Just trying to work out in my head an issue that just came up. With an investment account, (not retirement, 401 or IRA) like Vanguard, if you cash out a portion, what is the obligation to pay taxes on it? Presumably the money (principle?) was taxed before it ever went in to the account. I understand there is a tax consequence on capitol gains or dividends, but this is neither.
I know the IRS isn't infallable, could this just be a stupid mistake on their part?