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Exchange within fund family taxable event?

budlite
edited July 2011 in Off-Topic
Got a notice from the friendly folks at the IRS that I owe $18000+ in taxes, penalties and interest for 2009. I performed an exchange from Oakmark E&I to Qakmark Global and now the IRS wants me to pay tax on the entire amount transferred! The IRS says I since I did not provide a cost basis they are considering the entire amount as taxable. I filed electronically and downloaded tax info and unfortunately, the TurboTax file is now corrupted and won't open and as luck would have it I did not print or save an pdf file at the time (foolish I know). I am pretty sure that an exchange between funds is not taxable since the proceeds are not paid to me. Am I wrong? I requested a hardcopy of my 1099B and it clearly states "Exchange to Global I" under box 7. I figure this is adequate proof and plan to submit the 1099B and contest the taxes, etc. Anyone have experience with this?

Comments

  • InvestorInvestor
    edited July 2011
    Exhange between different share classes of the same fund is generally not considered taxable but when you exchange between different funds, it sure is (considered a sale and a new purchase) and your case is the latter.

    Find out your cost basis on OAKBX and you can reduce that $18000 bill but you will probably will pay penalties. I would consider hiring a tax attorney.
  • catch22catch22
    Additionally, not knowing what tax software program vendor you used; is a copy of your tax forms stored at that vendors web site? You noted that you E filed, and so the question.

    Regards,
    Catch
  • budlite
    TurboTax and nope, they don't keep a copy of the forms. I was able to order a transcript of the return from the IRS to assist me in creating and filing an amended return, but it will take 10 days to get to me. I have been gathering info on my cost basis, but its kind of complicated. The withdrawals I made from the funds all had a cost basis recorded on the hardcopy so I was able to accurately report the taxes (or loss) on the return. That is money in my pocket so it makes sense its income. I have dealt primarily in IRA & 401-k accounts where tax reporting is not an issue and I figured I did not have income from a exchange of mutual funds, so I deleted the entry. Bad mistake, I'm sure the IRS thinks I intentionally underreported income. Fact is, I might actually show a loss from the time I acquired the fund. That will probably really piss them off.
  • msf
    IRS: Need a Copy of Your Tax Return Information? They'll send you a transcript that "shows most of the line items from your tax return ... as it was originally filed, including any accompanying forms and schedules." Best part - it's free.

    If your state has income taxes, you'll likely need to file an amended return with them as well.
  • [Deleted User][Deleted User]
    Do I have this right?
    You do not have a hard copy of your return?
    Going green is fine for some things but important stuff like $$$.
  • budlite
    I ordered the free transcript, the actual copy of the return and attachements is $57 and takes weeks. Yup, I will have to file an amended state form as well. Double the fun!
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