Has anyone here dealt with this situation where one of the partners is an S-Corp specifically? I'm concerned about the timing since S-Corps have different filing deadlines than partnerships.

One thing I'd add that hasn't been fully addressed - make sure you understand the potential for imputed underpayment assessments under BBA rules. Even though partnerships are pass-through entities, the IRS can assess and collect penalties at the partnership level for certain adjustments. When you file the 1065-X as your AAR, the IRS will review it and may propose an imputed underpayment based on the highest individual tax rate plus Net Investment Income Tax. The partnership can then make a "push out" election to have the adjustment flow through to the partners instead of being assessed at the partnership level. Given that you're dealing with an S-Corp partner, this could be particularly relevant since the ultimate shareholders might be in lower tax brackets than what the IRS would use for the imputed underpayment calculation. You'll want to consider whether to make the push-out election when filing the AAR or wait to see if the IRS proposes an assessment. Also, since you mentioned both partners agree on the correction, document that agreement well. It'll be helpful if the IRS has any questions about the adjustment during their review process.

I had this exact situation last April! According to the IRS website (https://www.irs.gov/individuals/understanding-your-cp05-notice), these reviews are part of their fraud prevention program. Mine was triggered because I claimed a home office deduction for the first time. The timeline on the IRS site says 60 days, but mine was resolved in 47 days with no additional information requested. The refund just showed up in my account with interest! The IRS Operational Status page (https://www.irs.gov/newsroom/irs-operations) sometimes has updates on processing times for these reviews as well.

I went through something similar when I changed my filing status to Head of Household after my divorce. The CP05 notice can definitely be stressful when you're counting on that refund! In my case, it took about 8 weeks to resolve, but the IRS was specifically verifying my eligibility for Head of Household status and making sure I met the requirements (like paying more than half the household costs and having a qualifying dependent). Since you mentioned this involves your ex-spouse and child tax credits, I'd recommend gathering all your divorce documentation that shows the custody arrangement and who's entitled to claim which children. The IRS sometimes sees duplicate claims and needs to sort out who has the legal right to claim each credit. One thing that helped me was calling the Taxpayer Advocate Service at 1-877-777-4778. They were more helpful than the general IRS line when I needed to understand what was happening with my review. They can't speed up the process, but they can sometimes provide more specific information about what the IRS is looking for. The good news is that in most cases, these reviews end favorably for the taxpayer when everything is legitimate. Hang in there!

A quick tip nobody mentioned: If you're filing a super late return like this, send it via certified mail with return receipt requested. This gives you proof of when you submitted it in case the IRS ever questions the filing date. Has saved my butt more than once.

Don't panic! You're actually in a pretty good position since you mentioned you think you were owed a refund for 2021. As others have said, there are no penalties for filing late when you're getting money back from the IRS. One thing I'd add is to double-check that you haven't already filed electronically through a service you might have forgotten about. You can create an account on the IRS website and view your tax transcripts to see what they have on file for 2021. This will show you if anything was already submitted and what your actual refund amount would be. Also, since you have all your documents ready to go, consider using tax software that supports prior year returns rather than trying to fill out the forms by hand. It'll catch calculation errors and make sure you don't miss any deductions. Just remember - you'll need to print and mail it since e-filing isn't available for 2021 returns anymore. The April 18, 2025 deadline is coming up fast, so definitely prioritize getting this done soon if you want to claim that refund!

Is there a quick way to estimate how much EIC I might get? I'm a single parent with 2 kids making about $32,000 from my job and some gig work.

Just to add some clarity for the original poster @Malik Johnson - since you mentioned you're a bartender with tips, make sure you're reporting ALL your tip income accurately. The IRS pays close attention to tip reporting in the service industry, and underreporting tips can not only get you in trouble but also reduce your EIC since it's based on your reported earned income. If your employer doesn't already track and report all your tips through payroll, you'll need to use Form 4137 to report unreported tip income. This includes cash tips that customers give you directly. Many bartenders don't realize that underreporting tips actually hurts them twice - once by potentially triggering an audit, and again by reducing credits like the EIC that they're entitled to. With your AGI being lower than your gross due to 401k and health insurance, you're in a good position for the EIC. Just make sure your tip reporting is accurate and complete!

Has anyone used QuickBooks Time or similar apps for tracking material participation? My accountant suggested it but it seems like overkill for just partnership documentation.

For what it's worth, I've been through a similar situation with health issues affecting my participation hours. One thing that helped me was realizing that time spent on administrative tasks like reviewing financials, insurance matters, vendor negotiations, and even business-related phone calls all count toward material participation - not just the obvious "management" activities. Since you mentioned health issues, don't forget that time spent dealing with business insurance, worker's comp issues, or even reviewing partnership agreements during your recovery could count. I kept a simple daily log in my phone's notes app during my recovery period, just jotting down "reviewed bank statements - 30 min" or "client follow-up call - 15 min" throughout the day. Also, consider the "facts and circumstances" test if you don't hit the hour thresholds. Given that you're a 50% owner actively involved in operations (even if reduced due to health), you might still qualify as materially participating. Documentation becomes even more crucial for this test though.