A few days ago we received a dreaded envelope in the mail. Addressed from the IRS, it was with great trepidation that I opened it. Turns out, they think we owe them some money from 2011. I immediately hopped on the computer and did some digging, and found out two things very interesting.
Did you know that if you have an ING account (now Capital 360) that you opened via one of their "open with $100, we’ll give you $100" deals, that the $100 they give you is technically income and you then qualify for a 1099? Not a big deal – that makes sense.
HOWEVER, did you also know that they will NOT email you (despite being famous for being an online bank) to let you know that you have a 1099 that needs to be printed? Nope, what will happen is they will tell the IRS you made $100 from them, and expect you to know (13 months later) to check for a 1099 on an account that you opened and pretty much neglected for those 13 months.
And here’s another tidbit for you investors out there. Let’s say you’ve been sitting on some fully-matured savings bonds from your childhood, and you decide to combine those savings bonds into another, single government bond. All terminology used for such a transaction omit the words "redeem" or "redemption" when relating to the transaction of such bonds into a larger unified bond. Nope, it’s strictly discussed as a "conversion" – similar to when you dump one fund in your 401(k) for another that is faring a bit better.
But no. It turns out, at the end of the year, the government agency will tell the IRS that you REDEEMED the original, matured savings bonds, then used the money to open a brand new bond. That redemption means you earned the money as income, and should be taxed thusly.
Not only that, but the new bond people? They ALSO will not send you a 1099 stating that you didn’t just CONVERT the saving bonds, but REDEEMED them. Said 1099 would then alert you to the misdirection of the "conversion" as a redemption, AND would have been included in your original 2011 income tax return.
But no. You’ll find that out two years later when the IRS sends you a letter saying you owe them money for two missing 1099s that you knew nothing about.
FLAT TAX! FAIR TAX! ABOLISH THE IRS AND TAX CODE!
That’s my response to all this (although that has been my belief for many years now).
In the meantime, sadly, the check’s in the mail. And our Disney fund takes a hit.