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She needs a new boyfriend.

If this happens I will be glad to write correspondence, but I am not going spend hours on hold. Everything will just take much longer and the processing backlogs for amended tax returns will increase dramatically.

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.

Most likely there is a lot more to this case than just failure to file. CI investigates major crimes like fraud, money laundering, narcotics--things that land the perpetrator in prison. The only failure to file cases listed on the website as part of their duties are those jerks who claim income taxes are illegal. I've sat through several presentations by CI and learned that these people carry guns, often work with the FBI, and mean business. That said, do not discuss the case further with your client. If you do and she is called to testify, anything she tells you is not privileged as it would be with an attorney.

Maybe ProtectionPlus will pay off this year!

Thanks for all the advice. She has not told me anything else about this other than what happened today. I did tell her to make sure he gets an attorney ASAP. When CI gets involved I know it's serious. Her main worry is if they are going to take the house and she is going to be left homeless. I have never met him or talked to him so I'm not worried about any involvement on my end.

Tax Advisor article on COD income in pass through entities, effect on tax attributes, and basis adjustments. It does also have a subheading specific to S Corp handling, but read it all. https://www.thetaxadviser.com/issues/2015/may/tax-clinic-06.html

Lawyer up, fast. Him especially and he should start gathering information but not talk to any IRS agent (other than to say "my attorney will be speaking with you") from here on out. But she needs to, as well, as they may want to see what she knew. You probably don't need an attorney instantly, unless she has discussed this with you other than this morning in a panic as to who to talk to. Green & Sklarz in Connecticut have an excellent reputation; try them.

Sounds like the attorney's advice was worth what the client paid for it (or maybe less).

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?

As well it should. Scumbag!

No, that is only for discussing the 6% tax on excess contribs. I agree that the 6% penalty does not apply. In my original post, I gave you the direct instructions from form 8606 that tells you to include on 1040, line 4a the total withdrawn to correct this (the total of the excess+earnings). Then, 1040 4b, include only the earnings. The earnings withdrawn will be taxable, but not the excess contrib itself. Also, remember that it also tells you to attach a statement of explanation to the return. In addition to the 8606 instructions I'd posted earlier, here is the snip from the instructions for 1040, lines 4a & b:

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

Form 3115

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...

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.

remember, @Eric gave us this one some years ago.

I go by gross income, assuming the broken IRS doesn't have the basis or lost it or didn't add it to client's account yet or... It's faster to e-file a return now than to craft an answer to an IRS letter a couple years from now. Filing can also prevent (or uncover more quickly) ID theft.

I agree that the IRS staff answers incorrectly more often than correctly. The only thing I found on IRS.gov is from 2011: The money received is taxable and should be reported on Form 1040, line 21 as “other income.” https://www.irs.gov/pub/irs-utl/VTA_2011-08_Cash_for_Keys_Program.pdf I remember some changes during Covid. I don't remember specifics or whether any changes continued after Covid. Please post when you find a current answer.

Taxable. You can't rely on anything an IRS representative answering the phone tells a taxpayer, and especially if you were not privy to the conversation and know exactly what your client told the person or asked.

They can allocate it using any percentages they want as long as they are in agreement. They must use the same percentages for all of the months. Yes, you could give 100% to him and 0% to her. If they can't agree, then it is split 50-50 to each. The following is from the 8962 instructions.

Parks and Rec fan?

If it's been the 21 days and client calls me about their refund, I'm going to tell them to make phone calls to their Rep and both Senators.

Stick only to the above and I won't delete the topic. We aren't going to discuss Musk, his strategies, whether or not he can or can't be stopped, or anything else remotely related to his actions. Tom, thanks for trying to be diplomatic.

I guess DNR is better than DOA.

I was speaking with an agent in Buffalo yesterday. She is asking that we get stuff to her no later than Thursday of next week. She thinks that they are going to be let go on Friday (Mar 7). Has anyone else heard this? She then said "I probably shouldn't be telling you that."

Per the AP: "The IRS is drafting plans to cut as much as half of its 90,000-person workforce". It also sounds like the major cuts are coming in May, not now. When we get the IRS letters in August, we are going to be spending some serious time on hold.

"Internal Revenue Service: More than 110 IRS offices that handle taxpayer assistance will be closed, according to a plan from the U.S. General Services Administration obtained by The Washington Post, as the Trump administration began layoffs of about 7,000 workers in mid-February, at the peak of tax season, multiple outlets reported."

I haven't heard anything that specific, only that layoffs during the season are to take place and that services will be affected.

If you follow the career of Elon Musk, he believes you need to get rid of 5% of your workforce every year so the other 95% will step up their effort for fear being fired. Not saying this is right, but that is how he operates. He is bringing this mentality to all government jobs. I am not sure how this will work out, do the unions have enough sway to stop this or will Musk get his way. Time will tell. Tom Longview, TX