As someone who went through a similar situation last year, I want to emphasize the importance of understanding the timing of when you'll actually need to pay the AMT. Many people assume the prepaid amount will fully cover both the exercise cost and the AMT liability, but this isn't always the case. When I ran the numbers on my NSO exercise, the AMT hit was actually larger than I expected because of other factors in my tax situation that year. The prepaid forward helped, but I still needed additional cash to cover the full tax liability. Make sure you model out your complete tax picture for the exercise year, including any other income, deductions, or AMT preferences you might have. Also, consider the state tax implications if you're in a high-tax state - some states don't follow the federal rules exactly for these arrangements, which could create additional complexity. California, for example, has its own AMT rules that might treat your situation differently than the federal calculation. The three-year timeline also creates some interesting planning opportunities. If you expect to be in a lower tax bracket in the delivery year (maybe starting your own company with lower initial income), the capital gains treatment could be even more beneficial. Just something to factor into your overall decision-making process.

Before you proceed with this arrangement, I'd strongly recommend getting clarity on a few additional points that could significantly impact your decision: 1. **Exercise timeline pressure**: Since you mentioned being laid off, check your option agreement for the exact deadline to exercise. Most companies give 90 days post-termination, but some allow longer periods. This timeline constraint might be driving you toward this prepaid forward structure when other alternatives could be better. 2. **Alternative financing options**: Have you explored traditional option financing or exercise-and-sell arrangements? Some specialized lenders offer loans specifically for option exercises that might have better economic terms than giving up all future upside on 100k shares. 3. **Liquidity event timing**: Do you have any insight into when your company might go public or be acquired? If there's a potential liquidity event within the next 1-2 years, locking yourself into a 3-year forward contract could mean missing out on significant value creation. 4. **Contract termination provisions**: What happens if your company gets acquired before the 3-year delivery date? Some prepaid forwards have accelerated settlement clauses that might not be favorable to you. The tax treatment you described is generally correct for a properly structured variable prepaid forward, but as others have noted, the current contract terms you described (fixed 100k shares) sound more like a constructive sale. Given the complexity and your time pressure, consider getting a second opinion from another investment firm to compare terms and structures. The fact that this arrangement covers only 100k of your 120k options also means you'll need additional capital for the remaining 20k options anyway - make sure you're optimizing across your entire option portfolio, not just solving for the largest portion.

One thing nobody mentioned yet - when you mail in your paper return claiming the dependent that was already claimed, it will trigger what's called a "duplicate dependent investigation" automatically. The IRS will send notices to both you and the other party who claimed the child. Don't be alarmed when you get this notice! It's just part of the process. Make sure you respond to any IRS letters within the timeframe they specify (usually 30 days).

I'm going through something very similar right now with my nephew who I've had custody of for two years. His mom claimed him even though she hasn't seen him since last spring. One thing I learned is that you should also keep detailed records of things like school enrollment forms, medical appointments, and even grocery receipts that show you're buying food for the child. The IRS wants to see proof that the child actually lived with you and that you provided more than half their support. Also, if you have any documentation from social services or the court system about the foster placement, make sure to include copies of those with your paper return. The clearer you can make it that you're the legal caregiver, the stronger your case will be when they investigate the duplicate claim. Don't let the bio parents intimidate you out of claiming what you're legally entitled to. You're doing the right thing by fighting this!

Has anyone else run into issues with lenders when taking this approach? I did something similar last year, and even though we technically kept the same borrowing entity (the LLC), the bank eventually found out about the ownership change and triggered a due-on-sale clause in the mortgage. Ended up having to refinance at a higher rate.

This is a complex situation that requires immediate attention to several tax and legal issues. First, yes, an S-Corp can legally own 100% of an LLC, but there are critical steps you need to take to properly structure this arrangement. Since you've acquired the single-member LLC, it will become a disregarded entity for federal tax purposes unless you make a specific election otherwise. This means all income, expenses, and activities of the LLC flow through to your S-Corp's tax return (Form 1120S). You'll need to file Form 8822-B to update the responsible party information with the IRS, changing it from the original owner's SSN to your S-Corp's EIN. Regarding your property tax avoidance strategy, I'd strongly recommend checking your local jurisdiction's rules immediately. Many counties and states have closed this "loophole" by defining transfers of controlling interest in entities as taxable events. You may still face reassessment despite purchasing the LLC rather than the property directly. For mortgage payments, you can continue making them through the LLC as normal, but be aware that many commercial loans contain change-of-control provisions that could trigger acceleration clauses when ownership changes occur. I'd recommend consulting with both a tax professional and attorney familiar with your jurisdiction's property tax laws to ensure you're compliant with all requirements and to address any potential issues before they become problems.

Another thing to consider is whether your wife has other income. If the caregiver payments are her only income and it's below the standard deduction ($13,850 for 2023 for single filers), she wouldn't owe federal income tax anyway, regardless of whether the income can be excluded. But she'd still need to file if taxes were withheld and she wants to get a refund.

I'm dealing with a very similar situation with my father's caregiver payments. The confusion about W-2 vs 1099 is really common - I think agencies sometimes don't explain the tax implications clearly when you start. One thing that helped me was requesting documentation from the state program about whether it qualifies as a Medicaid Home and Community-Based Services (HCBS) waiver program. If it does, and if your mother-in-law lives in your home, you might qualify for the difficulty of care exclusion under IRS Notice 2014-7. Even if you qualify for the exclusion, you still need to report the W-2 income on your tax return and then exclude it with proper documentation. The IRS will have already received a copy of that W-2 with your wife's SSN, so not reporting it could trigger questions later. I'd definitely recommend having taxes withheld going forward. Even if you end up qualifying for exclusions, it's better to get a refund than to owe money you weren't expecting.

Just wanted to add my perspective as someone who's been through this process twice now. First time I got a CP0053 was two years ago and I was a complete wreck thinking I'd messed up my taxes somehow. Turned out it was just a routine verification and I got my refund about 10 weeks later. Got another one this year (apparently I'm just lucky lol) but this time I knew not to panic. The key thing I learned is that these notices are WAY more common than people think - the IRS just doesn't do a great job explaining that it's usually no big deal. My advice: set a calendar reminder to check your transcript once a week instead of daily (trust me, your mental health will thank you), and try not to stress about timelines you see online since everyone's situation is different. Hang in there everyone - we'll all get through this waiting game together! 🤞

Just got my CP0053 notice yesterday and honestly this thread is exactly what I needed to see! I was completely freaking out thinking I'd made some major error on my return, but reading everyone's experiences here has been such a relief. It's ridiculous how the IRS sends these notices with basically zero explanation - would it kill them to add one sentence saying "this is routine, don't panic"? 😂 Anyway, sounds like the waiting game is just part of the process. Really grateful for this community sharing their stories and keeping each other sane during these delays. Guess I'll join the club of obsessive transcript checkers now! Thanks for all the reassurance everyone 🙏