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Expect pain, threats of jail time and a HUGE bill for taxes, penalties and interest. In other words, financial ruin.

This is no longer a tax issue, it's a legal issue. She should also be talking with an attorney instead of you. Quite conceivable she could be interviewed by feds.

You can make an election for the trust to be treated as part of the estate. Usually makes things way simpler: one 1041 for both, pick a fiscal year.

If the person was responsible for the deduction and actually paid an amount, then that's the person who deducts that amount, only the amount he/she paid. Unless you're dealing with residents of a community property state (only a very few of my clients are) where you're including Form 8958, you won't have a lot of halfsies. If so, follow the instructions for 8958. Maybe with a joint checking account, both names on deeds, and both spouses agreeing...

A long time client called me this morning, crying, because two agents from the IRS criminal investigation visited her house with a subpoena for her boyfriend ordering him to turn over all his bank and tax records from 2018 to 2023. He is a successful contractor and, apparently, has not filed taxes in many years. He had been using a check cashing service to cash customers' checks and that led the IRS to him. I advised her to tell her boyfriend to get an attorney immediately. I have never dealt with anything like this, and my client asked me what is going to happen next. Has anybody else had dealings with the criminal investigation division and knows what they may expect?

Thank you to all.

Glad to be of assistance!

Thank you, Eric, for your creativity, and thank you, Catherine, for reminding me of my favorite and most-descriptive-of-me-during-never-ending-tax-season emoji! And, it did pop up as Recently Used.

If this was a debt of the corporation, it seems like the S Corp would have been receiving statements and collection notices which it should have paid. Therefore the 1099 C would be the responsibility of the S Corp.

The quote below is from the 1040 instructions below the chart for most people and who must file. That being said, keep in mind that the IRS AUR system goes only by the gross proceeds received and so the taxpayer will receive a notice because it doesn't factor in the cost basis, so in this case I would file the return. Also, parents can't elect to report this on their return because Sch D cap gain transaction is involved. That election is only available if minor child has only interest and dividends.