According to IRS Publication 5367, when a taxpayer experiences a change in dependent claiming status due to death, the IRS system is programmed to provide additional security measures. Per Internal Revenue Code §6109(i), the Identity Protection PIN program is one such measure. I successfully resolved this exact issue for a client last month. After contacting the IRS Identity Verification department, they confirmed this was an automatic security feature. They removed the PIN requirement immediately, and my client's resubmitted return was processed within 72 hours. Their refund was direct deposited exactly 21 days after the accepted resubmission date. The key is getting through to the correct department - specifically request to speak with Identity Verification when you call, not general tax assistance.

I'm dealing with a very similar situation right now! My return was also rejected for a PIN I never set up, and like you, I'm a first-time TurboTax user this year. After reading through these responses, it sounds like the death of your children's father might indeed be triggering additional IRS security measures. I called the Identity Verification line at 800-830-5084 this morning (thanks to those who shared that number!) and while the wait was long, they were able to confirm that my rejection was also due to automatic fraud protection rather than actual identity theft. The agent explained that significant changes in family status - like what you're experiencing - often trigger these safeguards. One thing I learned: make sure you have your previous year's tax return handy when you call, as they'll ask specific questions about prior filing information to verify your identity. Once cleared, they said I should be able to resubmit within 24-48 hours. Hang in there - it sounds like this is more common than we realize, especially for people in our situations with recent family changes.

Another option - you could just increase your withholding at work for the remainder of the year instead of making an estimated payment. Just update your W-4 with your employer to withhold an extra amount from each paycheck. The IRS doesn't care HOW you pay as long as you get enough in by the end of the year. This approach spreads it out instead of making one big payment. Plus withholding is considered "even" throughout the year even if you increase it later, which can help avoid underpayment penalties.

Quick tip - when I was in a similar situation, I just took my capital gains amount, multiplied by 25% and paid that as estimated tax. Better to slightly overpay and get a refund than underpay and get penalties!!

Something nobody mentioned yet - if you're not claiming the child as a dependent this year, make sure you check the box in TurboTax that says "Someone else can claim this dependent" when you enter their information. That way the software knows not to claim them on your return even though you're providing their info.

Just wanted to add my experience with this same situation! I have a similar 50/50 custody arrangement with my ex-husband, and we alternate years claiming our son. What I learned from my tax preparer is that you should definitely put 12 months since your daughter lives with you part of every single month. The key thing to remember is that even though you're not claiming her as a dependent this year, answering the "months lived with you" question correctly is still important for other potential tax benefits you might qualify for, like Head of Household filing status if you're eligible. Also, make sure you and your ex both keep good records of your custody arrangement. I keep a simple calendar noting which days our son is with each parent, just in case the IRS ever has questions. It's never been an issue, but it gives me peace of mind knowing I can document our 50/50 split if needed.

Has anyone considered the rules around "step transaction doctrine"? I've heard the IRS can sometimes claim that direct gifts into an IRA could be viewed as trying to exceed contribution limits if done incorrectly. Would it be safer to just give the money to the grandchild's regular account first?

This is such a thoughtful gift! I went through something similar when helping my adult son with his IRA contributions. The key thing to remember is that the IRS looks at two separate things: 1) whether your grandson has enough earned income to support the contribution (which he clearly does at $85K), and 2) whether the contribution stays within the annual limits. Since money is fungible, it doesn't matter that the $7,000 comes from you rather than his paycheck. Once you gift it to him, it becomes his money to contribute. The IRS won't trace the source of funds in his IRA account. One thing I'd add to what others have mentioned - make sure to keep good records of the gift for your own tax purposes, even though it's well under the annual exclusion limit. It's just good practice to document larger gifts in case there are ever questions down the road. Your grandson is lucky to have someone thinking ahead about his retirement savings at such a young age!

Does anyone know how this works for older children? My son is 16 and he's gotten a job, plus has some investment income from his UTMA. Does having earned income change anything about using UTMA funds to pay the investment taxes?

This is a great question that comes up more often than you'd think! As others have mentioned, you absolutely can withdraw from your daughter's UTMA account to pay taxes that were generated by the account's earnings. This is considered a legitimate expense for the minor's benefit. One thing I'd add is to make sure you're calculating the tax correctly for a 13-month-old. Since she has no earned income, all of her investment income will be subject to the kiddie tax rules. For 2024, the first $1,300 is tax-free, the next $1,300 is taxed at her rate (likely 10%), and anything over $2,600 gets taxed at your marginal rate. With $4,500 in taxes owed, it sounds like she had some substantial gains! Just double-check that you're not overpaying - sometimes people forget about the standard deduction for unearned income or miscalculate which bracket applies to which portion of the gains. When you make the withdrawal, definitely keep documentation showing it was used specifically for her tax obligation. Most custodial account providers are familiar with these types of withdrawals and shouldn't give you any trouble.