1099 problem 2006 tax return for 17 yr old?

We withdrew some money from an investment account to buy a car for our 17 yr old. He filed a 2006 tax return, today we received a letter from IRS saying he owes 289.00 because we didn't report the WD amount on his 1040ez as income. This account was always in my name but it was his. Should this have been put under our taxes, or his?

Thanks everyone!...I cannot find the 1099 B form, I know we owe the amount, It just asks us to pay it or dispute. I think at this point I'll just pay. (or he will, since it's his car!)

It sounds like this was a custodial account. As such, the money was your son's, but because he was under the age of 18, you acted as custodian.

When you withdrew the money, you apparently sold some sort of mutual fund, causing a taxable event (the 1099-B). This needed to be reported on a schedule D for your son as there is not place to report it on a 1040EZ. For 2006, you should have filed a 1040 for your son, not a 1040EZ.

You need to find your records to show what the basis was for the money that was in the account. Eg, you put in $10,000, sold it for $11,000 so you had a $1000 gain. The IRS invariably puts it down as all gain since they don't have access to your records.

The investment had to been in his "social security number" that is why he is now owing(he must of received a CP2000, underreported income). So it should of been reported on his income tax at the time he file his return. Amend the return and add the amount of the 1099 and see if the amount owed is still the same.

The account must have been in his name if he got the IRS CP2000 letter. If it had been in your name YOU would have received the letter.

This must have been either a stock sale or shared in a mutual fund. You can't claim those gains on a Form 1040-EZ return. And since only the gain is taxable whomever's name is on the CP2000 letter needs to file an amended return for 2006 and attach Schedule D showing the purchase and sale prices of the shares sold. Only the gain is taxable so that will reduce the tax and may even eliminate it if there was a loss on the sale.

If the account was in his name with his social security number, then he pays any tax due. It must have been, or YOU would have gotten the letter, not him.

The IRS assesses tax on the entire sale since they don't know what you paid for it originally. Since you most likely paid SOMETHING for it, he almost surely doesn't owe that much, and might not owe anything. You'd have to figure out though what you REALLY owe on it.