Help! Terrified by My Taxes!

**forHISglory** · 03-21-2008, 11:32 PM

I am so scared this year about our income tax. Here's our situation and I'll consider all advice and appreciate all help and prayers.

We contributed monthly to a mutual fund thru an investment company (Company 1) for 25 years. Every year Company 1 sent us a statement about our capital gains, and every year we entered it on our 1040 and paid what ever needed to be paid.

In 2007, we decided to move the investment to another company. Company 2 sent the papers requesting the transfer to Company 1, and Company 1 sent a check directly to Company 2. Note that this was NOT an IRA, nor a 403b, nor a 401k. It was strictly an investment account. We figured that we would have more capital gains to pay this year, as usual.

WRONG!!! Our tax consultant said that we are going to owe income tax on the entire amount that we transferred to Company 2! What??? AND.... we get to pay more capital gains. We have never touched the dividends nor capital gains in all these years; we just let them go back into the principal amount.

Our consultant said that we had to have paperwork that proved our basis (our money that we invested). But we do not have this paperwork, or at least not much. Much of it had been destroyed. With no proof of basis, we have to pay income tax on the entire amount. Seems that it doesn't matter that we paid capital gains tax every year!

I called Company 1 to ask if they could give me the basis, and they said that they didn't keep records of our input, and that we should just estimate what we paid in. That makes me nervous!

I called the IRS 4 different times and talked to 4 different people, and basically each of them said that they didn't know the answer to our question. One said to just guess the amount, but that if I guessed wrong, then I was in trouble!

The amount we are going to owe is more than a year's salary for us. I am worried sick about this. I had no idea that just transferring money from one institution to another would lead to these circumstances.

Any advice?

**dianne9106** · 03-21-2008, 11:50 PM

Hmmmm, something sounds wrong with this picture. Did you put your money into the same type of fund when moving it from company 1 to company 2? Also, did you contribute this money after you paid taxes on it, you invested it after you got your paycheck? You need to go back to both companies and request the transaction paperwork trail. Let me give you an example of what I mean. Lets say one has a non-spouse beneficiary IRA with USB or someone like that, in order for someone not to pay taxes on this (yet), they can move it to another company that offers a bene-IRA. The only time the owner has to pay taxes on this is when they make a disbursement or withdrawal. I am not a professional on these matters, but I would definitely find out what went wrong. It sounds like company 1 failed to give you parting advice, in which case they were less than honest with you concerning the fine print

. Best Wishes!

**mombottoo** · 03-22-2008, 10:32 AM

((((hugs)))) That doesn't sound good at all!!! Apparently rollovers of this type aren't treated in the same way as other rollovers? Wouldn't your basis for this purpose be the amount you rolled over? Maybe you should ask your CPA that question.

If you have your tax papers from previous years wouldn't the info you need possibly be on your old tax forms?

I'm sorry I'm not much help here, it seems I've asked more questions than I have made statements.

**frugalfriend** · 03-22-2008, 11:06 AM

Wow, I wish I knew the answer and could be of help. I would get a second opinion from another tax consultant. I'm panicing about our taxes too! We sold a house and a business in 2007 and have no idea where we stand and since we moved, still have to find a new tax consultant!!

**brainyblonde** · 03-22-2008, 11:10 AM

Ugh! Twenty-five years of monthly investments into a taxable account generated lots of paper. I am, by no means, an expert, but this is what I've learned.

If you have a taxable mutual fund, you should be keeping each transaction confirmation (this is your cost basis info) you receive until you receive your annual statement. Once you compare your annual statement to the transaction confirmation to make sure the transaction history matches (and cost basis info is included), you can then shred the confirmation papers, but retain the annual reports for two tax years after you sell or close the fund. Transferring a taxable mutual fund account to another account is a taxable event according to the IRS. So, without the cost basis info, the entire transaction would be taxable.

The financial services industry is so heavily regulated. They are required to keep customer records for a long time (something like 7 years after the account is CLOSED). Before the computer age, the companies were putting this data on microfiche before storing the actual paper. I would go back to Company #1 and ask for copies of all of your transaction confirmations and/or annual statements. If you used a local broker or branch office, call them, too. (Industry regulations also apply at that level.) They may charge a fee, so be sure to ask about the cost.

You can find information on the methods of calculating the cost basis in this IRA publication - IRS Publication 564 - Mutual Fund Distributions.

Good luck to you!

**M55FF** · 03-22-2008, 11:15 AM

Originally Posted by forHISglory

I had no idea that just transferring money from one institution to another would lead to these circumstances.

usually moving money into the same type account in another company doesn't cost anything except maybe small transfer fees.

what did your broker do?
sell you?
put the money into?

I am in the middle of tranfering a 401K into my personal IRA... so this caught my eye.

**M55FF** · 03-22-2008, 11:17 AM

Originally Posted by M55FF

usually moving money into the same type account in another company doesn't cost anything except maybe small transfer fees.

what did your broker do?
sell you?
put the money into?

I am in the middle of tranfering a 401K into my personal IRA... so this caught my eye.

I am staying in the non taxable to non taxable realm.

Hisglory what exactly are you transfering? are you sure its
not an IRA you sold ?
that sale of an early IRA would cost you BIG bucks.

**M55FF** · 03-22-2008, 11:18 AM

Originally Posted by M55FF

I am staying in the non taxable to non taxable realm.

Hisglory what exactly are you transfering? profit from stocks or what exactly?
are you sure its
not an IRA you sold ?
that sale of an early IRA would cost you BIG bucks.

??????????????????????????????????????

**staceyy** · 03-22-2008, 11:20 AM

I think I saw something like this on tv recently, mabe 60 Minutes or 20/20. I'm sorry, I can't identify where or if they offered a solution.

**M55FF** · 03-22-2008, 11:27 AM

With no proof of basis, we have to pay income tax on the entire amount. Seems that it doesn't matter that we paid capital gains tax every year!

( qoute)

I know this is true

what happened to your paperwork?
its CRITICAL to keep this info...

you may be able to call whoever you bought it from and get records of the cost at purchase, I've done it...

**forHISglory** · 03-24-2008, 07:51 PM

I've been out of town, just getting back, and looking at your replies. The money we transferred was not from an IRA at all, just a regular investment account. What we transferred were mutual fund shares. Almost all of our paperwork was destroyed; we managed to save a little. When we transferred our IRAs, our 401ks and 403bs, there was no problem. But with this account, there is a headache. Company 1 said they kept no records of money that we put in.

I talked to our financial planner over the weekend, and he said that the IRS accepts a good faith estimate in cases like this, and would be helping us tomorrow to make that estimate. (He also suggested we find another tax consultant!!).

I'll try to update later on what we find.
Thanks so much for caring!

**dianne9106** · 03-24-2008, 10:36 PM

I hope you are able to find your paperwork or get it from Company 1. Someone else was correct in stating that they have to keep records of incomings for accounts - otherwise how would they track their profits, etc.... Perhaps a call from your attorney may help them locate the paperwork or a call from the local newspaper??? Good luck!

**mikandmari** · 03-24-2008, 11:08 PM

Sounds like your financial planner knows his stuff.. that's great that he will help you make the good faith estimate. I'm sure he will set your mind at ease.

Admitting that this is an estimate, and as long as the numbers are believable, you shouldn't have any problems. The IRS probably has bigger fish to fry!

**prairiewife** · 03-25-2008, 03:18 PM

I'm so sorry you're going through this. I have a small amount of money in a simple IRA that I want to transfer into a Roth. My financial advisor said there would be no taxes but maybe I better check a transfer out further.

I hope this all works out for you. I just can't imagine owing a years worth of wages in taxes. It might be worth it to contact your attorney about this matter.