On getting a letter from the IRS

A letter arrived in the mail yesterday from the Internal Revenue Service: Proposed changes to our 2012 tax return. Alarming, to say the least. Their proposal is tens of thousands of dollars, and not in our favor.

It took me some time to track down the source of the discrepancy. It seems I left some line items off a form, and their gross proceeds are quite significant.

However, I left them off for a reason: the actual income was reported elsewhere, on my W-2. On Form 1099-B, their cost basis was equal to their gross proceeds (actually slightly less). Somehow the IRS failed to notice this when they proposed the changes, adding the gross proceeds to our income.

Due to a separate oversight, our total income was actually higher than reported . . . by a little less than seven dollars. Minus the changes described above, which are in our favor, the total difference is about five dollars, suggesting that we owe somewhere around $2. Plus interest.

I expect the real costs are going to be in the time and effort to get this resolved. Next time I sell stock options, I'll get the reporting right the first time.