Earn approx 4% interest per year on my portfolio. I received an IRS notice saying I owe 149000 in Federal tax for the year. Instead of taxing my interest, the IRS breakdown in the letter shows that everything in my portfolio is being paid (380,000) to me, & that Inowe tax on the full amount, when in fact, all paid to me is 15,000 a year interest. Please advise. Thank you
You should take all your papers from the IRS and from the accident settlement to a CPA or to a tax attorney for review. The settlement from, the accident should set out what is and what is not taxable to you from that award. You don't say when you received the settlement, but it sounds as though that may be at least a part of the error/misunderstanding.
I would suggest you consult with an attorney who specializes in tax law. At the very least consult with a CPA, as this could be a misunderstanding on the part of the IRS. The IRS is usually very reasonable and fair, so if this is their error, they may very well withdraw the claim. If the claim is legitimate, then you may want to consider paying your taxes through a chapter 13 bankruptcy, but that is a subject for a different day. Good luck.
The payouts in your portfolio should not be taxed just because they were withdrawn from a portfolio if they were not taxable to begin with. Generally gross income does not include damages for personal injury, worker's compensation or other benefits received as a result of an injury (IRS Sections 104-106). Therefore, these amounts are likely not taxable now. The interest of course is taxable and shows up on a 1099-INT at year's end.
The company who you keep your portfolio with must have misreported this information to the IRS. You should check the "CP" Code at the top right of the Notice against the list in the link below to see how the IRS arrived at its conclusion that you owe this money.
You will need a tax lawyer to explain the error to the IRS, get documentation from the portfolio company, and prepare a detailed letter that documents the issue. The notice should have a response date and may even have a return envelope enclosed. You need to move quickly to preserve your rights.