IRS advice on mutualfunds

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IRS advice on mutualfunds

Postby Madison Jeff on Sun Aug 05, 2007 11:43 am

I got a lovely little letter from the IRS, basically stating that an income of $12,700+ in securities was "corrected" on a past return.

I am certain they are talking about a mutualfund I cashed out when my department and position was eliminated as a part of CUNA Mutual's downsizing.

The thing that is weird, is the money I added each month was after tax, and each year I received an earnings statement which I included in my tax returns...meaning I was paying taxes on the earnings every year.

And the fund was definitely not so large that I suddenly earned $12.7K in interest.

So is there some IRS rule I am unaware of that causes a huge penalty...note this fund was never an IRA. It never was reported as one, it wasn't set up to be one. It basically was a savings account I kept for any catestrophic event where I needed some cash.

So unless there is a penalty or something else I am unaware of, I am thinking that CUNA Mutual must have downsized other people who knew what was up and hired someone who misreported the cashout...and did so without copying me.

The problem was CMG had electronic pay stubs, and I never printed them out. So I haven't a record of where the money withdrawn was coming from. I guess step one is to contact CMG and ask for a sample paycheck stub showing the withdrawl to Member Mutual Funds was post-tax, not pre-tax??

Anyone know tax rules?

Anyone have advice on how to deal with this (supposedly I have until the 29th of the month to pay $3500+ in taxes they feel I owe)? Do I get a paycheck stub, my tax returns, and then go to the IRS office over by west towne mall to straighten it out (by the Zor Shrine)?

Any advice or knowledge about mutual funds woudl be most appreciated.

Thanks!! Jeff
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Postby SilverSurfer on Sun Aug 05, 2007 11:51 am

I'll forward this on to a few people for ya see if i can get some feedback on situation :)
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Postby Ereefic on Sun Aug 05, 2007 11:52 am

Wow, sounds like a big mess. Good luck with that. I hate the IRS, they're a bunch of crooks! :cussing:
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thanks Marty!

Postby Madison Jeff on Sun Aug 05, 2007 12:08 pm

This little letter sux!!
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Postby OceanNwisconsin on Sun Aug 05, 2007 8:38 pm

this isn't a 401k account is it?

also you should be able to contact CMG and retrieve any or all your electronic paystubs and then print them out and show the IRS.
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nope, not an IRA or 401k

Postby Madison Jeff on Mon Aug 06, 2007 7:13 am

It was a mutual fund I set up because i spend as fast as I earn it. To have a fund for anything unexpected, I decided to have money pulled from my checking account each month.

Each year the funds would send a statement of longterm or shortterm earnings/losses which I included in my tax returns. Because the principle of these funds was after tax, I never included those....similar to a savings account in just reporting the interest earned.

But then I get this letter saying they wannt to tax the principle at around 25%.

I don't think this is correct, but maybe whhen the financial rep suggested the mutual fund, he failed to disclose that mmutual funds get principle taxed as well, even if it is after tax money funding it annd it is neither a 401k or IRA.

Frankly, I am blindsided....didn't see this coming. I hope I am correct in my understanding, cuz I don't have $3,500+ that I can pay within the month.

Crazy!
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Postby OceanNwisconsin on Mon Aug 06, 2007 11:41 am

that is crazy!! your principle shouldnt be taxed, intrest yes.

either way you need to go to an accountant he will help you straighten this out!! dont just bow down to the man and pay him the 4 grand!


good luck!
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Postby meisen on Mon Aug 06, 2007 2:12 pm

Yeah that sounds fishy to me. I cashed out a 401 K that I had from my last job b/c we had planned to buy a house....that fell through when my wife left her job and so the IRS stepped in and taxed the crap out of it. But that was a different situation b/c 401 K contributions are pre tax and designed to be left untouched until retirement. In hindsight, either way I would have been better off leaving it in there as our emergency fund/retirement bonus cus now Bush has almost half of it to send off to Haliburton! Dangit. Sorry, did that come across as bitter?

Plus because I also cashed out my earned/vacation time upon leaving my last job (they paid out almost half a year's salary in one check!), I wound up with a double-whammy of a tax bill that year.

Is it worth it to go and have a tax attorney take a look at it so you dont misstep and wind up penalized or worse? CUNA should be able to recreate any pay stubs they provided you through their payroll company anyway so you can perhaps retrace what happened. I had my old company do that once or twice and it wasnt an issue.
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Postby Slrademacher on Mon Aug 06, 2007 4:14 pm

I'm not a tax expert, but - a mutual fund is different from a savings account in that you are essentially buying stocks and bonds so that when you liquidate the account you are then selling stocks and bonds. Depending on how long you held them you may be liable for taxes on the capital gains on those securities, which is different from the taxes you paid on dividend income you earned while you held the mutual funds. The capital gains tax should only be on the actual gain amount (sold price-purchased price) so only a portion of the total procedes would be taxable unless you had a really high growth mutual fund.
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Thanks all...I called the IRS and have good/bad news

Postby Madison Jeff on Tue Aug 07, 2007 4:24 am

Good news....I won't owe $3500 w/i three weeks.

Bad news.....(1) I have to find/get a year end statement for the funds, (2) fill out a schedule d which includes an "average unit price" which I guess estimates the capital gains, and (3) send the schedule in so the IRS can figure out what I do owe and tax me w/ interest.

I guess the good news is I learned something. The annual statements gave me the dividend earnings from the assets in the funds...and also the difference between bought/sold. When I was reading how to fill out a schedule d, it wasn't clear that what I thought told me the taxable amount was only part of the story.

I am guessing it'll "only" be a couple hundred I will owe. That is way better than $3500, but it still is an unexpected expense I need to cover quickly.

So I am relieved. Thanks for the advise & help on this non-reef question (well indirectly, this cuts into my reef building revenue for awhile...smile).
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Postby Falcon57 on Tue Aug 07, 2007 5:07 pm

I'm glad that a load was lifted off your shoulders. I imagine that when the paperwork is sent in and processed, that you will be able to pay a much lower tax and in a more manageable timetable.

8)
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yeah, way less if I have the forms filled out right

Postby Madison Jeff on Wed Aug 08, 2007 3:23 pm

One fund lost a bit, another fund gained. So the capital appreciation was not big at all....the only real earnings were dividends which were already taxed. So it will be far less than the $3500+ bill they gave me a heart attack with. I think I will bring the statement and what I have written to the IRS office, andn ask them if I have filled it out correctly or not...the worksheets used are way too complicated....

....but so far I am keeping my fingers crossed, annd feelign much better than I did Friday evening.
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Postby Carinya on Fri Aug 10, 2007 1:34 pm

this stuff is so hard to understand. at least for me. if you'd like a recommendation for an accountant, PM me. I love the one I use for my business. He's at Meicher & Assoc. in Middleton.
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