Has anyone ever had an IRS examination that focused specifically on QSST basis calculations? I'm worried about how much documentation I need to maintain for this type of situation. Been keeping spreadsheets year by year but wonder if that's sufficient.

I've been following this discussion and wanted to share some additional guidance on the documentation piece that @Mateo Gonzalez brought up. Beyond the annual basis worksheets, I'd recommend maintaining: 1. Copies of all S corp K-1s issued during the QSST period 2. Bank statements showing actual distribution flows (whether to trust or beneficiary) 3. Any correspondence with the S corp regarding distribution timing/amounts 4. Documentation of the original QSST election filing One thing I haven't seen mentioned yet is the potential Section 1374 built-in gains tax implications if this was a C corp that converted to S status. While this typically doesn't apply to QSSTs, it's worth checking the S corp's recognition period status. Also, for the related party analysis, don't forget to consider the constructive ownership rules under Section 267(c). The attribution between the trust, trustee, and beneficiary can get complex, especially when family members are involved as both trustees and buyers. The consensus here about adjusting the trust's basis for all pass-through items is absolutely correct, but make sure you're also considering any Section 754 elections if the S corp has partnership interests or other pass-through entities.

Just FYI, if you're planning to continue this business, you should look into whether you need to collect and remit sales/lodging taxes. Even if platforms like Airbnb handle this in some jurisdictions, others require you to register directly with the state/local tax authorities. I learned this the hard way and ended up owing back taxes plus penalties 😩

Great question about startup expenses! I've been working in tax preparation for several years and see this situation frequently with rental businesses. You're absolutely right to track these expenses - the IRS does allow deductions for legitimate business startup costs under Section 195, even before you generate income. The key is demonstrating genuine business intent and activity, which it sounds like you clearly have with your furnished room, professional photos, and active listings. A few important considerations for your specific situation: 1. **Documentation is crucial** - Keep all receipts, photos of your setup process, screenshots of your listings, and any correspondence about potential bookings. This proves your business intent. 2. **Subletting legality** - Make sure you have written permission from your landlord for subletting. The IRS won't allow deductions for activities that violate local laws or lease agreements. 3. **Business vs. personal use** - Only expenses directly related to the rental business are deductible. If you bought items that could be used personally (like a TV), you'll need to allocate the expense based on business use percentage. 4. **Schedule C reporting** - You'll likely file Schedule C for this business activity, showing your startup expenses as a loss for 2024. Since you're just starting out, I'd strongly recommend getting professional tax advice to ensure you're setting up your record-keeping correctly from the beginning. The small cost upfront can save you from much larger problems later!

I opened my Tax Court packet after missing the deadline and it was a "Notice of No Jurisdiction" basically saying they couldn't hear my case. So i ended up calling a tax advocate who told me to just pay what i owed then file an amended return asking for a refund. Took like 9 months but i got about half back cuz they agreed with some of my deductions. Persistence pays off!

I'm really sorry to hear about your situation - missing that Tax Court deadline is incredibly stressful, but you're not completely out of options. First, definitely open that packet from the Tax Court. It's likely a "Notice of No Jurisdiction" as others mentioned, but you need to know for sure what it says. Since you mentioned this involved unreported Robinhood transactions, there's a good chance the IRS made some calculation errors or didn't properly account for your cost basis. Investment income reporting can be really complex, especially with apps like Robinhood where the 1099s don't always tell the full story. Here's what I'd recommend: 1) If you can afford it, pay the assessment and then file for a refund with Form 1040X - this gives you a fresh shot at contesting it, 2) Look into requesting an audit reconsideration if you have documentation the IRS didn't previously consider, 3) Consider the Collection Due Process hearing option which can provide another avenue to dispute the assessment. Also, make sure you have all your Robinhood statements and any documentation showing your actual cost basis for those transactions. The IRS often assumes zero cost basis when they don't have complete information, which can significantly inflate what you actually owe.

Does anyone know if state tax laws have similar patterns? My state keeps changing their tax code almost yearly and it's driving me crazy trying to keep up with planning.

This is such a helpful discussion! I've been confused about the same thing - seeing all these articles about 2025 changes but not understanding the actual mechanics of how tax laws can be modified. The explanation about budget reconciliation rules really clarifies why we're seeing this specific timeline. I had no idea that the 2017 tax cuts were designed to expire to comply with Senate procedures rather than because there was some legal requirement for how long tax laws can stay in effect. It's actually somewhat reassuring to know that while Congress *could* theoretically change tax laws constantly, the political reality creates more stability than the legal framework would suggest. I was worried we might see constant changes that would make financial planning impossible. Does anyone know if there are any proposals to change how this process works, or if we'll likely see the same pattern of temporary provisions in future tax legislation?

Don't forget about the books and supplies portion of qualified expenses! This is a common oversight that could be affecting your calculations. The American Opportunity Credit allows you to count required books, supplies and equipment as qualified expenses, even if you didn't pay for them directly to the school. So if your son purchased textbooks, a required laptop, or other course materials, those costs can be added to the qualified expenses total, which might reduce the taxable portion of the scholarships. Make sure you have receipts for these purchases though. This could potentially reduce his taxable income and increase your available credit.

Quick tip from someone who messed this up last year - if your son received any loans in addition to scholarships, those don't count as taxable income! Make sure you're only counting actual grants and scholarships in your calculations, not the total financial aid package. I made this mistake and incorrectly reported my daughter's entire financial aid package (including loans) as taxable income, which resulted in us overpaying taxes. Had to file an amended return to fix it.