACT "Restricted Stock Units (RSUs) are a form of compensation that is generally taxed at the time of vesting, whereas employee stock options are usually taxed at the time of option exercise. The employer is required to withhold taxes as soon as the RSUs become vested."

Have you confirmed this is not an error on their part.
Hyperion
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Hyperion »

sunny_socal wrote:I was able to dig through the RSU plan details work:
- Turns out that while my employer lists the income on the W2, they do not show the tax withheld
- Etrade sends a 1099 showing the final amount of RSU proceeds when I sell, but also does not show the shares withheld for tax
- The tax withholding is only shown in an etrade "Confirmation" sheet following the sale.
Are you sure the amount withheld was not already added into Box 2 of your W2? The tax income and withhold amounts of RSU vesting are never included on 1099s, because the W2s are supposed to take care of that (see below). As far as 1099s are concerned, it makes no difference whether the shares you sold came from an RSU vesting or the broker.

Companies are required to withhold taxes when RSUs vest. Then they report by adding the income to the total income in Box 1 of your W2 and the withheld amount to Box 2 of your W2. If all goes well, you shouldn't have to do anything. It is however not obvious to see that the amounts are indeed included. The only way I figured out how to check was to look at the pay stubs the month before the vesting and after and check the increases in the year-to-date total on the income and withheld amounts. I did that for a couple of years until I trusted the company and haven't checked since.

Also, relax. The trade confirmation clearly showed that shares were withheld, so what you have is mostly a paperwork/reporting problem. You probably don't owe money, at least not much.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by cheesepep »

I have nothing to add but say I would be scared silly to receive any letter from the IRS, even if it is a refund.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Taylor Larimore »

cheesepep wrote:I have nothing to add but say I would be scared silly to receive any letter from the IRS, even if it is a refund.
cheesepep:

There is no need to be scared unless you cheated.

Best wishes.
Taylor
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by FireflyGlow »

I had something similar happen to me in 2012 for the 2010 tax year. Ex-spouse and I sold mutual funds and split the proceeds 50-50. The capital gains were reported by both of us, just inaccurately. I got a letter saying that I owed $5200 to the IRS, including taxes and penalties. I went to a CPA who handled the issue directly with the IRS. It turned out that I *did* owe an additional $1100. I paid the CPA $600 to take care of the problem (I did not have to do anything other than get the CPA a copy of the 2010 statement). Problem solved. Glad it only cost me $1700 to take care of as it could have been much worse.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by spectec »

cheesepep wrote:I have nothing to add but say I would be scared silly to receive any letter from the IRS, even if it is a refund.
You are not alone. There are lots of people out there who share your fears of the IRS. I sometimes think this is why the CP notices are often vague and omit important information for resolving these issues, or bury it deep in the boilerplate. They know a certain number of people are just going to send a check and hope it goes away.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers
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sunny_socal
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

I was able to get in touch with my payroll dept and sorted out the RSU taxes on my paystub and W2.

The facts:
- The full FMV of the RSUs is reported as 'income' on my W2. This is called out as a separate line item when they vest and is easy to see.
- The taxes were paid by a stock sale on the same day. There is no separate line item for the tax. However on the paystub following the RSU tax sale one can see the difference in the "YTD" federal withholding, so it is indeed included. (This was also pointed out by an earlier poster)
- Etrade does not separately report this sale nor is it separately listed on my W2. However they issue a 1099-B for the remaining shares indicating a small loss or gain for the time between the vest date and the sale date (in my case a few days, since it cannot happen on the same day due to administrative delays.)
- I did not file a schedule D. If I had, the IRS would have been satisfied. Now they have computed their own schedule D for me based on the income shown on the 1099-B from etrade yet used a cost basis of zero. To the IRS this means I owe tax on the remaining shares that were left over after the tax sale.

So I think I will end up ok after I send in more documentation. I know the taxes have already been paid indirectly. I must file a Schedule D and Form 8949.

Questions:
- Would it be better just to send in the new forms, or should I go ahead and submit an entire 1040X amended return? The amended return is given as an option in the paperwork I received.
- This same problem also exists for my 2014 tax return. The paperwork mentions that I should send in docs for any years that had problems. Again - would it be just Schedule D / 8949, or those plus a 1040X?
- Can I do this again or go through a CPA? My recent CPA experience above has somewhat turned me off that path - why spend half my day going to see someone if they're not going to add any value.
- If doing a 1040X amended return, is it possible to go back in time to 2013 and run the numbers through turbotax? At least the online version doesn't support doing a 1040X, it just gives a suggestion to download the form and fill it out manually.

Thanks,
JW-Retired
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by JW-Retired »

sunny_socal wrote:If doing a 1040X amended return, is it possible to go back in time to 2013 and run the numbers through turbotax? At least the online version doesn't support doing a 1040X, it just gives a suggestion to download the form and fill it out manually.
The downloaded programs will surely have 1040X. In my tax software (HR Block) 1040X can be done by interview like the rest of the forms.
IMO, this is one good reason why downloading is preferable to on-line. Another big one is the ability to easily investigate what-if questions.

You can buy old year versions of tax programs but then you might have some work populating it with your data. Or maybe it could read whatever you have saved from the on-line return? Don't know.
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ryman554
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by ryman554 »

sunny_socal wrote: So I think I will end up ok after I send in more documentation. I know the taxes have already been paid indirectly. I must file a Schedule D and Form 8949.

Questions:
- Would it be better just to send in the new forms, or should I go ahead and submit an entire 1040X amended return? The amended return is given as an option in the paperwork I received.
- This same problem also exists for my 2014 tax return. The paperwork mentions that I should send in docs for any years that had problems. Again - would it be just Schedule D / 8949, or those plus a 1040X?
- Can I do this again or go through a CPA? My recent CPA experience above has somewhat turned me off that path - why spend half my day going to see someone if they're not going to add any value.
- If doing a 1040X amended return, is it possible to go back in time to 2013 and run the numbers through turbotax? At least the online version doesn't support doing a 1040X, it just gives a suggestion to download the form and fill it out manually.

Thanks,
Yup. Lots of us have made that mistake.

Honestly, I would get back in touch with the IRS and tell them that you did not file the appropriate Schedule D for your return. Ask them what they want you to do.

As for the rest, I would file an amended return ASAP. This includes all state returns, including the year that the IRS is asking for more $$s. The good news out of all of this is that you likely get some small refund instead of owing anything more, assuming you sold RSU immediately after vesting. You don't need a CPA for this.

The time it takes to to 1040x is very small -- you really don't need TT as most of the numbers are already calculated for you, and thus unchanged. Use a calculator or excel for the page 2 stuff.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by katielvw »

Now that you have a solution, I would read through the response instructions on the IRS notice and then mail them exactly what they request (it sounds like that is a completed Sch D and 8949) as well as a copy of the 1099B that shows the basis from your Broker. Include a brief cover letter stating that you are including the requested items, and make sure to include a copy of the IRS notice with all of this. Keep a copy of everything you send them. They will then process the information you have given them and reply to you via letter that the issue is resolved and if there is any difference in tax.
spectec
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by spectec »

You should not file a 1040X.
I'm pretty sure the instructions on the CP notice tell you not to do that.
The reply by katielvw is right on target.

You should simply fill out the Schedule D & 8949 and send to them with the response section of the CP notice. If they need more info they will let you know. Filing a 1040X in response to a CP notice can actually CAUSE additional problems as the system doubles up on the processing. Sometimes people erroneously do this and sometimes an alert person at IRS catches it, but it can create delay and possibly additional incorrect bills & notices.

You may need to amend your state return, but you should wait until after IRS has acknowledged that the matter is closed with them.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers
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sunny_socal
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

My head is spinning and it's about to burst! :shock:

I must fill out a Schedule D. But before I do that, I must fill out a form 8949 - the something is supposed to be transferred to Schedule D. The 2013 Form 8949 is no longer available on the IRS website. Also doesn't appear anywhere else online. Is it ok to use the 2014 version?

Filling out 8949 seems like a PITA.
1) This website talks about filing taxes for RSUs, but only talks about Schedule D and doesn't mention 8949:
http://thefinancebuff.com/rsu-sell-to-c ... ucted.html
He talks about entering the RSU sales in two stages: 1) When company sold shares to cover tax 2) When I sold the rest. He also talks about receiving a 1099-B that should include the number of shares sold to cover taxes, but my 1099-B only shows the shares I received after the tax sale:
http://thefinancebuff.com/restricted-st ... s-and.html

2) This website talks about Form 8949, but it appears to be a single event and doesn't distinguish between the employer initiated sale and my later sale:
http://people.opposingviews.com/report- ... -8228.html

3) The (highly recommended) CPA I talked to didn't even mention Form 8949. And he only suggested to fill out the FMV of the gross number of shares I received and state that same FMV as the cost basis

I really don't have time for this, it's going to give me hives :oops:
tomd37
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by tomd37 »

Sunny - Prior year tax forms are available at the IRS website. Go to it and search on prior year tax forms. :oops:
Tom D.
FactualFran
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by FactualFran »

sunny_socal wrote:I must fill out a Schedule D. But before I do that, I must fill out a form 8949 - the something is supposed to be transferred to Schedule D. The 2013 Form 8949 is no longer available on the IRS website. Also doesn't appear anywhere else online. Is it ok to use the 2014 version?
The 2013 For 8949 is on the IRS web page for prior year forms. A link to it is: http://www.irs.gov/pub/irs-prior/f8949--2013.pdf

thefinancebuff web page does not mention Form 8949 because the web page was written before that Form was introduced. At the time the web page was written, each sale was reported on Schedule D. Now each sale is reported on Form 8949 with totals carried over to Schedule D.

thefinancebuff web page mentions receiving a Form 1099-B for the sale of shares to pay withholding as occurring when those shares were sold though a broker. Another option is "net issuance"; if you company did that, there would be no Form 1099-B for the sale of shares to pay withholding and no corresponding entries on Schedule D and Form 8949 for the year you bought the shares.
Last edited by FactualFran on Wed Aug 05, 2015 5:36 pm, edited 1 time in total.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by jebmke »

Stay hydrated; don't sweat the small stuff
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

Thanks! :beer
katielvw
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by katielvw »

So, on the 8949, you will need to report the detail from the 1099B, make sure to include the cost basis that the IRS did not include. This simple step alone will drastically reduce the panic inducing amount that the IRS notice said you owe :happy . You will need to make sure you report the "type" of transaction correctly, whether it is short term or long term holding period, and covered or non-covered (was it reported to the IRS by etrade or not). All of that information should be given to you on the 1099B from E trade for the one sale, and then you will need to find the amounts for the other sale that you mentioned didn't get reported by E-trade (for this sale, you will need to check the box that the sale was not reported on a 1099).
Follow through the steps for the 8949, and you may have 2 or 3 separate 8949 forms when all is said and done. Then transfer the totals to the corresponding lines on the Sch D to summarize the information. This is what you will need to send as a reply to the IRS.

Like spectec said, you will need to amend your state return for 2013, and since you had RSU's in 2014, you can go ahead and proactively amend your 2014 return for the same reason. Turbo tax should be able to walk you through filing the amendment.

Good Luck!
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Steelersfan »

tainted-meat wrote:Something similar happened to me a couple years ago although the amounts were much smaller :D

I called the IRS agent listed and went over the forms. It took 15 minutes and I didn't owe anything. The agent was actually very helpful.
I was a few more years ago for me but I had exactly the same experience.

15 minute call, helpful agent, nothing to pay.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sbh8 »

My husband's employer uses Etrade for RSUs as well and their documentation is very poor. Fidelity's is much easier to understand. We nearly had the same issue but caught it when we calculated the taxes owed to be much higher than expected. There was 1 form that Etrade generated that showed the shares sold to pay the tax burden, though I don't recall which one it was.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by ne2ca28 »

Sorry to hear about all this. It seems like your company should include this information on your W2 for you. I'm assuming if you are receiving RSUs, you are a valued employee and they should not make things more difficult.

For me, we have had shares granted to us that are vested after two years and are automatically sold to pay for income taxes and then we are free to keep or sell the remaining shares. Our payroll department then creates a "dummy" paycheck that includes the total stock allocation $ and the amount sold for taxes. All of our sale related information is also available on the transfer agent's site. Due to the timing from vesting to sale of stock for tax purposes (stock is sold from one account and repurchased in another account) we may have some loss or gain. All but the loss or gain shows on our W2.
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

Thanks for all the replies so far :) I've been telling myself "this is just a paperwork snafu, it will be all right" but it's still disconcerting to have it hanging over my head.

Found massive thread on BH featuring etrade and turbotax so I don't feel so alone:
"RSU Cost Basis (Etrade and Turbo Tax) - Help!!"

I called another CPA today but they wouldn't help me unless I had their firm redo my entire 2013 and 2014 tax returns! $500 minimum charge. I have an appointment with a different CPA on Monday to discuss this.

Tonight I'm going to download the full desktop version of Turbotax 2013 so I can model the differences in my taxes with the proper 8949 & Schedule D (I was not able to fill it out manually - still confused about how many 8949s are needed, how to separate the employer stock sale vs my own etc.)
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by sunny_socal »

Turbotax wasn't much help yet - I'm presented with a 'wizard' even in the desktop version and the first thing it asks for is to import the 1099-B from the broker. Of course it can't find etrade :|

I'm back to researching the proper way to enter the data from etrade. A couple things I have learned:
- Etrade did not issue a 1099-B for the portion of the RSU sale that was done to cover taxes. It was automatic and done on the vesting day.
- My 1099-B only shows the remaining shares and 'my' sale on the day following vest
- If I enter only my 1099-B info, something is left out and things don't add up to the full FMV of the shares reported on W2

Here's a thread where even tax professionals are confused by this issue, LOL:
"1099 B Issues"
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Re: Hit with $10k tax bill from 2013, given 3 weeks to pay

Post by Boglegrappler »

Hyperion's post describes accurately what the situation should be.
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