Quick (maybe) scenario and wondering if I need a tax attorney or if I can handle it myself.

In 2021, I had shares vest in the company I worked for due to a sale to another company. A percentage of the shares were sold to cover the tax liability and I retained the remainder of the shares, which I later sold.

I received a 1099-B from the third party that performed the transaction, however, I didn't realize it at the time and I didn't study it. I filed my taxes that year without entering the information from the 1099-B. The 1099-B showed no taxes were withheld in the sell to cover, which in reality was the withholding taxes as I did not receive any proceeds from the sale.

Fast-forward to May, and I received a notice of underpayment from the IRS. I communicated with them for a while via the private message system they have. However, about a month ago, I received another letter that I am to either pay the full liability or petition the court.

Since the second letter, I have been able to access the old account and I have the sell to cover document that actually shows that, based on my income level and tax rate, I likely overpaid taxes by a few hundred dollars.

My question is: Can I represent myself in this petition or should I hire a lawyer? The "underpayment" and penalties are substantial. However, I'm not sure how much an attorney would cost and if it would end up being a wash.

Thanks for any and all replies and insight.

I received a 1099-B from the third party that performed the transaction

which transaction? the sale of shares to cover the taxes or the sale of the stock you sold afterwards?

I assume you mean the sale of stock you sold, but please clarify.

Why is the court involved?

Depending on the circumstances, you might be better off hiring a local CPA that specializes in tax work, rather than an attorney. I would at least start there.

txaggieacct85 said:

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I received a 1099-B from the third party that performed the transaction

which transaction? the sale of shares to cover the taxes or the sale of the stock you sold afterwards?

I assume you mean the sale of stock you sold, but please clarify.

Why is the court involved?

Depending on the circumstances, you might be better off hiring a local CPA that specializes in tax work, rather than an attorney. I would at least start there.

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The third party handled both of the transactions. The sell to cover and the transaction for which I received the proceeds.

The court is involved because the IRS isn't convinced that I don't owe them money. After the most recent communication in which I was informed I have until November 13 to respond to the court, I was able to access the sell to cover document that shows the shares were sold to pay taxes.

sounds like you should get a CPA involved that specializes in consults on individual tax matters.

I have an old college roommate in Cypress that could take a look for you. He and another Aggies own a local CPA firm.

Did the third party that sold stock to cover taxes submit that amount to the IRS on your behalf as withholding?

If those shares were sold to cover taxes why wouldn't that be reflected on the 1099B?

Have you attempted to talk to the third party company to determine exactly what they did with the funds from the stock sale? and why it wasn't reflected on the 1099B?

I am guessing the "petition the court" is a tax court petition which only happens after they have assessed additional tax and sent several notices. I'd suggest hiring a CPA who has experience in dealing with IRS matters and let him or her handle your situation.

txaggieacct85 said:

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sounds like you should get a CPA involved that specializes in consults on individual tax matters.

I have an old college roommate in Cypress that could take a look for you. He and another Aggies own a local CPA firm.

Did the third party that sold stock to cover taxes submit that amount to the IRS on your behalf as withholding?

If those shares were sold to cover taxes why wouldn't that be reflected on the 1099B?

Have you attempted to talk to the third party company to determine exactly what they did with the funds from the stock sale? and why it wasn't reflected on the 1099B?

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I'm not sure what happened to the funds. On the 1099-B, the box "No" was checked to show whether taxes were withheld or not. I know I didn't receive any funds.

I have spoken to the third party and the best they were able to do is get me into my account that had been closed and show me how to access the "Sell to Cover" document. That took me many months.

I will call a CPA Monday. I'm in East Tx and a Google search yesterday pointed me in the right direction regarding CPA help.

Thanks for the info. I'll reach out if I need your old roommate.

one safe place said:

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I am guessing the "petition the court" is a tax court petition which only happens after they have assessed additional tax and sent several notices. I'd suggest hiring a CPA who has experience in dealing with IRS matters and let him or her handle your situation.

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Yes, the "petition the court" letter came after months of back and forth. I wasn't able to produce an actual cost basis for the stocks. I can now produce that as I was able to access my old account last week and get the documents/proof that I needed.

I'll reach out to a CPA on Monday. It may very well be something I can handle but I'm afraid if I make a mistake I'll end up owing the entire amount, when in actuality, it appears the withholding taxes were greater than they should have been by a few hundred dollars.

Thanks for the info.

txaggieacct85 said:

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I received a 1099-B from the third party that performed the transaction


Depending on the circumstances, you might be better off hiring a local CPA that specializes in tax work, rather than an attorney. I would at least start there.

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This - you need a CPA to help you respond, not an attorney. This isn't a court thing, the IRS just needs all the info related to the issue. A CPA can help you form that response

Fuzzy Dunlop said:

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one safe place said:

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I am guessing the "petition the court" is a tax court petition which only happens after they have assessed additional tax and sent several notices. I'd suggest hiring a CPA who has experience in dealing with IRS matters and let him or her handle your situation.

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Yes, the "petition the court" letter came after months of back and forth. I wasn't able to produce an actual cost basis for the stocks. I can now produce that as I was able to access my old account last week and get the documents/proof that I needed.

I'll reach out to a CPA on Monday. It may very well be something I can handle but I'm afraid if I make a mistake I'll end up owing the entire amount, when in actuality, it appears the withholding taxes were greater than they should have been by a few hundred dollars.

Thanks for the info.

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Sell to cover is often a pain because the 1099 reporting is not the entire picture. I had this happen back in 2004 with some stock options I had when I did not show the cost basis properly.

Once you clearly show the cost basis you will be fine. Since a court is now involved using a CPA is a good plan since they know the best way to document this.

What was your original basis in the shares when they vested, and what did you sell at?

All of this stuff should be in your 2021 W-2, not a 1099.

A 1099 is for capital gains. A W-2 reflects ordinary income… thus I why you aren't getting anywhere with this. The W-2 is where something like this would be evidenced.