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Hi lenray, Did the sale, installment payments, and the payoff all occur in 2006? The costs of sale are added to the cost basis of the property which you need for the purpose of computing the ratio which is used to determine how much of each installment payment is profit---taxable, how much is the return of the cost---not taxable. If the sale occurred in a prior year and you did not add your costs of sale to the basis of the property, then the ratio you computed on you original 6252 is wrong and you have been paying tax on a portion of the payments which was not actually taxable. The IRS does not hold this against you. They may even pay you interest on the overpayment. The most obvious way to correct this mistake is to file a Form 1040X Amended Return for each year that the mistake applies. Like all IRS forms the 1040X seems somewhat confusing at first, but you can figure it out if you take your time and remember what it is you are trying to accomplish. If you have to do them for several years, only the first one will be a challenge, the rest will be virtually identical. The 1040X only deals with the mistaken items on your return---you don't have to refile the whole return. The first thing you should do, however, is contact the IRS Help and Information department and get them to transfer you to an agent who is familiar with this situation. You do this by describing your problem clearly and CONCISELY. The person who first talks to you doesn't have to know the details of the sale or that you are a good person, etc. He or she only has to find out enough to transfer your call to the right person to actually help you deal with it. Let me take this opportunity to tell you a few things about dealing with the IRS. Number one is they're easy to deal with. These are not auditors or investigators. They regard mistakes as mistakes, and they also seem to regard negligence and potential fraud as mistakes. It's someone else's job do deal with those things. If you make a mistake on a tax return and the IRS catches it they will send you a letter explaining what it is they believe to be wrong, and why they think that. You can respond with an explanation if you think you're right, or correct the mistake if you agree that you made one. If you owe more tax than you paid, you pay it and you will also probably have to pay interest on the unpaid amount from the time it should have been paid---that's all the penalty amounts to, it's not punative. Of course, I basically agree with the concept of paying taxes, and it isn't the fault of these working men and women how other branches of our government misspend the money. So I don't call them fascists, or swear at them, or otherwise make it clear that I can hardly contain my rage the way some people do. I usually chat with them a bit and ask them how they like their job. Maybe you won't feel like you have to pay someone a lot of money to do something quite simple for you if you know that the consequences of making an honest mistake are virtually nothing. In fact, it seems to me that the consequences of making a dishonest mistake are not much worse. Not when we're dealing with less than tens of thousands of dollars of difference in the tax in question. All the best, Stan
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