You have no records of brokerage statements or financial transactions that happened between the now broke brokers and your regular bank accounts? You could show the amount you deposited and the amount you withdrew from the brokerages would not total up to $2M in profits. Do you track your finances in a software program? Any documentation that you can dredge up would be helpful, and might allow you to *not* hire a lawyer.
I had no trading record of my own.That was the major problem. There were many many brokers at that time, most of them died 1 or 2 years later. I had many accounts at different brokers. As they broke, I lost access to my trading records.
Wow this place you traded at seems like it had terrible, terrible luck as people were not making money AND they were dying...
They don`t give damn about heartfelt letters, if anything, they`ll make you a whipping boy because of it... so scratch that. Also, don`t think for a minute that they are going to file anything a way and forget about it.
This should be simple to resolve assuming your brokerage statement from 15 years ago can be recovered. Your problem is not due to any of the things mentioned previously in this thread. Until recently brokers were not required to report cost basis to the IRS. They only reported proceeds paid to your account and it was up to the trader to report their cost basis. Consequently, when you did not file a schedule D, the irs computer defaulted to zero as your cost basis and computed amounts paid into your account by your broker as 100% profit. I am surprised that the IRS is so far behind that they are just contacting you now. If you can get your brokerage statements from that far back (contact your broker or their clearing agent. What you need should have been archived. You'll have to pay something to pull up the records.) If you had 2 million in trades over three years (or whatever) and you were a small retail trader then you probably had many, many trades. It won't be much fun to compute your cost basis from your statements. (You should have been keeping those records daily when you were trading.) Fill out a Schedule D and send it to the IRS. Or alternatively, if you live in a major city take your records and your schedule D to your local office and explain what happened and why you didn't file a return. Let them take it from there. This will probably be easily resolved. If you go the correspondence route you may have to be persistent. But eventually this ridiculous situation will get cleared up and you'll be good to go. The one thing you don't want to do is ignore the situation. When the IRS calls, you need to answer. And for god sake hang on to any correspondence you have with the IRS regarding this matter. This should be easily resolved, once you've suffered the pain of having to compute your cost basis. The IRS has layers of competence, from low to high in every area of the 72 thousand pages of tax code. Once you get the attention of the proper layer of competence, the problem will be very easily resolved.
He already said it was impossible for him to get those statements though because many of the companies he traded through no longer exist.
Ignorance is not an excuse when it comes to taxes. This thread is one of those typical "I'm screwed and there's no solution" topics. The whole world is against him, when in the real world these things happen all the time and their is an obvious course of action. Get a lawyer or an accountant. If you can't, then do it yourself. Go through the formal audit process and work with the IRS. You are innocent and the system works for the innocent. I've been mail audited twice and they've been very reasonable each time. In one of the cases the IRS agreed with my filing; in the other, they corrected my filing for me negating the underpayment they were charging me with.
I guess I missed that post. Because, according to the OP, the IRS has already examined his bank account from the period in question, I am guessing that if he communicates to the IRS what he has already communicated to this forum, the IRS will accept his personal statement that there were no net profits from trading. But he may have to go back and forth with them bit until his case gets bumped to a level where there is someone with both the understanding of why his IRS account showed so much tax owed and the authority to resolve the issue.
It's best not to throw away any tax record or supporting documentation, ever. There are statutes of limitations for errors, but not for tax fraud. Even if you have not done anything fraudulent, you need to be able to show that you haven't, and you need to be able to show it until you die and then afterward, until your estate is distributed, so your heirs need to save the records for a while, too. The OP needs an attorney.