Tell your coworker to google "IRS frivolous tax arguments" and look at the official IRS website. They literally have a whole section dedicated to debunking these exact schemes and warning about the $5,000 penalty for submitting these arguments. Also search for "tax protester cases" to see how many people have gone to PRISON for this stuff!

Your instincts are spot on - this is absolutely a scam and your coworker is playing with fire. I work in tax compliance and see the aftermath of these schemes regularly. The "Revocation of Election" is complete nonsense with no legal basis whatsoever. The scary thing is that people can get away with it for a few years, which makes them think they're safe. But the IRS has up to 6 years (or indefinitely in cases of fraud/non-filing) to come after you. When they do, it's devastating - we're talking about accumulated interest, failure-to-file penalties, failure-to-pay penalties, plus that $5,000 frivolous filing penalty for each year. I've seen cases where someone owed $15K in actual taxes but ended up owing over $60K after penalties and interest. Your coworker needs to get back into compliance immediately before this gets worse. The longer he waits, the more expensive this mistake becomes.

Just FYI - if you get massages at a spa rather than from a licensed massage therapist with medical credentials, the IRS is much more likely to flag it during an audit. My friend is an auditor and says they specifically look at "therapeutic services" claimed as deductions.

As someone who works in tax compliance, I want to add a crucial point that hasn't been mentioned yet: if you're going to claim massage therapy as a business expense, make sure you're consistent with how you treat ALL your health-related expenses. The IRS looks for patterns during audits. If you're deducting massages as business expenses but claiming other work-related health costs (like ergonomic equipment, supportive shoes, etc.) as medical expenses, it could raise red flags. Pick one classification strategy and stick with it across all similar expenses. Also, since you mentioned you're a hairdresser - if you rent a booth or chair rather than being a direct employee, you're likely self-employed and would have much better luck with the business expense route on Schedule C. Employee hairdressers have very limited options for unreimbursed employee expenses after the 2017 tax changes. Keep receipts, document the connection to your work, and consider having your chiropractor write a brief letter explaining how regular massage prevents work-related injuries in your specific profession. That documentation could be invaluable if you're ever questioned about these deductions.

Just to share some additional insight on this topic - I'm a beneficiary of a trust that regularly uses the 65-day election. My understanding from speaking with our trust administrator is that while the trust reports these distributions on the prior year's return, beneficiaries report the income in the year they actually receive it. However, there's an important nuance: you need to understand the character of the income being distributed. If the distribution represents income that was already taxable to the trust in the prior year (like accumulated income), then the timing of your reporting might be affected. The K-1 you receive should clarify this, but it's often confusing since the K-1 will reference the trust's tax year.

I had this exact issue last year with a family trust. I received a distribution on February 28, 2022 that the trust counted toward their 2021 taxes using the 65-day rule. My tax preparer initially included it on my 2021 return, but after researching further, we amended to report it on my 2022 return instead, since that's when I actually received the money. The key document that clarified this for us was the explanation of the Section 663(b) election in IRS Publication 559. It specifies that the election only affects the trust's deduction timing, not the beneficiary's income recognition. The beneficiary includes the amount in income for the year in which it's received.

I've been through this exact scenario with multiple S-corps over the years. The practical reality is that basis-only corrections rarely trigger IRS scrutiny when there's no tax liability change. However, I'd strongly recommend creating a paper trail regardless of which route you choose. Here's what I typically advise clients: Issue the corrected K-1 marked "AMENDED" and create a detailed memo explaining the error, the correction, and confirming zero tax impact. Keep this with your corporate records. If you're really concerned about potential matching issues, you could file a superseding 1120-S if you're still within the original filing deadline (including extensions), which avoids the formal amendment process. The $800 your accountant wants seems excessive for what should be straightforward paperwork. As a sole shareholder, you have more flexibility here than multi-owner entities. Just make sure whatever you do is well-documented in case questions arise later.

As someone who's dealt with similar K-1 corrections, I'd recommend taking a middle-ground approach that balances compliance with practicality. Since you're the sole shareholder and there's no tax liability impact, you have more flexibility than most. Here's what I'd suggest: First, create a comprehensive correction memo documenting the original error, the corrected amounts, and explicitly stating there's no change to tax liability. Include calculations showing your correct stock basis before and after. Then issue yourself an amended K-1 clearly marked "AMENDED" and reference the memo. For the 1120-S question - if you're really concerned about potential IRS matching issues down the road, consider calling them directly to ask about your specific situation. Sometimes getting their guidance on record can provide peace of mind and documentation that you acted in good faith. The reality is that basis-tracking corrections rarely trigger enforcement action when there's no revenue impact, but having solid documentation is what protects you regardless. Your $800 accounting fee seems steep for what's essentially a paperwork correction with no tax consequences.

dont forget about state taxes too!! I got hit with a $900 penalty because I only did federal quarterlies my first year :

Great question! I went through this exact situation last year with my freelance writing business. Here's what I learned: You're on the right track with the self-employment tax calculation, but you'll also need to calculate the income tax portion. Since your household income is $310k, your consulting income will be taxed at your marginal rate (likely 32% federal). A simple formula I use: Take your net LLC profit × 0.9235 × 0.153 for SE tax, then add your net profit × your marginal tax rate for income tax. Don't forget state taxes if applicable. One thing that helped me was making the safe harbor payment - since your AGI is over $150k, pay 110% of last year's total tax liability divided by 4 quarters. This protects you from penalties even if you underpay slightly. Also consider maxing out business deductions: home office, business meals (50%), professional development, equipment, etc. Every dollar in legitimate expenses reduces your taxable income. The key is staying organized and setting aside money from each payment you receive rather than scrambling each quarter!