John Smythe has a margin account with Investit Investment Company. The stocks and bonds in the account earned dividends and interest of $10,000 in 2019. The $10,000 was paid directly to the margin account and used for reinvestment purposes only. Smythe received a substitute Form 1099-DIV which indicated the composition of the $10,000. However, Smythe did not report the $10,000 as income in 2019. He reported it as income in 2020 when he closed the margin account. The IRS has indicated that Smythe must include the $10,000 in 2019, and in addition to taxes has assessed interest and penalties. Smythe seeks your advice.
(See, for example, A.L. Christoffersen, 84-2 ustc 99990, 749 F.2d 513 (CA-8 1984).)