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Is Turbo Tax at fault for not mentioning $213,000 income in my stock account?

IRS going to charge me 20% penalty tax on $213,000 of income from my stocks that was not reported by Turbo Tax.  Is Turbo tax at fault?

1 Reply
Opus 17
Level 15

Is Turbo Tax at fault for not mentioning $213,000 income in my stock account?

No.  Turbotax is software to help you prepare your own tax return, it is not a paid preparer who takes responsibility for and signs your tax return for you.  If you want that level of service, you need to see a professional.

Turbotax can, in some cases, download a 1099-B statement from your broker into the program.  But you are responsible for making sure you do that, and for making sure the information is accurate.  And you are responsible for making sure all broker statements are included, whether downloaded or entered manually. 

If you believe you did include the sale in the program and the program made an error by leaving it out, you are still always responsible for your own correct tax, but the accuracy guarantee will cover the penalty.  I will include a link to the accuracy guarantee at the bottom of this post.  (But honestly, if you left the income off, that's your responsibility.)

Now, if you sold $213K of securities, chances are that the IRS is assuming that the entire amount is a taxable capital gain, when in fact your capital gain is the difference between the selling price and the purchase price and may be much less than the actual proceeds.  You don't need to pay the amount the IRS assesses if you can prove they are incorrect.

Start by preparing an amended tax return that adds this extra securities sale to your other tax information.  Make sure to include information on the purchase of the stocks (date, price) so your actual gain is calculated correctly.  If it is less than what the IRS assessed, send the amended return, a check for the correct amount, and a letter of explanation, to the office that sent the assessment (not the usual amending address).  Be sure to respect any dates or deadlines in the IRS notice.  And don't include any late payments penalties or interest.  Turbotax can, at best, only make an estimate, and it is almost always off by a few dollars so you get a second bill anyway.  Wait for the IRS to bill you for any late payment penalties and interest.  Then you can request a waiver of the penalty if this is the first time you have had to pay one.  (The interest can't be waived, unfortunately.)



*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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