This is a great example of why W-2 reporting can be so confusing! I had a similar situation a few years ago and initially panicked when my employer moved dependent care benefits from Box 10 to Box 14 on a corrected form. After researching it extensively (and calling the IRS), I learned that the box placement really depends on the specific type of benefit structure your employer uses. If it's truly an employer-provided dependent care assistance program where you never had the option to contribute your own pre-tax dollars, then Box 14 as "miscellaneous non-taxable compensation" can actually be the correct reporting method. The key test is whether the benefit operates as a salary reduction/income exclusion (Box 10) or as additional employer-provided assistance (Box 14). Since your refund increased when you moved it to Box 14, that suggests your tax software is correctly recognizing this as employer-provided assistance rather than treating it as both an income exclusion AND eligible expenses for the dependent care credit. I'd recommend going with your W-2C as issued. Your employer likely consulted with their payroll service or tax advisor before making the correction, especially since they took the time to issue a W-2C specifically for this issue.

This thread has been really enlightening! I work in benefits administration and see this confusion regularly. The distinction between Box 10 and Box 14 for dependent care benefits really comes down to the program structure, as several people have explained. One thing I'd add is that you can also look at your paystubs from throughout the year to help confirm the correct treatment. If the dependent care benefit never appeared as a pre-tax deduction reducing your taxable wages, then Box 14 is almost certainly correct. Traditional DCFSAs show up as salary reductions on your paystubs because they're reducing your taxable income. Since this was purely employer-funded with no salary reduction component, your employer was right to correct it to Box 14. The IRS specifically allows employer-provided dependent care assistance programs to be reported this way when they don't involve employee contributions through a cafeteria plan. The refund increase you saw is actually a good sign - it means the tax software is properly treating this as employer-provided assistance rather than double-counting it as both an income exclusion and eligible expenses for the dependent care credit, which would be incorrect.

Don't overlook self-employment taxes! As a 1099 contractor you'll pay both the employer and employee portions of Social Security and Medicare taxes (around 15.3% total). That's on top of your regular income tax. Make sure you're setting aside enough. I learned this the hard way my first year lol.

Actually, there are a few ways to reduce your self-employment tax burden! First, make sure you're maximizing ALL business deductions (equipment, software, home office, etc.) because these reduce your net self-employment income that the 15.3% is calculated on. Second, you can deduct half of your self-employment tax as an above-the-line deduction on your personal return. Third, consider contributing to a SEP-IRA or Solo 401k if you're making good money - these reduce both your income tax AND self-employment tax. The key is tracking every legitimate business expense since those directly reduce what you're paying SE tax on.

I want to add some perspective from someone who works in tax compliance. The IRS has very sophisticated methods for protecting informant identities, and they take this seriously because they rely heavily on tips from the public to identify tax fraud. When you submit Form 3949-A, the information goes through what's called a "classification process" where it's evaluated and then sanitized before any investigation begins. The IRS will often wait several months before initiating contact with the taxpayer, and they may gather additional information from other sources first to further obscure the origin of the investigation. One thing that might give you additional peace of mind: the IRS often batches these investigations with other cases or combines them with broader compliance initiatives. So even if there are only two people who know about the fraud, the taxpayer might assume the audit is part of a larger sweep of similar businesses or high-income individuals in their area. The key is providing detailed, specific information in your initial report. Include exact amounts, dates, and describe the evidence you have. The more complete your initial submission, the less likely they'll need to contact you for clarification, which further protects your anonymity.

I want to share my recent experience that might help ease your concerns about anonymity. I was in almost the exact same situation last year - had solid evidence of someone hiding substantial income and was terrified about being identified since only a few people knew about it. I ended up filing Form 3949-A and requested to remain anonymous. About 8 months later, I learned through a mutual acquaintance that the person was being audited by the IRS. What really struck me was how the person talked about it - they genuinely seemed to think it was a random audit and kept saying things like "I can't believe they picked me" and "it must be because of my income level." The IRS approached it exactly as others described - they sent a standard examination letter requesting documentation for various income sources, not just the specific items I had reported. The person never once suspected that someone had reported them, even though the audit focused heavily on the exact areas where I knew they were hiding income. The whole experience really reinforced that the IRS takes informant protection seriously. If you have solid documentation and are thorough in your initial report, I'd say your anonymity risk is very low. Just make sure to be as detailed as possible in the form so they don't need to contact you for clarification.

Don't forget about state tax implications too! Federal and state treatment of involuntary conversions don't always align. I'm in California and had to pay state tax on gains that were deferred for federal purposes because CA has slightly different rules.

I went through something very similar after a warehouse fire destroyed my manufacturing business. One thing that really helped me was getting a formal letter from my insurance company breaking down exactly what portion of the settlement was for physical property versus business interruption. Even though my original claim paperwork had this information, having it in a separate letter specifically for tax purposes made the audit process much smoother. The IRS agent could immediately see the clear distinction between the $180k for destroyed equipment (which qualified for deferral when I bought replacement machinery) and the $95k for lost income (which I had to report as taxable income). Also, keep detailed records of when you reinvested the money. The timing requirements for involuntary conversion are strict - you generally have until the end of the second tax year after the year you realized the gain to purchase replacement property. Since you bought your new business 8 months after receiving the payout, you should be well within the deadline, but document those dates clearly for your tax preparer.

As a tax professional who's seen this exact scenario play out many times, I want to echo what others have said - your instincts are absolutely correct here. UPEs should be reported on Schedule E, and your CPA's refusal to provide clear documentation supporting his Schedule C position is a major red flag. What's particularly troubling is his claim that Schedule E reporting creates "immediate scrutiny." This is simply not supported by any IRS guidance or data. If anything, the mismatch between K-1 partnership items and Schedule C business expenses is more likely to trigger questions during processing. I'd recommend giving your CPA one final opportunity to provide written IRS authority supporting his position. Ask specifically for the regulation, revenue ruling, or other official guidance that says UPEs should go on Schedule C instead of Schedule E. When he inevitably can't provide this (because it doesn't exist), you'll have your answer about whether to continue working with him. Your concerns about signing a return that contradicts IRS instructions are completely valid. Don't let anyone pressure you into filing something you're not comfortable with - especially when multiple professionals here have confirmed your understanding is correct.

As someone who's been through partnership tax issues myself, I completely understand your frustration with this situation. What's most concerning to me is not just the technical disagreement, but your CPA's unwillingness to engage in a professional discussion about it. I've read through all the responses here, and the consensus from multiple tax professionals - including a former IRS revenue agent - is crystal clear: UPEs should be reported on Schedule E according to IRS instructions. Your instincts about this are absolutely correct. What really stands out is that your CPA is making claims about "immediate scrutiny" and "red flags" without being able to provide any actual IRS guidance to support these assertions. Any legitimate tax position should be backed by regulations, revenue rulings, or other official guidance. The fact that he's "flat-out refused" to consider the technically correct approach is deeply troubling. I'd suggest giving him one final opportunity to provide written documentation from the IRS that supports putting UPEs on Schedule C. When he can't (because it doesn't exist), you'll know it's time to find a new CPA who prioritizes compliance with IRS instructions over their own unsubstantiated theories about audit risk. Don't compromise on filing a return you're not comfortable with. Your concerns about following IRS instructions are completely valid, and you deserve a tax preparer who will work with you rather than dismissing your legitimate questions.