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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Wash sale mistake Date: 7/13/2011 9:45 AM
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I made a mistake on my taxes and didn't apply the wash rule to one of my trades. Applying the wash sale rule prevented me from declaring a loss on a trade. The IRS wasn't happy and sent me a letter telling me of the error. I refiled with a corrected schedule D and ended up paying some additional tax and penalty. At that point, I thought I was done with it. A couple of months later I get a letter from the IRS demanding more money because I didn't make a quarterly payment of estimated taxes. The deal is that at the time, I was under the impression no tax was due because of the loss on the trade. Applying the wash rule changed that well after the fact.

My question is do I have a chance in hell challenging the additional penalty ($500 +/-) for not filing the quarterly estimated tax since it was the result of an honest mistake, or is it a lost cause?
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113667 of 121061
Subject: Re: Wash sale mistake Date: 7/13/2011 9:53 AM
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My question is do I have a chance in hell challenging the additional penalty ($500 +/-) for not filing the quarterly estimated tax since it was the result of an honest mistake, or is it a lost cause?

It only costs 44 cents to appeal to their cuddly side, so why not go for it? In my day there was only one very narrow "reasonable cause" exception to that penalty since it's really just the time value of the money that should have been in Uncle Sugar's pocket but stayed in yours. However I'm given to undertand that they've become more lenient now that I'm not there to watch.

You also might want to look at the annualized income method for computing the penalty if the transaction that caused the problem was after March 31 of the year in question. The bill you got is based on equal income throughout the year. If the transaction didn't occur until after September 30, you could possibly get rid of most of the penalty. Details are in Pub 505 and Form 2210.

Phil
Rule Your Retirement Home Fool

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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113668 of 121061
Subject: Re: Wash sale mistake Date: 7/13/2011 4:37 PM
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Unfortunately, the transaction was in early Q3 (July).

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113669 of 121061
Subject: Re: Wash sale mistake Date: 7/13/2011 5:55 PM
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Unfortunately, the transaction was in early Q3 (July).

Using form 2210 still might reduce the penalty.

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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113698 of 121061
Subject: Re: Wash sale mistake Date: 7/15/2011 4:26 PM
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Hah! You're right. It looks like I might be exempted per form 2210 because I didn't have a tax liability in the previous year. Looks like a trip to the IRS office with form in hand will clear this up. Thanks!

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113699 of 121061
Subject: Re: Wash sale mistake Date: 7/15/2011 4:41 PM
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It looks like I might be exempted per form 2210 because I didn't have a tax liability in the previous year.

That's weird. You don't even have to file the 2210 if you're exempt because of prior year liability. Maybe there's no automatic systemic checking when they're assessing a deficiency.

You probably don't even have to go in person. Try giving the number on the notice a call. They should be able to quickly verify and clear it up over the phone.

Phil
Rule Your Retirement Home Fool

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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113749 of 121061
Subject: Re: Wash sale mistake Date: 7/18/2011 11:30 AM
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This is getting complicated. It seems I wasn't supposed to enter an estimated tax penalty on line 76 of the 1040. They are saying I penalized myself and that it can't be removed. So now I'm paying penalties for buggering the schedule-D and I'm also having to pay a penalty for erroneously entering a figure on line 76 for estimated penalty. I was told I can't correct the return to remove the entry and that I am now stuck essentially paying twice the original penalty. Is there any recourse on this?

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113750 of 121061
Subject: Re: Wash sale mistake Date: 7/18/2011 11:38 AM
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It seems I wasn't supposed to enter an estimated tax penalty on line 76 of the 1040. They are saying I penalized myself and that it can't be removed.

The line you're seeking is "Everyone has a supervisor, and I want to talk to yours. Now." What you were told is utter BS. What the speaker was saying is, "Beats me how you straighten this out, and I'm not going to bother finding out."

Phil
Rule Your Retirement Home Fool

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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113756 of 121061
Subject: Re: Wash sale mistake Date: 7/18/2011 1:14 PM
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The info I got was from talking to an agent on the phone. He told me that by law they can't remove a bad entry from line 76 and your stuck with it. I guess I'll go to the IRS office tomorrow morning.

Just out of curiosity, what's the procedure for challenging the penalties altogether? This whole issue is the result of a stupid error on a spreadsheet.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113757 of 121061
Subject: Re: Wash sale mistake Date: 7/18/2011 2:45 PM
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The info I got was from talking to an agent on the phone. He told me that by law they can't remove a bad entry from line 76 and your stuck with it.

Like I said, he was just blowing smoke because he doesn't know how you go about fixing your error, and he's too lazy to find out. Were I his supervisor I would have appreciated being told about this. If you call again you'll get someone else who may know the answer or be willing to find out. If you do go into the office, take copies of everything with you and make sure it's on office that provides walk-in service before you go.

BTW, I'd tell you exactly what to do if I knew, but what would have worked 20 years ago might not work today.

Phil
Rule Your Retirement Home Fool

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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113851 of 121061
Subject: Re: Wash sale mistake Date: 8/8/2011 9:41 AM
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Just a quick follow up: I went to the IRS service center and after a 4 hour wait, I was able to talk to an agent. She told me the same thing that it's not possible by law to remove a bad entry on line 76. Bummer. But she did waive the other penalties which offset the amount on line 76 which was a nice thing to do so I consider that a win for everyone.

Lesson learned - don't fill in line 76 unless you're damn sure that's what you want to do.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113855 of 121061
Subject: Re: Wash sale mistake Date: 8/8/2011 6:57 PM
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She told me the same thing that it's not possible by law to remove a bad entry on line 76.

You may be sick to death of this, but I'd love to see the Internal Revenue Code citation for that claim. You cannot change an application of this year's overpayment to next year's estimated tax, which is in the neighborhood (line 75 of the 2010 1040), but I never heard anyone claim that you cannot abate an erroneously assessed penalty, even one shown on the return. I must admit, though, that I never ran into your exact situation. I got plenty of them changed in response to an IRS calculation and billing.

Phil
Rule Your Retirement Home Fool

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Author: dogpuke Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113856 of 121061
Subject: Re: Wash sale mistake Date: 8/9/2011 1:24 PM
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Nobody I talked to cited the relevant code. It does seem incredible that a mistake can't be corrected when everyone agrees it's a mistake.

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