7 Stupid question maybe - but why do we even have different rates for short vs long term gains? Seems needlessly complicated.

The different rates also help account for inflation over longer holding periods. When you hold an investment for several years, some of your "gain" is just due to general price increases in the economy, not real investment growth. The lower long-term rate partially compensates for this inflation effect. Additionally, there's an economic argument that capital gains shouldn't be taxed as heavily as ordinary income since the money used to make the investment was likely already taxed when it was earned as wages or business income. The preferential rate recognizes this "double taxation" aspect. For your specific situation with $7,500 short-term and $12,300 long-term gains, you'll save about $861 in taxes compared to if everything were taxed as ordinary income (22% vs 15% on the long-term portion). That's a pretty significant benefit for holding those investments over a year!

This is really concerning and I'm glad you're questioning it. I work in financial services and deal with privacy regulations regularly - what your preparer is asking for creates huge liability issues for both of you. Tax preparers keeping copies of birth certificates, SSN cards, and utility bills on file is a recipe for identity theft disaster. These documents contain everything someone would need to steal your identity, and most small tax prep offices don't have the security infrastructure to properly protect this sensitive information. The IRS has specific guidelines about what preparers need to verify versus what they need to keep. They're required to exercise due diligence in verifying information, but this typically means seeing documents to confirm accuracy, not storing copies permanently. I'd strongly recommend having a direct conversation with your preparer about why they believe this is necessary and asking them to cite the specific IRS requirement. If they can't provide a legitimate source, you should definitely consider finding a new preparer. Your instincts about this being excessive are absolutely correct.

Your instincts are absolutely right to be suspicious about this. I've been filing taxes for over 15 years and have never had a preparer ask to keep copies of birth certificates, report cards, or utility bills. This is definitely NOT a standard IRS requirement. What's particularly concerning is that your preparer of 8 years is suddenly implementing this policy without a clear explanation. If this were truly a new IRS mandate, it would be widely publicized and you'd be seeing news about it everywhere. The IRS Publication 4134 (Due Diligence Requirements) outlines what tax preparers actually need to do for verification - it involves asking specific questions and completing checklists, not hoarding your personal documents. Most legitimate preparers will ask to SEE documents like SSN cards to verify numbers are correct, but keeping copies is excessive and creates unnecessary security risks. I'd suggest asking your preparer to provide the specific IRS publication or notice that requires this document collection. If they can't produce it, or if they give you vague answers about "new rules," that's a major red flag. Trust your gut on this one - it sounds like either your preparer is misinformed about requirements or is implementing their own overly cautious policy without properly explaining it to clients.

Thanks everyone for sharing your experiences - this has been incredibly helpful! Based on all the responses, it's clear I did mess up by not researching this beforehand. The consensus seems to be that preferred MLP units generate UBTI just like common units when held in an IRA. I'm going to take a multi-pronged approach: first, I'll call Energy Transfer's investor relations to get their historical UBTI breakdown as Maria suggested. Then I'll contact my IRA custodian to understand their process for handling Form 990-T filings and any associated fees. Given what Zoe mentioned about the $300 filing fee plus potential taxes, I'm seriously considering moving these holdings to my taxable account before the UBTI becomes a bigger issue. The tax-deferred nature of MLP distributions in a regular brokerage account actually sounds more advantageous than dealing with UBTI complications in my retirement account. Has anyone here successfully transferred MLP units from an IRA to a taxable account, or would that be considered a distribution that triggers immediate tax consequences?

I've been through this exact situation with Energy Transfer preferred units in my IRA. Here's what I learned from my experience: First, yes - preferred MLP units absolutely generate UBTI just like common units. The partnership structure means all the income flows through with its original tax character intact, regardless of whether you hold common or preferred units. Second, don't panic about the immediate impact. In my case, the actual UBTI from Energy Transfer's preferred units was around $800 last year, which stayed under the $1,000 threshold that triggers Form 990-T filing requirements. The key is understanding that not 100% of your distributions will be UBTI - it depends on the underlying income sources of the MLP. Third, I'd strongly recommend getting your hands on last year's K-1 for Energy Transfer (you can usually find these on their investor relations website) to see the historical breakdown of income types. This will give you a realistic picture of what to expect rather than worrying about hypothetical worst-case scenarios. Finally, regarding transferring out of your IRA - as others mentioned, you can't do a direct transfer. But before taking a taxable distribution, wait to see your actual tax impact. The filing fees and potential taxes might still be less costly than the immediate tax hit and loss of tax-advantaged space in your retirement account.

Just want to add that even if you don't have to report the crypto gains on your US tax return, you should definitely be reporting them in Canada. The CRA (Canadian Revenue Agency) requires Canadian residents to report worldwide income, including all cryptocurrency transactions.

This is exactly the kind of situation where getting proper documentation is crucial. I went through something similar as an F-1 student from the UK with crypto gains. The consensus here is absolutely correct - as a non-resident alien, your crypto capital gains are sourced to your country of tax residency (Canada), not the US. This means you don't report them on your 1040-NR. Your CPA gave you the right advice. However, I'd strongly recommend getting this determination in writing somehow, whether through an official IRS consultation or at minimum keeping detailed records of your research and professional advice. The crypto tax landscape is still evolving, and having documentation of your reasoning will be invaluable if questions ever arise later. Also make sure you're keeping meticulous records of all your transactions for your Canadian tax filing - the CRA will definitely want to see those gains reported there since you're a Canadian tax resident.

Wait I'm confused about the amended return process. Does filing an amended return increase your chances of getting audited? I'm in a similar situation but worried about drawing attention to my return.

I've been through this exact situation and it's so frustrating! Here's what I learned: you definitely have options, but you need to act relatively quickly since you have 3 years from the filing date to amend and get a refund. First, get everything documented. Have that new tax professional write up exactly what errors were made and what the correct approach should have been. This documentation is crucial whether you're trying to work things out with your original accountant or need to take other steps. Then approach your original accountant professionally with the documentation. Don't go in guns blazing - just present the facts: "I had my return reviewed and these specific errors were identified. How can we resolve this?" Many accountants will fix their mistakes once presented with clear evidence, especially if they're worried about their reputation. If they refuse to help, you still have several options: - File the amended return yourself or hire someone else - File a complaint with your state board of accountancy (if they're a CPA) - Pursue compensation through small claims court for larger amounts The key is staying organized and keeping detailed records of all communications. You signed the return, yes, but that doesn't mean you're stuck with an accountant's professional negligence. Good luck!