Correct way to amend tax return as a result of not correctly reporting gains on sale of private stock based on Installment method?
"After much research, the answer is ""a"": recompute the tax return using the installment sales method because (1) the escrow payment was subject to ""substantial restrictions"" by virtue of the escrow being structured to pay buyer's indemnification claims and (2) the taxpayer did not correctly elect out of the installment method by reporting the entire gain including the escrow payments on the return in the year of the transaction."
"I've consulted with 5-6 accountants and people who've had the issue before. The advice I received boils down to: ""If you do not attach your 83b with your personal tax return it is not effective. However you can still correct the requirement to file it along with your tax return, because you are within the 3 year window of when the return was originally due."" So you can amend your return/file it late within a certain window and things should be OK. The accountants that have confirmed this are Vanessa Kruze, Wray Rives and Augie Rakow - all of them corporate and credible accountants. You also need to keep onto the confirmation the IRS sent you in case of an audit. There is nothing on IRS.gov about attaching your 83b on a filed late or amended return but those accountants are people who say they've seen it happen frequently, have consulted with the IRS for solutions and that's the one they'd advise one to do in such situation. disclaimer: I am not a CPA" Such activity is normally referred to as bartering income. From the IRS site - You must include in gross income in the year of receipt the fair market value of goods or services received from bartering. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business (Sole Proprietorship). If you failed to report this income, correct your return by filing a Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Refer to Topic 308 and Amended Returns for information on filing an amended return. "I don't know if it's common or necessary to include capital stock as a liability? Yes, if you look at the title of the nonasset part of the balance sheet it actually is titled ""Liabilities and Shareholders' Equity"".  Your capital stock is a component of Equity.  This sounds like it was reported in a reasonable manner. ""$2,582 listed under Loans from Shareholders (Line 19)."" Did you have a basis issue with your distributions?  That is did you take shareholder distributions more than your adjusted basis that you have been taxed on?  I have seen the practice of considering distributions in excess of basis as short term loans to prevent the additional taxation of the excess distribution. Be careful when you adjust this entry, your balance sheet had to roll from one year to the next.  You must have a reasonable transaction to substantiate the removal of the shareholder loan." You need to submit an updated return. The problem is that once three years have passed you can't update the return to get any kind of refund, but if they are going after you for the sale price of the stocks, not knowing the cost, your goal is to show them there was no gain, and in fact you'd have had the loss if you were aware of the account. This is less than ten years back, so the broker should be able to give you the statements pretty easily. "The IRS has been particularly vague about the ""substantially identical"" investment part of the wash rule.  Many brokers, Schwab for instance, say that only identical CUSIPs (exactly the same ETF) matter for the wash rule in their internal calculations, but warn that the IRS might consider two ETFs over the same index to be substantially identical.  In your case, the broker has chosen to call these a wash despite even having different underlying indices.  Talking to the broker is the first step as they will report it to the IRS.  Though technically you have the final say in your taxes about the cost basis,  discussing this with the IRS could be rather painful. First though it is probably worth checking with your broker about exactly what happened.  There are other wash sale triggers that frequently trip people up that may have been in play here." "There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are ""ready made"" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a ""frequent trader"" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales." "You should contact the company and the broker about the ownership. Do you remember ever selling your position? When you look back at your tax returns/1099-B forms - can you identify the sale? It should have been reported to you, and you should have reported it to the IRS. If not - then you're probably still the owner. As to K-1 - the income reported doesn't have to be distributed to you. Partnership is a pass-through entity, and cannot ""accumulate"" earnings for tax purposes, everything is deemed distributed. If, however, it is not actually distributed - you're still taxed on the income, but it is added to your basis in the partnership and you get the tax ""back"" when you sell your position. However, you pay income tax on the income based on the kind of the income, and on the sale - at capital gains rates. So the amounts added to your position will reduce your capital gains tax, but may be taxed at ordinary rates. Get a professional advice on the issue and what to do next, talk to a EA/CPA licensed in New York." You definitely should NOT do what you are doing now (#2) since this is not a reflection of what actually is going on.  (Unless you actually did transfer the equities themselves and not the cash.)    Your first option is correct solution. As noted by mpenrow you need to make sure that the target account is also tax deferred.  If that still doesn't work and there is a bug you should still do it this way anyway. If it messes up your tax planner just make sure to include a comment so that everyone knows what is really going on. When I have had issues like this in the past I always try to stick to whatever is the closest indication of what actually occurred. "If the IRS changes your return in any way (including math errors) - they send a letter explaining the change and the reasons for it. You should read that letter, it will answer your question (Usually its a CP12 notice). If you didn't receive it - you can call them and ask to resend it (they're unlikely to answer over the phone, but you can try asking). I'm confused by your using the word ""estimate"". Your tax return is not supposed to be estimate, it supposed to be precise. Why are you considering your tax return ""estimate""? If your filed tax return shows refund of $X and you received $X+$180 - then as I said, a letter of explanation from the IRS is due. If you don't know what the refund amount on your return is and you're trying to ""estimate"" it now - you better get a copy of that return." "What could the tax issues with the IRS be? I thought (but not totally certain) that the tax treatment of an ISO option was based on difference between exercise price and FMV at the time of the sale.  This is an accounting issue. There were times not so long ago that companies actually did these things on purpose, to boost the stock grant values for their employees (especially senior employees). They would give a grant but date it with an earlier date with a more favorable valuation. This is called ""backdating"", and it brought companies down and CEOs into criminal courts. In addition, only reasonable compensation is allowed as a deduction for the company, and incorrectly set strike price may be deemed unreasonable. Thus, the deduction the company would take for your compensation can be denied, leading to loss of tax benefit (this was also a weapon used by the IRS at the time against companies doing backdating). Last but not least, company that has intentions of going public cannot allow itself such a blatant disregard of the accounting rules. Even if the mistake was not made on purpose (as it sounds), it is a mistake that has to be corrected. What should I take into consideration to determine whether a 27% increase in shares is a fair exchange for an increase in 270% increase in strike price. Did you know the strike price when you signed the contract? Was it a consideration for you? For most people, the strike price is determined at the board approval, since the valuations are not public and are not disclosed before you actually join, which is already after you've agreed to the terms. So basically, you agreed to get 100 sheets of toilet paper, and instead getting 127 sheets. So you're getting 27 sheets more than you initially agreed to. Why are you complaining? In other words, options are essentially random numbers which are quite useless. By the time you get to exercise them, they'll be diluted through a bunch of additional financing rounds, and their value will be determined for real only after the IPO, or at least when your company's stocks are trading OTC with some reasonable volume. Until then - it's just a number with not much of a meaning. The FMV does matter for early exercise and 83(b) election, if that is an option, but even then - I doubt you can actually negotiate anything." Sale of a stock creates a capital gain. It can be offset with losses, up to $3000 more than the gains. It can be deferred when held within a retirement account.  When you gift appreciated stock, the basis follows. So when I gifted my daughter's trust shares, there was still tax due upon sale. The kiddy tax helped reduce but not eliminate it. And there was no quotes around ownership. The money is gone, her account is for college.  No 1031 exchange exists for stock. I'm assuming your talking USA. There are two ways to look. If you know you should pay on the cap gains, the best way to handle that separately from your salary is to file a quarterly tax payment.  That, I understand, is what the self-employed have to do. I'm in the situation where at some point, probably this year, the company that employs me will be bought out, and I will owe capital gains taxes on my shares gobbled up in the buy-out.  It's a cash-for-stock transaction.  So, in my case, I've just adjusted my W-4 to take advantage of the safe-harbor provision related to taxes I payed in 2016 and my salary.  The details vary depending on your situation, but in my case, I've calculated what it will take in W-4 allowances to make sure I pay 110% of my 2016 tax payment (after refund).  I'm not worrying about what the actual taxes on those shares of company stock will be, because I've met the rules for safe-harbor. Safe harbor just means that they can't penalize you for under-withholding or underpayment.  It doesn't mean I won't have to write a check on april 15. Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock.  The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is. For every document that the IRS posts, there will be a correlating instructions page. This would be the instructions for the 1099-B, here. Furthermore, as you will be reporting this on Form 8949, as a substitute for previously used Schedule D; instructions are here.This article explains that the best course of action is to donate the shares as the cost basis would switch to FMV (fair market value) of the assets today. But as this did not happen, I would recommend contacting the purchasing company directly. Being a share holder, and by purchasing the shares from the source, the accounting department should still have recorded the date of purchase along with the price sold. It may take effort to prove who you are, but if their accounting records are well documented, this will not be an issue.  If nothing else, claim a 100% capital gain on the entirety of the sale, and pay the tax. That is stated here. Oanda.com trades spot forex and something they call box options, it's not quite what you are looking for, but maybe worth looking up.