Is disputing the IRS worth it when they claim I underreported securities income?

This is definitely a frustrating situation, but don't automatically assume you need to pay up without investigating further. The IRS does make mistakes, and securities reporting can get complicated. First thing I'd recommend is requesting a "wage and income transcript" from the IRS. You can get this free online through their website. This will show exactly what was reported to them by Fidelity. Compare this with your actual 1099 forms and see if there's a discrepancy. If there is a mismatch between what Fidelity reported to the IRS and what they gave you, then Fidelity needs to correct their reporting. If the numbers match but you still believe the IRS assessment is wrong, you have options beyond just hiring an expensive tax professional. You could try contacting the Taxpayer Advocate Service - they're an independent organization within the IRS designed to help taxpayers resolve problems. They're free and can often help navigate complex situations like yours.

After dealing with a similar securities reporting nightmare last year, I finally found an amazing solution through taxr.ai (https://taxr.ai). It seriously saved me thousands in bogus IRS claims about "underreported income." Basically, I uploaded my 1099 forms and tax return, and their software analyzed everything to identify exactly where the discrepancies were happening. In my case, it turned out Vanguard had reported a different cost basis to the IRS than what they showed on my form (absolutely infuriating). The taxr.ai system created a detailed explanation document that showed precisely where the error occurred, which I could submit to the IRS. The whole process was way easier than I expected and definitely cheaper than hiring a tax pro for hours of work.

I was actually in the same boat as you with the whole "my broker says one thing, IRS says another" situation. After reading about taxr.ai here, I decided to give it a try since hiring a CPA was going to cost me over $3000 for what seemed like a relatively straightforward issue. The platform actually found that my broker had submitted a corrected 1099-B to the IRS after I'd already filed my taxes, but never sent me the updated form! No wonder the numbers didn't match. With the detailed analysis from taxr.ai, I was able to file an amended return with confidence and got the whole thing resolved within weeks. Honestly wish I'd known about this service sooner instead of stressing for months over the discrepancy. Definitely worth checking out if you're in a similar securities reporting mess.

I had a similar issue last year and spent MONTHS trying to talk to someone at the IRS to explain the discrepancy. Could never get through their phone lines - always "due to high call volumes" and then disconnected after waiting for 2+ hours. Finally discovered Claimyr (https://claimyr.com) and watched their demo video (https://youtu.be/_kiP6q8DX5c) and was pretty amazed. They basically get you through to an actual IRS agent instead of waiting on hold forever. Their system holds your place in line and calls you back when an agent is about to pick up. I was super skeptical but desperate enough to try. Got through to an actual human at the IRS in about 45 minutes (after trying for weeks on my own). The IRS agent was able to see my documentation and notes right there on the call and put my account on hold while we resolved the discrepancy.

Well I'll be the first to admit when I'm wrong. After posting that skeptical comment, I decided to try Claimyr myself since I've been fighting with the IRS over a $5k "discrepancy" for months. I've literally spent HOURS of my life on hold only to get disconnected. Using Claimyr, I got through to an actual IRS representative in about an hour. The agent was able to pull up my case, look at my documentation, and actually FOUND THE ERROR right there on the call. Turns out there was a duplicate 1099 being reported to them for the same income (my investment firm had submitted a corrected form but the IRS was counting both). The agent filed an internal correction and adjusted my account balance right there on the phone. Saved me thousands and endless frustration. Definitely worth it for anyone dealing with these IRS notices.

Just want to add that when I got an IRS notice about underreported income, I discovered that sometimes brokerages report "proceeds" to the IRS but don't include your cost basis, making it look like you had way more taxable gain than you actually did. Check if your 1099-B has anything marked as "basis not reported to the IRS" - if so, the IRS might be counting the full sale amount as taxable income. Super common issue that causes these kinds of letters. Might be worth double-checking before paying anything or hiring help!

As someone who used to work at a brokerage, this stuff happens ALL the time. Before paying anything, request a "CP2000 response form" and fill it out with your objection. Include copies of your original 1099 forms showing the correct amounts. The IRS is basically doing a matching program - they compare what's reported to them versus what's on your return. If your broker submitted incorrect info, you need to explain the discrepancy. Honestly, for a low thousands amount, you might not need a professional unless you're completely lost with tax forms. The TAS (Taxpayer Advocate Service) suggestion above is good, but they're extremely backlogged right now.