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jm, what you are experiencing is the IRS's anti-fraud filters in action! I was at a seminar last week where the IRS liaison told us the IRS had 10 filters in place just a few years ago; now they have 140. Hmmm....here's a taxpayer who hasn't filed in years and suddenly surfaces with a K-1 (that won't be in the system for months) and wants a big refund. Or it could be that someone who knows she doesn't normally have to file has been filing using her identity. That someone got hung up in the filters this year, and now the agency wants to identify the real taxpayer. Or maybe she does file but her income is so aberrant this year that the return was hung up by a filter. We've had lots of clients get letters this year asking to see their information documents (the same standard letter your client got). Some were understandable--they changed addresses, banks, names. Others seemed to have no reason except that just maybe a bogus return had been filed using their identity and the filters put it in limbo, waiting for the real taxpayer to come forth.

I R S.....=......Isn't _ Really _ Sensible.

Mom was fully expecting to pay tax on the gain - and she is in a better position to pay it, as well. (New grandbaby so daughter is home for a while, and mom has a good job). I was just over-thinking things and wanted to make sure I was reporting correctly. I think so. Thanks to all for your responses!

How about this? Report the sale on the 8949, then zero out the gain in the adjustments column with a code "N". The kids can then use the same purch date and sale date as mom on their Schedule D + 8949, reporting the gain as the selling price with zero basis. This means no one gets the benefit of the principal residence exclusion, but at least the ones who benefitted the most pay the taxes. It's a bit of a stretch, but might be OK. If an audit ever occurred, everybody could settle up with one another if IRS takes a different position on who should report the gain. I'd probably do it this way only if the kids do meet the "beneficial & equitable owner" test.

Were the residents equitable owners? Not renters? (Not FMV renters.) Second home.

Personal loss on personal residence. It was no longer a business asset when sold.