B4 my grandfather died, he put some stock in my name, and wished for it to be turned over to me when i was 18?

he left a woman named elaine as the custodial guardian, technically/legally it wuldnt be mine until im 21, but since he wished for it to be mine at 18, elaine cashed it and sent me a check for $10,000 around my birthday,but heres the thing-i knew me grandfather had left me money when i was 18. but i didnt know it was stock, and didnt realize that i needed to claim it on my taxes.
from my understanding and how she worded it, it was my inheritence, well, when i filed with h&r block, i didnt mention it because i didnt think anything of it. i wasnt even aware it was stock put under my name and social number.now 2 years later the IRS sends me a letter saying i owe $1,600 in taxes because my 05 return doesnt match what was reported....
shuld i be faulted that no one ever told me exactly where the money came from? shouldnt elaine or at least the stock company had an obligation to inform me?i wuld have saved some money from the 10,000 2 cover taxes if i ahd known, now im stuck.what can i do?
Additional Details
no i dont have the money anymore, its now in the form of a 04 mustang.....

This is a UGMA account-Uniform Gift to Minors Account. You own the securities the day he gifted them to you in a separate account and placed Elaine as a custodian.

Reasons this is a UGMA are 1.) He put the stock in your name. 2.) You were a minor and therefore not allowed to own securities in your name until you are 18 and therefore need a custodian-Securities Rules and Regs-but you are still taxed on income and gains from the account, 3.) Custodian was appointed and is the nominal owner (in name only-has no tax liability) and 4.) UGMA accounts automatically turn over to the minor when the minor turns 18. Steven F is dead wrong and has no idea what a gift is in accordance with the Internal Revenue Code. You do not pay tax on a gift you have received. Your grandfather has already paid the taxes and the Internal Revenue Code recognizes a gift as one made from after-tax dollars. This means your grandfather already paid the tax on the amount of the gift.

The value of the stocks at the time your grandfather put them into your UGMA is your cost basis; you are only taxed on income and gains from the sale. Whether you were unaware of the stock has no bearing on your tax liability. Possible it could be a Uniform Transfer to Minor Account, but this does not matter because the only difference is the custodian gets to decide when to give you the money up to age 25. UTMA and UGMA accounts are taxed exactly the same way.

You need to find the basis of the stock on the date of your grandfather's gift to your account. Get the opening statements from your account's broker. Elaine should also have these statements.

Subtract the stock's basis from the $10,000 you received. You are taxed on the difference-the gain or loss on the account plus dividend income, if any.

It will not be $1,600 as the IRS claims. The IRS only knows that you received the $10,000 and is taxing you on that $10,000 because it does not know any better. IRS does not know the account's basis. For all the IRS knows, Elaine may have sold your stocks at a loss, at which point you would not owe tax. You use the loss to reduce your taxable income, and the U.S. Treasury to whom the IRS works under owes you money.

All the IRS has is a 1099-B which only shows the proceeds of the sale. The IRS does not know your basis in the stock.

Your basis is how much was invested in each stock and also what the value of the stocks were on the date your grandfather transferred these stocks into your UGMA. Contact the broker and ask for the account statement.

If you still owe tax (and you will not owe $1,600-that is 16% of $10,000-your proceeds, NOT your gain), file an installment payment plan that allows you to make monthly payments to the IRS over five years. THIS IS ONE OF YOUR RIGHTS AS A TAXPAYER. When the installment agreement is signed you will probably pay NO MORE THAN $7-10 per month until the amount is paid off, if you owe any taxes at all.

It was an income and you should have mentioned it to your H & R Block guy...Ignorance does not make you any less liable..sorry..ss

pay up. you have no case. a $1600 lesson, now you know.

so you already blew the whole thing? for shame.

Sorry. Uncle Sam wants his share. You got, and spent, the money. There is no getting around it. Pay quickly or see them double, triple, quaddruple the amount due to "penalties".

Although you are very worded in your question, you are not quite clear but I think I understand your dilema. If your grandfather purchased stock in your name and registered it with your SSN., it doesn't matter that Elaine referred to your windfall after his death as an inheritance. What it seems he did was to provide you with some income but didn't want you to have access to it before you were 18. After his death, she must have cleared up his affairs and instead of turning over the stock certificate to you, the stock was sold and the full proceeds were given to you. It seems a bit strange that the amount was exactly $10, 000 but in any event, the broker must have sent a Form 1099 showing the amount the stock was sold for and so there must have been a gain on the sale, thus a Capital Gains Tax was assessed.

The letter that the IRS sent you, should have an explanation as to how they arrived at the tax of $1600. Look it over again. There should be a sheet showing exactly how the adjustment of tax was determined.

As to whose fault it is or was, makes NO DIFFERNCE. The funds were given to you and so the tax obligation is yours. You will have to pay it. Elaine made a simple mistake in that she probably knows nothing about income tax complications. Most people are only familiar with W-2 (witholding taxes), anything beyond that scope is a puzzlement to them. You are 18 and it is just too bad that you probably know all there is to know about getting on the internet but you are not taught anything about income tax in your economics class in high school.

You had H&R Block prepare your taxes and I am actually appalled that you were not asked certain questions which would most like have unearthed the $10,000 payment and so questions would have been asked of you as to the origin of the funds.

When I was a PROFESSIONAL tax preparer, it didn't matter the age of the tax papyer, there are just certain questions you always ask. In fact, I would ask the client to allow me to view their bank statements to see if there was anything that I saw as a red flag and could querry to make sure that I had all the pertinent facts in order to prepare a thorough return. Personally, those store front tax preparers leave me cold.

You could also take the copy of the tax returns and the notice the IRS and have the folks who prepared your returns take a look to determine if the assessment is correct. That however is up to you.

Sadly, you are stuck and there isn't much you can do besides pay the taxes, penalties and interest. You should have received a Form 1099-B in 2005 from the stockholding company. The good news on all of this is that you should have what is referred to as "basis" in the stock. Now the bad news: since your grandfather gave it to you before he died, your "basis" will be what he paid for the stock originally. The reason this is good news is this: let's say that Grandpa paid $5,000 for this stock 10 years ago. If the stock was sold for $10,000, you have a $5,000 long term capital gain on the stock sale, which can't be taxed more than 10% or 15% of the $5,000 (depending on your tax bracket). So, you don't owe tax on the full $10,000, meaning you owe less than the IRS is assessing you. Finding out that number for the basis, though, might be something of a challenge, particularly if someone went through his stuff and pitched the stock purchase records. However, all is not lost: contact the investor relations department of the stock, and tell them what happened. They should be able to research when the stock was originally purchased and how much your grandfather paid for it.

Good luck! This isn't going to be much fun for you, sorry to say.

Just pay the taxes. You owe them, but since the woman was named elaine, I think you might not have to pay it.

Your question is unclear about the legal form of the gift which does effect your tax liability. Please consult a professional with the full details. I suspect you do own the money. Some of this is most likely penalties ans interest. It MAY be possible to have a portion of that waived in your case because you were unaware of the stock. Don't take my work for anything in this case. Talk to an expert face to face ASAP.

To the 'Former IRS agent' that mentioned a 'Uniform gifts to minors' account: You answer MAY be correct, but based on the information in the question, you can't possibly know that is true.

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