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I carry E&O because we live in a litigious society.

I see society in a way where sense is no longer common, and where the first reaction to any issue is "it could not have been my fault, who can I get to pay". Nuisance/go away/key money is large enough to be life changing to some, and those who pay (us) seem to not want to fight with dollars, and would rather pay for the problem to go away. My first message of the day was from someone who just updated their computer to a new OS version, and wrote me a nastygram about how my software failed after the OS upgrade (it did not). Now uncommon sense would have triggered the OS upgrade as the cause of the issue, but I can be easily reached, MS cannot, so MS successfully offloads their support on others (again).

Almost cannot believe it. IRS processing must be eons behind. Last year I efiled my extension return in October-mailed check the same day-they cashed it five days later-then immediately billed me for that exact amount stating I owed them for the income tax. I mailed front-and-back copy of cashed check to expedite correction (against a board member's advice to just let it work it's way out). Thus began a series of IRS monthly letters, each advising they had received my correspondence but needed an additional 45 days to look into the matter. The fifth letter (five months later) stated that yes, they had, indeed, received and cashed my check after all and to forget the whole thing. Same thing this time; efiled and paid October 1st, check cashed October 9th, received IRS letter October 21st demanding payment of same. This time I WILL take that advice; they'll throw me in debtor's prison first.

From handy dandy Quickfinder - If the business or rental portion of the taxpayer's home was used as a personal residence for two of the five years before the sale, the taxpayer can exclude the gain on the entire home (except for any depreciation allowed or allowable after May 6, 1997). An example provided even uses the same years as your client! So up to $250,000 less the part of the gain equal to the depreciation allowed while renting the house.

The IRS only looks back 6 years. If the prior year returns (more than 6 yrs) are sent to the IRS, they will be rejected, unless they are still open because of an assessment made in a SFR.

Unless this is a voluntary "come clean", only send exactly what is ordered in the form ordered. Nothing extra, nothing missing per the order(s). Sent with proof of delivery and signature required. (The last part is "new" for me, but I had to send something not too long ago. It arrived the day before the government shut down, and having that proof of delivery helped later when the office reopened.) Why I say only what is ordered is maybe the agency only goes back part way, not the full ten, and maybe even more likely, to not ever provided "extra".

But the "assignment" of income earned by individuals and reported in their SSNs is an issue. No matter where the checks are deposited, how can they avoid reporting Forms 1099-MISC in their own SSNs on their own Forms 1040 Schedules C or other appropriate schedules? I guess they could then pay an administrative company to provide them administrative services, such as office space, a receptionist, office equipment, phone answering, etc. But, they might be shareholders but would not be providing services to that administrative company so wouldn't be employees or receive Forms W-2, right? Have they worked with a lawyer in their state to form the corporation, write up an operating agreement, etc.? They need to have you and their lawyer and their banker and any other advisors work together with the shareholders.

Margaret has it right! Love your brain picture. After 10/15, many of us are "vacationing" or needing to do this:

The returns can be sent on one package provided each return is in a separate envelope, marked with the year it pertains to. Otherwise, it often happens that only the top return gets processed. I suggest getting both the IRS Wage and Account transcripts. A lot of things could show up that would affect the returns.

I am very curious as to how checks paid to individuals and 1099 income reported to the IRS in Box 7 with the matching SSN numbers of the same individuals is reported as Corporate Revenue. What would be the logical justification ? Frankly, my creative imagination doesn't stretch that far.

Could also be a Qualified Domestic Relations Orders in which case the amount paid to ex are taxable to her. You need find out exactly what the court order was and how much actually was paid to ex.