Here is the situation. My parents set up a mutual fund when I was a child. My father claimed me on his taxes until I was 18. When I was 15 he pulled my mutual fund out and received the check and put the large check into a CD. Well apparently he forgot to mention that to his tax person and now I got a thing in the mail saying I owe 900 some dollars because they think I spent that money. I didn't he just transferred it over. So I called the IRS number and it seemed like this lady knew nothing about what she was explaining. SHe sent me some papers about stock bonds, and she told me to find someone to help me fill it out and to contact the bondsman?? I am so lost. What do I do about all this? My tax guy is in California, but he's on vacation for the next week. I have until April 18th to get this all figured out... Someone give me at least a tiny bit of advice of what to do please! Iasked my father about this and he basically told me to just deal with it. I was 15 at the time he did this so I had no job and had no need to file the year that it happened.

A taxpayer that isn't a dependent of any other taxpayer gets a standard deduction in a fixed amount, depending on filing status. For a dependent child, the size of the standard deduction depends on how much earned income he/she has. Investment income is considered unearned income for this purpose.

If the dependent child had gross income (combined earned and unearned income) of $700 or less in 2000, he does not have to file a return unless claiming arefund. A 2000 return must be filed for the dependent child with gross income over $700 unless the child has no unearned income and the child's earned income is less than the standard deduction amount ($4,400).

Not knowing your father and giving him the benefit of the doubt, here is what I think must have happened.. He invested the money in a mutual fund for growth since you were yourng. As you got older and were closer to needing the money he cashed it out of the mutual fund into a "safer" investment that was less likely to lose value. When cashed out, there was a capital gain created by the fact that it grew and that is where the tax burden came from.

Remember taxes are a side effect of making money. In fact ideally you would love to be paying a million in taxes because you would have made about 3 million. My guess is that you made about 3500-4500 in appreciation and are just paying the tax on the gain. IF that is the case then bravo to your dad as wrose case he made you about 2600 bucks

Here's what you'll need to know in order to determine how much tax (if any) you owe for this debacle:

1. Purchase date and cost of the original mutual fund.
2. Were any dividends or capital gains generated by the fund reinvested into it? This will increase your cost basis.
3. Date of sale of the mutual fund and proceeds from the sale.

The answers to these questions should be available in the statement that your father should have received when he sold the fund. From this you can calculate the amount of tax owed - depending on whether he held the fund for over a year your tax burden should be 20% of the difference between the amount received for the sale and the cost basis.

From your post it sounds like your father relied on a professional tax preparer - is that person available to help you, or is he the guy that you say is on vacation? He may have the records that are needed here.

I still don't understand why I need to pay. Here is what Taxpayer Consent Form said:

Penalities: Failure to file penalty $113.40
Faliure to File penalty $118.44
Net Tax Inscreaase (total tax minus prepaid credits) $504.00

Interest calculated through 3-20-2003 $186.18
total amount due through 3-20-2008 $922.02

I just thought he forgot to file in 2003 and since it's under my name (even though I was15/16 in 2003 and had no job and didn't think I needed to file) I got the penalties. Someone told me I shouldn't have to owe anything since it was not spent, just transferred from the mutual fund to a CD.

I'm sorry, I am tax illiterate so I don't understand ANY of this.

Ebaines, I do know that when my mutual fund transferred to the cd it did not earn anything. I no longer really speak to my father and since he told me to deal with it myself he will probably not be willing to give me the statement. Can I call the bank this all happened at and get a statement from them?

In almost all cases when you sell an asset for a gain you owe capital gains tax. There is an exception for selling assets that are in a tax-sheltered account such as an IRA, where you can sell one investment and roll the proceeds into another without tax consequences. There is also a major exception regarding tax-free gains when you sell your home. But for normal buying and selling of mutual funds in your personal account there is invariably a tax due if you make a gain. It does not matter that you bought a CD with the proceeds.

In 2003 as a dependent of your father's you were required to file an income tax form if you made over $750 in unearned income (capital gains such as from this mutual fund, dividends, interest), or had a gross income of more than $750 and unearned income of at least $250. Given that the IRS has calculated the basic amount of tax owed at $504 before penalties and interest, it would seem that your capital gain must have been worth several thousand dollars - that's why they're after you.

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Originally Posted by Becca1025

Can I call the bank this all happened at and get a statement from them?

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If the mutual fund was administered by the bank, then yes, they may have records that will help you figure this out.

Yeah it would have been nice if he told me all of this so I would not have all these fines. Thank you.