Hello fmgregor1,
The difference in Covered versus Non-covered securities, is weather or not the brokerage firm (e.g. Vanguard, TD Ameritrade, Charles Schwab Etc.) has reported your costs basis in these securities to the IRS. Covered Securities means the IRS received basis information from the brokerage firm, whereas Non-covered securities the IRS did not receive any basis information from you brokerage firm.
When you fail to report a capital gain transaction on your tax return (converting investment funds to cash) the IRS takes the information they were given from your brokerage firm and uses that to adjust your tax return. If you know what your basis in these "investment funds" was, I would recommend calling the phone number on the IRS letter you received and let them know what your correct basis is. I have had luck in the past having the IRS adjust the tax return with basis information given over the phone. Alternatively you could respond to the letter explaining how you failed to report the sale of investments on your originally filed tax return for 2016 and showing your documentation for what your basis in these investments was.
Once the IRS has the correct basis information they will adjust your 2016 tax return to reflect the correct gain/loss.
I hope this answers your Question.
Thanks & good luck,
Jack
