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Has anyone considered the impact on the nephews' capital accounts in the partnership? Changing the Section 754 valuation will affect their capital interests, which could have implications beyond just this sale.
Good point! Adjusting the Section 754 election value would increase their capital accounts, which could affect profit/loss allocations depending on how the partnership agreement is structured. It might also impact any special allocations or preferred returns if those are based on capital percentages.
I've dealt with similar Section 754 valuation issues and want to emphasize the importance of timing your correction properly. Since you mention another building sale is pending, making the prior period adjustment before that sale closes would be ideal - it demonstrates the correction isn't driven by hindsight but by legitimate valuation concerns. One practical consideration: have you reviewed the partnership agreement to see if there are any provisions about how basis adjustments should be handled or allocated among partners? Some agreements have specific language about Section 754 elections that could affect your correction approach. Also, while the prior period adjustment through equity seems like the cleanest approach, consider whether your state has any specific requirements for partnership accounting changes. Some states require additional filings or notifications when partnership capital accounts are adjusted significantly. The $800,000 undervaluation you mentioned is substantial, so documenting your methodology thoroughly will be crucial. I'd suggest preparing a side-by-side comparison showing the original valuation method versus the corrected approach, along with supporting market data from 2022 that validates the higher valuation.
This is really helpful advice about timing the correction before the pending sale. I hadn't considered the state filing requirements - we're in California, so I'll need to check if there are any additional notifications required for significant partnership capital adjustments. Your point about reviewing the partnership agreement is spot on. I just pulled it and there's actually a clause about how basis adjustments from deaths or transfers should be allocated, which I think supports our correction approach. It specifies that Section 754 adjustments should reflect "fair market value at the time of the triggering event." The side-by-side comparison idea is excellent. I'm thinking of structuring it to show: 1) Original income approach with the actual rent rolls from 2022, 2) Market rent analysis showing what comparable properties were getting, and 3) The corrected valuation using market rents. This should clearly demonstrate that the undervaluation was due to below-market lease rates rather than any error in methodology. Do you think it would be worth getting a brief letter from a local commercial real estate broker familiar with that market to support the rent comparisons, or is that overkill for documentation purposes?
A broker letter would actually be very valuable documentation, especially if they can provide specific comparable lease rates from 2022. It doesn't need to be a formal appraisal - just a brief market analysis showing what similar properties were leasing for during that time period. This third-party validation of your rent comparison analysis could be crucial if the IRS ever questions the adjustment. Since you're in California, definitely check with your tax advisor about state requirements. California can be particularly strict about partnership reporting, and you may need to file an amended state return even if you don't amend the federal return. Your approach with the clause about "fair market value at the time of the triggering event" is perfect - that language essentially requires you to make this correction to comply with your own partnership agreement. Make sure to reference that specific provision in your disclosure statement when you make the prior period adjustment. One more suggestion: consider getting your current accountant to review and sign off on the corrected valuation methodology before you make the adjustment. Having their professional endorsement of the correction approach could provide additional protection if there are any future questions about the change.
Small tip for J1 physicians: when filling out Form 8843 line 4, I learned from my tax advisor that it's helpful to be specific about your J1 category. So instead of just "J-1, 01/15/2023" you might want to write "J-1 Alien Physician, 01/15/2023" to be extra clear. Also, make sure you're keeping track of all your entry/exit dates if you travel internationally during your program. This becomes really important for calculating your substantial presence test in future years!
Is it really necessary to specify "Alien Physician" on line 4? The form just asks for visa type and entry date. I'm worried about adding extra info if it's not required.
It's not absolutely required to specify "Alien Physician" - just "J-1" with the date would technically satisfy what line 4 asks for. However, my tax advisor recommended being specific because J1 physicians have different tax rules than other J1 categories. Being clear upfront can help prevent confusion if your return gets reviewed, especially since Form 8843 is specifically used to establish exempt individual status, which has special considerations for medical professionals. It's a small detail that might help avoid questions later.
Just wanted to add my experience as someone who went through this exact same confusion last year! For Form 8843 line 4, I ended up putting "J-1, 06/12/2022" (using my actual entry date) and it was accepted without any issues. One thing that really helped me was creating a simple timeline of all my entries and exits from the US since starting my J1 program. Even though line 4 only asks for the initial entry date, having that complete record made filling out the rest of the form much easier and helped me understand my substantial presence test status. Also, don't forget that as J1 physicians, we're considered "exempt individuals" for our first two calendar years in the US for substantial presence test purposes, which is different from other visa categories. This status affects not just Form 8843 but also how you calculate your tax residency status going forward.
One thing nobody's mentioned yet is state tax considerations. I'm a Brazilian with a Wyoming LLC and discovered that even though I don't have federal tax filing requirements as a non-resident alien (beyond the Form 5472 already mentioned), some states might still require filing. Wyoming is great because there's no state income tax, but if you formed your LLC in a state with income tax, you might have state filing requirements even without US-source income.
Good point! I formed my LLC in California because I didn't know any better, and now I'm stuck filing California returns even though I live in Spain and have no physical presence in the US. Really wish I'd picked Wyoming or Delaware instead!
This thread has been incredibly helpful! I'm in a similar situation as a Canadian citizen with a Delaware LLC (mistake on my part - should have gone with Wyoming!). Just wanted to confirm something based on what I'm reading here: if I'm providing digital marketing services to US clients entirely from my home office in Toronto, I would use W-8BEN-E and NOT claim any effectively connected income, correct? My services are performed 100% remotely with no US physical presence. Also, the Form 5472 requirement is news to me - I've been operating for 8 months and had no idea about this filing obligation. Is there any relief for reasonable cause if you genuinely didn't know about the requirement? That $25k penalty is absolutely terrifying for a small business owner. Thanks to everyone who shared their experiences - this is exactly the kind of real-world guidance that's impossible to find in IRS publications!
Yes, you're correct about the W-8BEN-E! Since you're providing services entirely from Toronto with no US physical presence, your income wouldn't be considered effectively connected with a US trade or business. The W-8BEN-E is the right form for your situation. Regarding Form 5472 relief - there is a "reasonable cause" exception, but it's pretty strict. You'd need to demonstrate that you exercised ordinary business care and prudence but still couldn't comply due to circumstances beyond your control. Simply not knowing about the requirement typically isn't enough for the IRS, unfortunately. However, I'd strongly recommend consulting with a tax professional who specializes in international situations. They might be able to help you get into compliance and potentially argue reasonable cause if you file voluntarily before any IRS contact. The sooner you address it, the better your position will be. Also, totally agree on the Delaware vs Wyoming choice - I learned that lesson the hard way too! Wyoming's no state tax and simpler compliance requirements are definitely better for remote international operators.
Did you get any kind of receipt or confirmation when you originally had your taxes prepared? Even if they didn't file, they should have given you physical copies of your completed returns. If you have those, you could file them yourself by mail to get the process started while you fight with H&R Block. Also, for the stimulus money you're owed, I'd recommend filing Form 3911 (Taxpayer Statement Regarding Refund) with the IRS. That specifically traces missing stimulus payments and can be processed separately from your regular tax return.
This is solid advice. I'd add that mailing in your returns now is better than waiting for H&R Block to resolve this. The IRS is still dealing with paper return backlogs, so the sooner you get them in the mail, the better. Just make sure to make copies of everything before sending!
This is absolutely infuriating! I can't believe H&R Block would put you through this. A year of waiting for nearly $10k that you were rightfully owed? That's not just an inconvenience - that's a serious financial hardship. Here's what I'd do immediately: First, gather every piece of documentation from your original visit - receipts, copies of returns, appointment confirmations, anything. Then contact both the original location AND corporate headquarters simultaneously. Don't wait for one to respond before trying the other. When you call corporate, be very clear about the timeline and financial impact. Mention that you've been financially struggling while waiting for THEIR mistake to be resolved. Ask specifically for their "Peace of Mind Guarantee" to cover not just the refiling fees, but additional compensation for the year-long delay. Also, since you're dealing with 2021 and 2022 returns, time is becoming a factor. The IRS typically has a 3-year statute of limitations for claiming refunds, so you need to get those 2021 returns filed soon. Consider filing a complaint with your state's attorney general office as well - they often have consumer protection divisions that take these cases seriously, especially when large companies are involved. You shouldn't have to pay a single penny more to fix their mistake. Stand firm on that!
This is such helpful and thorough advice! I especially appreciate the reminder about the 3-year statute of limitations - I hadn't even thought about that time pressure. You're absolutely right that I shouldn't pay another penny for their mistake. One question though - when you mention contacting both the local office AND corporate simultaneously, should I be worried about them giving me conflicting information or passing me back and forth between departments? I'm already so frustrated with this situation and don't want to get caught in some bureaucratic runaround. Also, do you think it's worth mentioning the financial hardship aspect right upfront, or should I start with just the facts of their error and escalate from there if they're not responsive?
Zoe Papadopoulos
Think of the 'still processing' message like a waiting room at a doctor's office. You're in the building, but not yet with the doctor. Your return is like a patient in that waiting room - it's in the IRS system, but not actively being reviewed by an agent yet. Have you tried checking your tax transcript instead? Sometimes it shows more detailed status information than the WMR tool, similar to how a nurse might check your vitals before the doctor sees you.
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Jackie Martinez
I've been dealing with this same situation for about 12 weeks now. Filed my amended return in December to claim some missed deductions, and it's been stuck on "still processing" ever since. What I've learned from calling the IRS (after multiple 3+ hour wait times) is that the message really is just a generic placeholder. The agent told me my return is actually in their "Error Resolution System" which handles all amended returns, and they work through them in the order received. She couldn't give me a specific timeline but confirmed it was moving through their system normally. The frustrating part is that unlike regular returns where you get status updates, amended returns basically stay silent until they're done. I've started checking my transcript weekly instead of the "Where's My Amended Return" tool since it sometimes shows processing codes before the online status changes.
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Noah Irving
ā¢Thanks for sharing your experience with the Error Resolution System - I had no idea that's what they called it! The 12 week wait must be incredibly frustrating, especially when you're expecting those deductions. I'm curious, when you check your transcript weekly, are there specific codes you look for that might indicate progress? I just filed my first amended return last month and I'm already getting anxious about the long wait ahead.
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