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Reporting large private transaction to IRS?

Posted: Mon Feb 11, 2019 12:07 pm
by deanmoriarty
Hi,

In 2018, I sold some shares of a private illiquid company to a third party, for low 7 figures. The transaction was regulated by a proper contract written by lawyers, which clearly states which ones of my lots were sold, what was their cost basis, and what was the sale price.

The IRS doesn't know anything about this transaction, they only know my cost basis (since I acquired those via ISO exercise, I had to report it for AMT purposes on my tax returns a few years ago).

In TurboTax, I just followed the proper interview, and it seems to generate the right documentation (Schedule D, Capital Gain Worksheet, NIIT tax, form 8949 - Sales and Other dispositions of Capital assets, ...).

My question is: since the sale was not reported to the IRS by any brokerage firm (so there's no 1099-B essentially), should I send additional documentation to the IRS, such as a copy of the sales contract along with my return? Would that minimize the chances of me getting audited?

Thanks

Re: Reporting large private transaction to IRS?

Posted: Mon Feb 11, 2019 12:10 pm
by AlohaJoe
You should follow the clearly laid out IRS instructions on what they want you to send them with your taxes. Don't send them things they didn't ask for.

Re: Reporting large private transaction to IRS?

Posted: Mon Feb 11, 2019 12:13 pm
by Grt2bOutdoors
deanmoriarty wrote:
Mon Feb 11, 2019 12:07 pm
Hi,

In 2018, I sold some shares of a private illiquid company to a third party, for low 7 figures. The transaction was regulated by a proper contract written by lawyers, which clearly states which ones of my lots were sold, what was their cost basis, and what was the sale price.

The IRS doesn't know anything about this transaction, they only know my cost basis (since I acquired those via ISO exercise, I had to report it for AMT purposes on my tax returns a few years ago).

In TurboTax, I just followed the proper interview, and it seems to generate the right documentation (Schedule D, Capital Gain Worksheet, NIIT tax, form 8949 - Sales and Other dispositions of Capital assets, ...).

My question is: since the sale was not reported to the IRS by any brokerage firm (so there's no 1099-B essentially), should I send additional documentation to the IRS, such as a copy of the sales contract along with my return? Would that minimize the chances of me getting audited?

Thanks
How do you know it wasn't reported? Just because you did not receive a 1099-B, does not mean the seller did not send the IRS documentation. Report the sale as required. If the IRS wants additional information, believe me you will know about it. As far as an audit, there are many things that trigger an audit, things like the figures reported on a tax return, it doesn't matter if its right, they can still audit you. If you want to maximize your chances, send them more than they require, give them a lot of worms to look at. :twisted:

Re: Reporting large private transaction to IRS?

Posted: Mon Feb 11, 2019 12:15 pm
by deanmoriarty
Grt2bOutdoors wrote:
Mon Feb 11, 2019 12:13 pm

How do you know it wasn't reported? Just because you did not receive a 1099-B, does not mean the seller did not send the IRS documentation.
I am the seller, and I know I didn't report anything to the IRS (I asked the lawyers who handled the contract if I should have done anything, they said it was not required).

Thanks

Re: Reporting large private transaction to IRS?

Posted: Mon Feb 11, 2019 12:16 pm
by cherijoh
deanmoriarty wrote:
Mon Feb 11, 2019 12:07 pm
Hi,

In 2018, I sold some shares of a private illiquid company to a third party, for low 7 figures. The transaction was regulated by a proper contract written by lawyers, which clearly states which ones of my lots were sold, what was their cost basis, and what was the sale price.

The IRS doesn't know anything about this transaction, they only know my cost basis (since I acquired those via ISO exercise, I had to report it for AMT purposes on my tax returns a few years ago).

In TurboTax, I just followed the proper interview, and it seems to generate the right documentation (Schedule D, Capital Gain Worksheet, NIIT tax, form 8949 - Sales and Other dispositions of Capital assets, ...).

My question is: since the sale was not reported to the IRS by any brokerage firm (so there's no 1099-B essentially), should I send additional documentation to the IRS, such as a copy of the sales contract along with my return? Would that minimize the chances of me getting audited?

Thanks
I would include a brief explanation of why there is no matching 1099B, but not send in additional paperwork until requested. For example "No 1099-B generated: Sale of interest in private holding under contract agreement".

Re: Reporting large private transaction to IRS?

Posted: Mon Feb 11, 2019 12:20 pm
by Grt2bOutdoors
deanmoriarty wrote:
Mon Feb 11, 2019 12:15 pm
Grt2bOutdoors wrote:
Mon Feb 11, 2019 12:13 pm

How do you know it wasn't reported? Just because you did not receive a 1099-B, does not mean the seller did not send the IRS documentation.
I am the seller, and I know I didn't report anything to the IRS (I asked the lawyers who handled the contract if I should have done anything, they said it was not required).

Thanks
Then just report the sale and call it a day. If the IRS needs additional information, they will let you know.