I'm surprised nobody mentioned IRS Publication 525! It specifically addresses this on page 12 under "How to report stock option income." It clearly states you need to adjust your basis by the amount included as income. The trickier part is making sure you account for the reverse split correctly. When I went through this, I created a simple spreadsheet that tracked: - Original shares and exercise price - FMV at exercise (from 3921) - Amount included in income that year - Post-split shares and adjusted basis Also, if you're in a state with income tax, make sure you're adjusting your state basis too! Many people forget that part.

This is such a helpful thread! I'm dealing with a similar situation but with a twist - my company did multiple corporate actions (a reverse split AND a spinoff) between when I exercised my ISOs and when I sold. From reading everyone's responses, it sounds like the key principle remains the same - adjust my cost basis to include what I already paid taxes on from the Form 3921. But I'm wondering how to handle the spinoff portion. Did anyone here deal with spinoffs in addition to splits? Also, @AstroAce, your math example really helped clarify things for me. I was getting confused about whether to adjust the total basis or the per-share basis, but seeing it broken down like that makes it crystal clear. One more question for the group - has anyone had success explaining these adjustments directly in their tax software's notes section, or is it better to attach a separate statement? I'm using TurboTax and want to make sure I document everything properly.

Sorry this happened to you. Just to add a warning - be extra careful with this. My friend tried to claim stolen crypto as a loss in 2024 and got audited. The IRS made him provide tons of documentation. They're REALLY suspicious about crypto "theft" claims since some people try to use it to avoid taxes. Make sure you have solid proof it was actually stolen!

I went through something very similar last year when my hardware wallet got compromised and $15k in crypto was stolen. Here's what I learned from working with a tax attorney: You absolutely need to report the "sale" on Form 8949 as if you disposed of the crypto on the date it was stolen, but you can also claim a theft loss. The key is having bulletproof documentation - police report, wallet provider confirmation of unauthorized access, transaction logs showing the transfer to unknown addresses, and any communication attempts with exchanges where the thief cashed out. One thing that helped my case was getting a forensic analysis from a blockchain analytics company that traced the stolen funds and showed they were mixed/tumbled, which is classic money laundering behavior thieves use. This cost me about $500 but was worth it during my audit. Also, keep in mind that theft losses are subject to a $100 floor per incident, and you can only deduct the amount that exceeds 10% of your adjusted gross income. So depending on your income, you might not be able to deduct the full loss amount. The process is stressful but doable if you have proper documentation. Don't let the fear of an audit stop you from claiming what you're legally entitled to claim.

Has anyone dealt with a situation where the original shares had stock splits between the first death and second death? My parents had a similar situation but there were 3 stock splits between my dad's death and mom's death, and I'm having trouble figuring out how to calculate everything correctly.

This is exactly the kind of complex inheritance situation where getting professional help is worth every penny. Based on what you've described, Yuki is correct - the cost basis should step up to the fair market value at your aunt's death in 2018, not your uncle's death in 1992. However, determining that 2018 value for a non-publicly traded company is going to be the challenging part. Since the company was acquired in 2023, you might be able to work backwards from the acquisition price, but you'll need to account for any changes in the company's value between 2018 and 2023. I'd strongly recommend consulting with both a tax professional and potentially a business valuation expert. The amount of tax you could save by getting the basis calculation right will likely far exceed the cost of professional help. Plus, having proper documentation will protect you if the IRS ever questions your return. Don't let this sit too long - there may be deadlines for claiming certain elections or filing estate-related forms that could affect your tax situation.

I went through this exact nightmare last month! What likely happened is that when your return was rejected, the IRS system created a "pending" status that didn't fully clear out. This is actually a known glitch in their e-file system. Here's what I'd recommend trying in this order: First, wait exactly 72 hours from when you got the rejection notice, then try e-filing again. Sometimes their system just needs that full processing cycle to clear the flag. If that doesn't work, try calling the e-file help desk at 866-255-0654 early in the morning (like 7 AM EST) when wait times are shorter - they can manually remove the "duplicate filing" flag from your account. If you absolutely can't get through by phone and need to file by paper, make sure you print everything correctly and use certified mail. Paper returns are taking 8-10 weeks right now, so you won't see that $2,870 refund until probably late June or July. One thing that helped me was keeping a detailed log of every rejection code and error message I received. When I finally got through to an IRS agent, having that information made it much easier for them to identify exactly what was blocking my account. Good luck - this situation is super frustrating but it is fixable!

I actually work in tax preparation and see this issue multiple times every season! What's happening is that when your return gets rejected, the IRS system sometimes creates what we call a "phantom filing" - basically their database shows an attempted submission tied to your SSN even though the return was never actually processed. The 72-hour waiting period that others mentioned is usually the magic number, but sometimes it can take up to 5 business days for their system to fully clear. Before going the paper route (which really will delay your refund by 6-8 weeks minimum), I'd suggest trying one more e-file attempt after waiting the full 72 hours. If you're still blocked after that, definitely call the e-file department at 866-255-0654. When you call, have your SSN, the exact rejection code you received, and the date of rejection ready. They can see the "duplicate filing flag" on their end and remove it instantly - I've seen this resolve the issue for clients in under 10 minutes once they get through to an agent. One tip: if you get the "high call volume" message, don't hang up right away. Sometimes if you wait through that message, you'll still get put in the queue. The absolute best times to call are Tuesday-Thursday between 7-9 AM EST when their call volume is lowest.

Has anyone tried using Sprintax for this? I heard it's specifically designed for international students and handles tax treaties better than general tax software.

I went through this exact same situation last year as an F1 student from India! After reading through all these helpful responses, I wanted to add one more important detail that saved me from making a mistake. When you're claiming the standard deduction under the US-India tax treaty, make sure you're NOT also itemizing deductions on Schedule A. I almost did both by accident because I had some education expenses I wanted to deduct. But you have to choose one or the other - either take the standard deduction (which is usually better for students) OR itemize your deductions. The standard deduction for 2023 tax year is $13,850 for single filers, which is typically much more than what most F1 students can itemize anyway. So definitely go with the treaty benefit standard deduction! Also wanted to confirm what others said about Form 8833 - it's absolutely required when claiming any tax treaty benefit. Some tax software includes it automatically, but double-check that it's part of your filing package before you submit.