Bank send 1099-DIV to my old address. I didn't get it for 2006. IRS now request tax and penalty?

I was a customer with Bankone in 2005. Then bankone changed to Chase later. Then, I moved to Albany, NY 6/2006. Since Chase doesn鈥檛 have branch here, so I closed all my accounts with Chase. I also updated my address with Chase, but one investment account (Oppenheimer senior floating RA) with chase did not update my address, so they send to my old address for 2006 tax. Chase banker recommended this investment account back to 2005. Yesterday, I got a letter from IRS regarding this account. Now I have 2 problems with IRS: 1. I didn鈥檛 receive 1099-DIV for 2006, but IRS did, so I missed this taxable income for 2006. I need to pay penalty (interest) for that. Can I argue this with IRS? 2. I put $40000 after tax money into this account initially. When I withdraw, the total amount was $42300. Now IRS required me to pay tax for total $42300, not the grow part $2300, which means I need to pay tax again for the initial $40000. Is it correct? What kinds of proof I should provide to IRS? Thanks

You owe the tax on the dividends, but only owe capital gains tax on the $2300 gain on what you sold, not the entire $42,300 sale price. The sale was reported to the IRS, and since you didn't show it on your tax return, and they don't know that you paid the $40K for it, they think you owe tax on the whole amount. This is not an unusual situation and the IRS is easy to deal with to fix it, but be sure to respond to their letter within the time allowed. You'll need to send them a properly completed schedule D.

Most people would remember getting a $42K+ withdrawal, and if they didn't get a 1099 for it would contact the fund. But if you missed it, you missed it - and yes, you can fix it, and will owe a lot less than the IRS letter says you do.

You can't "argue with IRS" about your obligation to pay tax on your dividend income even if you didn't get the 1099. You also have to pay interest which is an ordinary charge for the use of money. You need to prepare a Form 1040 Schedule D which shows $42,300 income from the sale minus your $40,000 basis. Include backup documentation for this. When you do, IRS should adjust the proposed additional tax to what is correct and eliminate the penalty.

Did you turn in a change of address's to the post office? It would be good for a year!

As for the first question.... You knew that you had that account. That is why you ALWAYS wait until you get everything from every account that you have of any sort. Companies have to have the tax papers (w-2, 1099 ect) sent out and post marked by the last day in January. If you did not recieve it by the second week of January, you should have known that something was wrong and you should have called. So you cant fight with the IRS on something that you could have prevented. You know what I mean? If you try to explain to them that you moved, maybe they will reduce the penalty, but not the interest.