Please take a deep breath. Before I started preparing taxes, I too would have been desperate and worried in your situation. But, the IRS is usually pretty understanding in situations like this, as long as you do your best to keep on top of it. (And we are not talking about fraud or gobs of money.)
As your CPA has told you, you will need to file an income tax return for 2007. If these stock sales are your only income then the information you will need is:
1) What stock was sold, how much it was sold for, when it sold. This information is all going to be on a 1099-B form from the broker who sold the stock. It is probably also included on the forms the IRS has sent you.
2) When was the stock purchased and how much was paid for it. If the stocks were bought from the same broker who sold them, they can usually provide this information to you. You should also put your anger in check and ask your parents if they have this information.
Also, has your CPA explained that when the IRS sends a letter about stock sales, they calculate tax on the whole amount that was received from the stock sale. Once you work with the CPA to complete an accurate return, your tax will only be calculated on the amount that was made on the stock - the difference between what the stock was sold for and what was paid for it. Since it sounds like these stocks were only owned for 6-8 years, unless your parents were very lucky with their investment choices, the taxes on the profits will turn out to be much less than the taxes that the IRS has calculated on the gross proceeds.
You have a CPA so it is probably best to talk to him, but if you want more advice from this forum, it would be helpful if you gave more details such as how much money is involved. If we are talking about a small amount by IRS standards less than $5000-$10,000, it may be possible that your parents did not realize that you needed to file a return.
To TaxLady: FYI-The 8867 is the paid preparer's checklist for clients claiming the EIC credit.
Your tax person should know that a schedule D for a sale of stock owned by you would not be on your parents' tax return.
First of all, are the proceeds less than $1,600? If so, then just file and pay the minimal amount of tax. Not worth doing any of the following. However, if the proceeds are more than that, and the tax is going to be substantial as defined by you, then you have to do the following:
1. Get the 1099B either from the broker or from the IRS. Call the broker, or go to irs.gov to find out how to request the forms. The 1099B info may actually be in the letter(s) you have received.
2. The 1099B will show the proceeds. Find out when the stock was purchased. If the broker doesn't have the buy price, go to Yahoo Finance and find the buy price by looking up the stock and then going into the historical prices.
3. File a tax return with your own Schedule D. My guess is that you will owe little or no tax.
4. If you owe tax, and your capital gains are more than about $1,600, there is a further complication because you are subject to Kiddie Tax, meaning some of your tax is figured on your parent's rate. You would need to get some info from your parents at that point. However, since your parents qualified for EIC, this should not cause a big tax bill.
5. Check with that brokerage firm to see if you have any other assets. Move them into your own account, maybe at another brokerage place.
This isn't really that complicated for a good tax person to sort out for you.
Finally, since you mentioned it, don't get mad at your parents about money. Chances are they bailed out of the stock because of market conditions. Chances are that it is a minimal amount, you just pay the tax of $100 or less, and it's over.
This likely not as much of a problem as you are thinking. However it will take some work to get everything straightened out. The notices you received from the IRS assumed that the stocks had a zero basis which is likely not the case. You need to find out what stocks they are concerned about. That is normally on the notice you received if not you can get a transcript of the information reported to the IRS in your name for 2007. Once you find out what stocks they are concerned about, ask your parents when they purchased them and from whom. If they do not have the purchase price there are a number of sites on the internet where that information is available. Once you know the sale price and date and the purchase price and date you just file a return for 2007 with a Schedule D and it is very likely that there will be very little if any tax due. This is a very routine matter if handled properly.
Your parents made a mistake - that's not a reason to be furious at them, sounds like the were trying to save for your college expenses but didn't know how to handle it.
That said, the accountant needs to know what your parents paid for the stock. If that's totally impossible to get, he or she might be able to work from knowing when they were purchased.
You do need to file, but might not owe as much as the IRS letter says, since you subtract the purchase price from any gain.
You have a CPA! Anyway. You need to contact the brokerage where your stocks where held and get all the regular and tax statements pertaining to the account. You should be able to get these online. You also need to ask your parents for their complete tax returns going back to when they started selling the stocks. It is quite possible that you will not owe any money but the IRS assumes that if you do not tell them the purchase price of a stock that you sell, the purchase price is zero and thus maximizes the tax owed. You need to sit down with your parents and sort this out.
Your CPA was hoping that your parents had mistakenly filed the schedule D on *their* return even though the stock was in your name. No such luck. Presumably this was a college account. (By the way, on that litany of forms, there is *no* 8867. If you meant 8863, I hope there were two students in your household.)
What you need are the records from the account showing what the cost of the stock was. Without the records, he's in the same boat the IRS is, he doesn't know what the cost basis. If he puts down $0, you will owe more than you should. If he can get enough records to prove the stocks were owned by you for more than a year, he can at least reduce the total bill by using the long term capital gains rate.
As a dependent, in 2007, you could only have $850 of income before owing income tax.
So, go back to the 1099-Bs (the CPA can get them from the IRS if you don't have them) and CALL the firm listed. Demand the records from 2007 and any earlier ones they can give you.
Again, if you can show you owned the stock before 2006, this can help. If I buy my stock through my brokerage firm, they even print the cost basis on the year end statement--it's just not something they pass on to the IRS.