Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
IRS notice and request add'l info Schedule D, involves SMLLC
Posted by: fischwallet, March 13, 2009 03:20AM
I received an IRS notice today proposing to increase my 2007 taxes. Basically, the IRS says there are 4 1099-B unaccounted for, so they put the cost basis as $0 for those transactions. The notice states:

We used a zero cost basis because we were not able to determine the cost or the adjusted basis of the stock sold. Please provide a completed Schedule D, Capital Gains & Losses with your response showing:
--- the asset name,
--- the date you acquired the asset and
--- the cost or adjusted basis
for each Form 1099-B, Statement for Recipients of Proceeds from Broker and Barter Transactions, shown on the attached pages of this notice."

For 1 of the 4 listed 1099-B, it was an account held in the name of my single member LLC with its own EIN. I had put the capital losses as one item on my Schedule C, instead of listing all the trades on a Schedule D.

For 3 of the 4 listed 1099-B, it's just a Vanguard money market fund I forgot to put down. I had usually gone directly through Vanguard, but 3 times I gone through my stock broker instead.

My main question is:
In responding to this IRS notice, do I fill out 4 separate IRS Schedule D's for each of the 4 1099-B's? Or do I fill out one Schedule D that includes only the trades in question? Or do I take out my previously filed Schedule D and add in the trades in question?

My less important question is:
How do I report trades made on my single member LLC account? Since they are in the context of the SMLLC business, I didn't report them on my personal Schedule D. Am I supposed to file a second Schedule D listing the SMLLC name and EIN?

Thanks so much for your feedback!

Re: IRS notice and request add'l info Schedule D, involves SMLLC
Posted by: Art, March 13, 2009 04:03AM

No need to post multiple times.

Re: IRS notice and request add'l info Schedule D, involves SMLLC
Posted by: fischwallet, March 13, 2009 04:05AM
Sorry I didn't know what forum it is supposed to go in

Re: IRS notice and request add'l info Schedule D, involves SMLLC
Posted by: rbotterb, March 16, 2009 09:56PM

I've known some folks who have reported their gains on SCH E for their sole prioritor LLCs, but the IRS rules on this sort of thing is not real clear. Also doesn't help you if by chance some of your investments were LT Cap Gains.

If you are married, I would suggest making your LLC a partnership and move your trading over to a 1065. Yes that means doing another tax return, but at least in a 1065 you'll find schedules like SCH D there to deal with your LLC trades, and then feed the net gains/losses and other investment income back over to your 1040 via a 1065-K1P form.

Tends to make things a bit more clean that way. Only a suggestion to help get yourself out of a paperwork mess for at least 2009 going forward.


PS. If you happen to be single, but happen to have another business like a S-Corp, C-Corp or another partnership in place, make that other business the partner of your trading LLC so it can become a partnership for tax purposes. If you don't have such a business, then I'm afraid the only other option besides getting a friend or family member to be that other partner is to set up a small C-Corp to be your partner. Again that would then require two added tax returns and paperwork (a 1120 for C-Corp, and a 1065 for the partnership), but if your trading LLC is big enough and you have enough assets there to want to get some charging order protection for your assets, this may still be the way to go.

Hope my suggestions can help.


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