I reported a similar situation exactly 14 months ago. Here's what worked for me: 1. I documented 47 specific instances of suspicious activity over 6 months 2. I noted precise dates, times (9 of which were on weekends when the register was conveniently "broken") 3. I estimated amounts based on average customer spending ($75-125 per transaction) 4. I provided 3 witness statements (not required but strengthened my case) The IRS never confirmed they received my Form 3949-A, but approximately 8 months later, the business was closed for 3 weeks and reopened with new POS systems and proper receipts. So something definitely happened.

Just to add another perspective - I submitted Form 3949-A about 18 months ago for a restaurant that was clearly underreporting cash sales. A few key things I learned: 1. The IRS prefers specific patterns over isolated incidents. Your weekly observations of $2,500-3,000 over 3 years is exactly what they're looking for. 2. Don't overthink the documentation. The form is designed for concerned citizens, not forensic accountants. Your observations, dates, and estimates are sufficient. 3. Submit online through the IRS website if possible - it's faster than mail and you get an immediate confirmation number. 4. Keep a copy of everything for your records, but don't expect any follow-up communication. The business I reported eventually started using proper POS systems about 10 months later, though I'll never know if my report was the catalyst. The important thing is you're doing your civic duty by reporting suspected tax evasion. The IRS has the resources to investigate properly once they have reasonable suspicion.

For what it's worth, I think the chances of getting audited solely because of a mortgage interest deduction mismatch are pretty low. I'm a landlord with multiple properties and have had situations where my deductions seem way out of proportion to my reported income. Never been audited once in 12 years.

I went through something very similar about 3 years ago when my roommates bailed on our shared mortgage. The stress was unreal, but here's what I learned: the IRS really does focus on who actually made the payments, not just whose names are on paperwork. Keep detailed records of every payment you made - bank statements, online payment confirmations, even screenshots of your online banking. I created a simple spreadsheet showing each monthly payment with the date, amount, and payment method. This documentation was crucial when I got a CP2000 notice (not a full audit, just a matching discrepancy). One thing that helped me was getting a letter from my mortgage servicer confirming that all payments came from my account. Most servicers will provide this if you call and explain the situation. It's official documentation that supports your position. The reality is that mortgage interest deductions, even large ones, are pretty common and well-understood by the IRS. As long as you can prove you made the payments, you're entitled to the full deduction regardless of what your co-owners do with their 1098 forms. Just make sure you're prepared to back up your claim with solid documentation.

Has anyone reported them to the IRS Office of Professional Responsibility? This kind of behavior reflects badly on the whole tax preparation industry and erodes public trust.

This is exactly why I always tell new tax professionals to thoroughly research any platform before signing up. The red flags you mentioned - promises of high earnings without clear payment terms, mysterious client "cancellations" after work is completed, and that financial advisor deliberately preventing filings - are classic signs of exploitative business practices. As someone who's been in tax preparation for over a decade, I've seen legitimate platforms come and go, but the good ones always have transparent fee structures and pay for completed work regardless of filing status. The work product has value whether the client ultimately files or not. Document everything you can - emails, screenshots of their income promises, records of completed returns, communication with that financial advisor. This evidence will be crucial for your regulatory complaints. Also consider reaching out to other tax professionals who used the platform - you're probably not the only one experiencing this. The tax preparation industry needs to do better at protecting professionals from these predatory business models. Thanks for sharing your experience to warn others.

Just to add one more important point that hasn't been fully covered - make sure you keep detailed records of your qualified education expenses! The IRS can ask for documentation to prove that your early withdrawal was indeed used for qualifying educational costs. Keep receipts for tuition, fees, books, supplies, and required equipment. If you're audited, you'll need to show that the withdrawal amount didn't exceed your actual qualified expenses for that tax year. Also, be aware that if you receive other tax-free educational benefits like scholarships or employer tuition assistance, those might reduce the amount you can claim as qualified expenses for the penalty exception. I'd recommend creating a dedicated folder (physical or digital) to store all education-related receipts and your 1099-R from Fidelity when you receive it. This will make tax filing much smoother and give you peace of mind that you have proper documentation.

This is such a helpful discussion! I'm actually considering a similar situation but for graduate school expenses. One thing I haven't seen mentioned yet is that you might want to check if your education expenses qualify for any education tax credits (like the American Opportunity Credit or Lifetime Learning Credit) in addition to using the IRA withdrawal penalty exception. However, there's an important catch: you can't "double-dip" on the same expenses. If you use your IRA withdrawal to pay for tuition that you're also claiming for an education tax credit, you need to reduce your qualified education expenses for the penalty exception by the amount you're claiming for the credit. This coordination between different tax benefits can get complicated, so it might be worth running the numbers both ways - sometimes it's better to skip the education credits and maximize your qualified expenses for the IRA penalty exception, especially if you're in a higher tax bracket where the penalty savings outweigh the credit benefits. Also, @Saleem Vaziri, since you mentioned you're working with Fidelity, they should be able to provide you with a worksheet that helps calculate exactly how much of your withdrawal will be taxable based on your contribution history. Don't hesitate to ask them for this - it's a standard service they provide for IRA distributions.

Has anyone here considered the impact on your personal assets if the rental property turns out to be a bad investment? Using personal assets as collateral puts them at risk if the rental doesn't generate enough income to cover the LOC payments. I did this with my stock portfolio and regretted it when the rental market dipped in my area.

Great question about using a LOC secured by personal assets for rental property purchases! You're correct that the IRS focuses on the "use test" rather than what secures the loan. Just make sure you have rock-solid documentation showing the funds went directly from the LOC to the rental property purchase - bank statements, closing documents, etc. One additional consideration: if you're buying the rental in an LLC (which many recommend for liability protection), make sure the loan documents don't prohibit lending to LLCs or business entities. Some personal LOCs have restrictions on business use that could create issues down the road. Also, consider getting a letter from your tax professional confirming the deductibility structure before you proceed. It's much easier to set things up correctly from the start than to fix issues later. The interest deduction can be substantial over time, so it's worth getting the details right!