Q: During 2010, I sold some stocks at a loss through my brokerage account, but I never took any money. Since I had no other taxable income, I did not bother to file a tax return. I just received a notice from the IRS assessing a huge tax for the stocks I sold. What do I do?

 Barry Dolowich for the The Herald writes: Answer: Through its computers, the IRS matches the information it receives from third parties to the information you report on your tax returns. You should be extra careful to report accurately all information on your tax return that the IRS already knows about.

On Form 1099-B, the IRS received the details of your stock sales. The IRS makes the assumption that your tax basis in the stocks is zero. It is up to you to prove otherwise. I recommend you respond promptly to the notice by providing a completed tax return for the year in question and an explanation of the omission and evidence (broker advice slips, brokerage statements, etc.) of your tax basis. Notice CP2000 is sent by the IRS anytime Forms 1099 or 1098 received by them do not reconcile with the tax return filed. With proper documentation, the IRS will abate the proposed additional tax, penalty and interest. Other types of income that are reported by third parties to the IRS each year: Your income: If you have been paid more than $600 for services rendered as an outside or independent contractor throughout the calendar year, the payer is required to report the total paid to you on Form 1099-MISC, Statement for Recipients of Miscellaneous Income.

Other types of income reported on Form 1099-MISC include: Rent and royalty payments; prizes and awards not for services; Payments made by medical and health-care insurers to a doctor or other supplier of medical services under an insurance program; attorney and accounting fees for professional services; witness or expert fees paid by a lawyer during a legal proceeding; payments made to entertainers for their services; all other free-lance income. Your wages: The IRS receives a copy of your Form W-2 directly from your employer and you are required to attach a copy to your tax return. Therefore, the IRS knows exactly what you earned in regular income, bonuses, vacation allowances, severance pay, moving expenses and travel allowances. The IRS also knows about your retirement plan participation. Interest and dividend income: Payers of interest and dividends in excess of $10 per year are required to report this information to the IRS using Forms 1099-INT and 1099-DIV, respectively. You should make sure the information reported on these forms agree with your records. Tax refund income: State tax refunds you receive are reported to the IRS on Form 1099-G, Statement for recipients of Certain Government Payments. Note: If you receive a state tax refund for a year in which you did not itemize your deductions or you did not utilize the full benefit of your state tax deduction, then all or part of your state refund may be excluded from your federal taxable income.

 Gambling winnings: Generally, payments of $600 or more must be reported by the payer from horse racing, dog racing, jai alai, lotteries, raffles, drawings and slot machines. Bingo payments of $1,200 or more and Keno payments of $1,500 or more are also required to be reported. These gambling winnings are reported on Form W-2G, Statement for Recipients of Certain Gambling Winnings. Other income the IRS knows about: Unemployment insurance; Social Security benefits; Money received from broker (security sales proceeds) or barter exchanges; Distributions from pension and profit-sharing plans, IRAs, etc.; Cash payments of more than $10,000 received in a trade or business; Cash deposits of more than $10,000 made to your bank account; fringe benefits received from your company; tax shelter participation; original-issue discounts.