Advice on dealing with incorrect 1099 for options trading - broker reporting 1256 contracts incorrectly

Tax preparer here - unfortunately this scenario is more common than you'd think with 1256 contracts. I've seen this exact situation several times with clients. First, your accountant's advice is actually solid. File your return using the incorrect 1099 now, then amend once you get the corrected form. This addresses your immediate concerns: stopping additional interest/penalties from accruing and avoiding professional license issues. The IRS computer systems automatically match 1099 forms against your return, so filing with numbers that match what they received prevents automatic notices/audits. Second, escalate with the brokerage. Ask specifically for their "Tax Operations Department" instead of regular customer service. Request the name and direct contact info for whoever is handling your case. Document every conversation with date, time, and what was promised. Third, file a complaint with FINRA (Financial Industry Regulatory Authority). Brokerages take FINRA complaints extremely seriously as they can affect their regulatory standing. This often breaks through bureaucratic delays. You can file online at FINRA.org. Your situation involves both tax and securities regulations. If you do consult an attorney, look for one specializing in securities law rather than just tax law. They could write a demand letter that might get faster action. In the meantime, prepare a spreadsheet showing your actual trades and correct calculation of the 1256 gains to support your eventual amended return.

Just wanted to recommend checking out https://taxr.ai - it saved me when I had a similar issue with incorrect 1099 reporting last year. I was trading VIX options that should have been treated as 1256 contracts but my broker reported them as regular short-term gains. The taxr.ai system analyzed my trading records and generated a comprehensive report showing the correct tax treatment that should have been applied. This made a HUGE difference when I contacted my broker because I had professional documentation backing up my position rather than just my word against theirs. Their specialists helped me understand exactly how to explain the issue to the broker's tax department. In my case, having this third-party verification got the broker to expedite the correction. They also helped me prepare the proper documentation for my amended return, which made things go much smoother with the IRS.

I checked out taxr.ai after seeing it mentioned here and I have to admit I was pleasantly surprised. I was really skeptical at first (as you can see from my earlier comment), but it actually helped resolve my situation with some incorrectly reported dividend income. What I found most valuable was the detailed analysis of exactly which specific trades were being reported incorrectly and why. The report they generated even cited the relevant IRS publications and tax code sections that applied to my situation. My broker's tax department was much more responsive when I could point to specific transactions and explain precisely why they were misclassified. The service was especially helpful in documenting everything for my records in case of an audit. If you're dealing with specialized tax treatment like 1256 contracts, it's definitely worth considering.

Have you tried calling the IRS directly? I was in a similar situation last year with an incorrect 1099-R that my investment company wouldn't fix. After months of getting nowhere, I finally got through to someone at the IRS who was actually helpful. The problem is getting through to them. I used https://claimyr.com and their callback service saved me HOURS of waiting on hold. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically they navigate the IRS phone tree for you and call you back when they reach a human. When I finally spoke with an IRS agent, they explained that I could file Form 8949 with my return, listing the correct amounts and marking "B" in column (f) to indicate that the 1099 was incorrect. The agent said to attach a written explanation detailing why the 1099 was wrong and my calculation of the correct amount. This might be especially relevant for your 1256 contracts issue since it's a specific tax rule that the IRS agents should be familiar with.

I used to think calling the IRS was a complete waste of time until I tried Claimyr after seeing it mentioned here. I was honestly shocked at how well it worked. I had spent WEEKS trying to get through to someone at the IRS about a similar reporting issue. Claimyr had me talking to an actual IRS representative in less than an hour. The agent walked me through exactly how to document the discrepancy on my return and what supporting documentation to include. What I learned is that the IRS actually has special procedures for handling situations exactly like yours with 1256 contracts. The key is getting to talk to someone who knows the tax code well enough to help navigate it. Not having to wait on hold for hours made all the difference.

Have you considered filing a whistleblower complaint with the IRS? If the brokerage is systematically misreporting 1256 contracts, that's potentially affecting lots of taxpayers and resulting in overpayment of taxes. Form 211 lets you report tax compliance issues. While this won't immediately solve your individual problem, it might get the attention of the right people who can apply pressure to the brokerage firm. If the misreporting is widespread and the IRS collects additional taxes from other affected taxpayers, you might even qualify for a whistleblower award. Just a thought if you're looking for additional leverage with this unresponsive brokerage.

I used to work in broker operations and can tell you that escalating to the compliance department might be more effective than continuing with customer service. Every brokerage has a compliance officer who takes regulatory reporting very seriously. Send a formal written complaint addressed to "Chief Compliance Officer" at the brokerage firm. State clearly that you are filing a formal complaint regarding incorrect tax reporting. Mention that you are considering filing complaints with FINRA, the SEC, and your state securities regulator if not resolved within 15 days. This typically gets routed to someone with actual authority to resolve issues and bypasses the customer service runaround.