As stated, my daughters return is being "examined" by the IRS because I missed filing a 1099B with her tax return. She is a student. Instead - I included the 1099B on my return. It is for $731. I think what happened is that I asked my broker to make changes in early 2009 to change the taxpayer from her to me - but they never did. When I went to file - it was still reporting under her tax ID instead of mine. My error - but now I am concerned about fixing. The IRS has sent her/me a letter stating I missed this income. When I reply to the IRS on the miss on her return - I am concerned I will be audited. Ugh! Anyway to fix this without triggering an audit on me? I've done my taxes for several years, and never had a miss like this. I was always afraid of this happening. Help!?

She files an admended return, showing this income, no need to explain to them why it was not included , don't give them too much info.

You may in return file an admended return showing this income excluded. But if you merely file an admended return, and send them a copy of it, and pay any additional taxes owed that most likely will be the end of it

Thanks so much! They sent me a letter to reply to, and sign that I agree or disagree with their findings. Should I just ignore that and file the amended? It says I can do that instead of replying (write CP2000 at the top of the 1040X)... does it matter which way I reply to them? They are also asking me for the payment - now or in installments.

Thanks so much ! They sent me a letter to reply to, and sign that I agree or disagree with their findings. Should I just ignore that and file the amended? It says I can do that instead of replying (write CP2000 at the top of the 1040X)... does

JcGibs:

Amend both returns (your and hers), deducting the income from your return and adding it to hers. Form 1040X with adjusted Schedules D will probably be needed. When you submit her amended return, attach the IRS letter to it so they know you are responding to an audit notice.