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Erroneous $100,000 tax lien from 1999. How can I clear this??

Santa Ana, CA |

In 1999, I did some daytrading with $30,000. I did not earn any money. I did not file income tax for that year.

In 2000, I left for another country and only recently returned to California.
I have found out that the securities company filed a 1099 stating that I earned $300,000, thus incurring tax in error of over $100,000 which is the amount of the lien against me.

This daytrading company has closed down. I have no way to get records from that time. I was told that they recorded my transactions on a non-cost basis, i.e. they did not balance my buy orders with my sell orders, thus the inflated income.

What can I do to resolve this unfortunate, ridiculous situation??? Any at all advice would be appreciated. I live in Orange County and am willing to pay for attorney services ASAP.

Attorney Answers 5

Posted

You need to seek representation that can either 1) amend your return or 2) file our return using form 6781 and schedule D if applicable. I am not sure that you were trading in, but this is possible if you were trading in Section 1256 contracts. I have done this and can help you resolve this matter favorably if you were trading in a Section 1256 contract.
A section 1256 contract is any:
• Regulated futures contract,
• Foreign currency contract,
• Nonequity option,
• Dealer equity option, or
• Dealer securities futures contract.
For definitions of these terms and more details, see section IRS and Pub. 550.

This does not appear to be as situation that requires filing bankruptcy, until your return or amended return is audited which is not likely if it is prepared correctly.

Good luck!
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed in the United States Tax Court
www.culvercitytaxandbusinesslaw.com
www.corporateattorney.com
www.worlclasslawyers.com
Call: 323-292-4116 or 562-505-1004

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.

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Posted

This is just one reason why daytrading is tricky, as all the transactions show up on the 1099s with no cost basis info - this is why you need the records and to file a tax return to establish basis. If you truly cannot piece together records you are going to have a very difficult time filing an accurate tax return. You might consider seeking an attorney filing an offer in compromise based on "doubt as to liability" but you'd still need some reasonable basis to claim you don't owe any tax liability. There are a number of good tax attorneys in CALIF here so seek one out right away.

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/

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1 comment

Asker

Posted

Thanks for your advice, Steven. I admit I was irresponsible in the past. But I can't believe there is no way to clear up such a huge mistake. I feel like its an unjust jail term for me at this point.

Posted

I recommend you file the tax return for that year if you have not done so already. If you filed a tax return and the tax liability has not been assessed within the past four years it maybe discargeable in a Chapter 7 bankruptcy. If you are not sure you can always file a Chapter 13 bankurptcy listing the IRS as an unknown creditor and wait for them to file a proof of claim to see if they consider the debt priority or non-priority. If the debt is non-priority it can be discarged and you can convert the Chapter 13 to a Chapter 7 if you are otherwise eliegeible.

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Posted

Based your question, it appears that you did not file a tax return for 1999. The Form 1099 filed by the securities company was not necessarily incorrect. It reported your income; it was up to you to file a tax return and claim your losses and expenses. Since you did not file a tax return, you will be unable to discharge that liability if you file a chapter 7 bankruptcy and, in chapter 13, IRS would undoubtedly require that you pay the outstanding tax liability over the course of the chapter 13 plan. Otherwise, IRS will object to the confirmation of the chapter 13 plan. If you can locate your own records of your day-trading during 1999, you would be able to prepare and file a tax return. Then you would have to wait two years in order to discharge the liability in chapter 7. If you file an offer in compromise based on no liability, you would still have to prove that you don't owe the taxes. You should consult with a tax attorney who handles situations like yours.

Beary Law Offices PLC is not acting as your attorney in providing this response.

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Posted

You may be able to file a collection due process or equivalent hearing and expedite the process of determining the amount of the liability but I would need to see exactly what stage of the process you were at in order to better assist you. Call me directly for further discussion at 714-943-2336.

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