margin account and association with Form 1099-DIV


I

iramigut

Have a has a margin account with Investit Investment Company. The stocks and bonds in the account earned dividends and interest of $10,000 in 20X9. The $10,000 was paid directly to the margin account and used for reinvestment
purposes only. received a substitute Form 1099-DIV which indicated the composition of the $10,000. However, Smythe did not report the $10,000 as income in 20X9. He reported it as income in the next year when he closed the margin account. The IRS has indicated that Smythe must include the $10,000 in 20X9, and in addition to taxes has assessed interest and penalties. Smythe seeks your advice.
can you assist
 
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Rich Carreiro

Have a has a margin account with Investit Investment Company. The
stocks and bonds in the account earned dividends and interest of
$10,000 in 20X9. The $10,000 was paid directly to the margin account
and used for reinvestment purposes only. received a substitute Form
1099-DIV which indicated the composition of the $10,000. However,
Smythe did not report the $10,000 as income in 20X9. He reported it as
income in the next year when he closed the margin account. The IRS has
indicated that Smythe must include the $10,000 in 20X9, and in addition
to taxes has assessed interest and penalties. Smythe seeks your advice.
My opinion:
Smythe screwed up. The dividends and interest received in 2009
are taxable in 2009 whether or not they were reinvested in the
account, in securities, or were withdrawn.

Why did Smythe think they were not taxable, anyway?
can you assist
Smythe will have to pay the additional tax and interest. I'd
expect he'd almost certainly have to pay the penalty as well
since this is elementary, black-letter stuff that those dividends
were taxable in 2009.
 
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P

Pico Rico

Rich Carreiro said:
My opinion:
Smythe screwed up. The dividends and interest received in 2009
are taxable in 2009 whether or not they were reinvested in the
account, in securities, or were withdrawn.

Why did Smythe think they were not taxable, anyway?


Smythe will have to pay the additional tax and interest. I'd
expect he'd almost certainly have to pay the penalty as well
since this is elementary, black-letter stuff that those dividends
were taxable in 2009.
I concur. I see no reason for anyone to assist Smythe in paying what he
owes.
 

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