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Quick question - does anyone know if the gift tax applies to cryptocurrency transfers? I was thinking of sending my sister some Bitcoin to help with her expenses but not sure if that triggers any reporting requirements.
Yes, the gift tax rules apply to cryptocurrency the same as cash. If you give more than $15k worth of Bitcoin (valued on the date of transfer) to one person in a year, you'd need to file the gift tax form. Also keep in mind there are potential capital gains implications for you as the giver if the Bitcoin has increased in value since you acquired it.
Thanks everyone for all this helpful information! I had no idea about the lifetime exemption being so high - it really changes things knowing I'd just need to file a form but wouldn't actually owe tax. The suggestion about paying medical expenses directly is genius. I'm definitely going to contact his hospital about paying that $5k directly, and then I can help him with the remaining debt without going over the annual limit. One follow-up question though - when you pay medical expenses directly to providers, do you need any special documentation from the recipient to prove it was for their medical care? Or is the payment directly to the hospital/doctor sufficient proof for the IRS? Also really appreciate the recommendations for taxr.ai and Claimyr - might check those out if I run into any complications. This community is so much more helpful than trying to decode IRS publications on my own!
For medical payments made directly to providers, you typically don't need special documentation from the recipient beforehand. The key is that you're paying the medical provider directly rather than giving money to the person who then pays the bill. Keep records of your payments to the hospital/doctor showing it was for medical services - this serves as your documentation that it qualifies for the medical expense exemption. The IRS considers direct payments to medical providers as qualifying for the unlimited medical expense exclusion as long as they're for legitimate medical care. Just make sure you're actually paying the provider directly (hospital, doctor's office, etc.) rather than reimbursing your brother after he's already paid. You're absolutely right that this strategy will work perfectly - pay the $5k medical debt directly to the hospital (no gift tax implications), then you can still give him up to $15k cash for other debts without any reporting requirements. Smart planning!
I work in a tax office and see this issue frequently. The IRS actually has specific guidelines for this exact situation in Publication 936. Since you're both legal owners but you paid 100% of the interest, you're entitled to deduct 100% of the interest regardless of whose SSN is on the 1098. When you respond to the IRS, make sure to cite "IRS Publication 936" which states that the person who pays the mortgage interest can claim the deduction. Include bank statements showing the mortgage payments coming from your account. Pro tip: If your son files electronically, the IRS computer may automatically try to assign the mortgage interest deduction to him based on the 1098. Make sure he doesn't claim it since he didn't actually pay it!
This is good to know! Is there a specific page number in Publication 936 that addresses this? I have a similar situation with my sister on a property we co-own.
You'll want to reference pages 2-3 of Publication 936 under the section "Who Can Deduct Mortgage Interest." It specifically addresses jointly liable individuals and states that the person who actually makes the payments can take the deduction. There's also a helpful example on page 3 that closely matches your situation. For your situation with your sister, document which of you makes the actual payments with bank records. If you split the payments, each of you can deduct the portion you actually paid, regardless of whose SSN appears on the 1098 form.
I had a very similar issue last year with my daughter when we co-purchased her first home. The mortgage company put her SSN as the primary on the 1098 even though I was making all the payments while she got established in her career. What ultimately resolved it for me was calling the IRS directly (took forever to get through) and speaking with a representative who walked me through exactly what documentation they needed. They told me to send: 1. Copy of the 1098 form showing both names 2. Bank statements proving I made the mortgage payments 3. A simple letter explaining the co-ownership situation and that I paid 100% of the interest 4. Copy of the deed showing both our names The key thing the IRS rep told me was to reference IRC Section 163(h)(3) in my response letter, which covers mortgage interest deductions for jointly liable parties. She said this helps their review process go faster since they know exactly which tax code applies. The whole thing was resolved within about 6 weeks of sending in the documentation. Don't stress too much - this is more common than you'd think and the IRS has seen it many times before. Just make sure you have clear documentation showing you made the payments and you should be fine.
Thanks for sharing this detailed breakdown! The IRC Section 163(h)(3) reference is super helpful - I hadn't seen anyone mention that specific tax code yet. Did you have to send certified mail or was regular mail sufficient? Also, when you say 6 weeks to resolve, did they send you a formal closure letter or just stop sending notices? I'm in almost the exact same boat with my son, so hearing about a successful resolution gives me hope. Were there any other documents they asked for beyond what you listed, or was that complete package enough to close the case?
This is incredibly frustrating and you're definitely not alone! I've been dealing with something very similar - got hit with the 570/971 codes about 3 weeks ago and I'm still waiting for any kind of notice or explanation. Called the IRS multiple times and keep getting the same vague "120-day review" response with absolutely no specifics. What's really bothering me is how random these reviews seem this year. My return was super straightforward too - single W-2, standard deduction, same job I've had for years. Yet somehow I'm stuck in this limbo while friends with more complicated returns sailed through processing in weeks. One thing I learned from my multiple calls is that you can ask them to verify what address they have on file for you - apparently some people have missed important notices because of outdated addresses. Also, the representative mentioned that if they actually need documentation from you, that notice typically comes within the first 30 days after the 971 code appears. I know the waiting is brutal, especially when you're counting on that refund. I've started checking my transcript weekly instead of daily (per IRS recommendation) which has helped my sanity a bit. Hang in there - from what I've read, most people with legitimate returns do eventually get their full refund, even if it takes way longer than expected.
Thanks for sharing your experience @Edward McBride! It's both comforting and frustrating to know so many of us are in the same boat. I'm new to this community and this whole tax review process, but reading everyone's stories is really helping me understand what to expect. I'm curious - when you called to verify your address, did they make you go through the full identity verification process each time? I'm thinking about calling again but those hold times are brutal and I don't want to waste hours if they can't tell me anything new. Also, you mentioned checking weekly instead of daily - I've been obsessively checking my transcript every morning and it's definitely not helping my stress levels! Did you notice any patterns in when updates typically appear on transcripts, or is it really just random throughout the week? The 30-day window for documentation requests is good to know. I'm coming up on that timeframe soon, so hopefully if they need anything from me I'll find out shortly. Otherwise maybe I can at least stop worrying about missing some important notice!
I'm going through the exact same nightmare right now! Got my 570/971 codes about 2.5 weeks ago and I'm completely new to dealing with IRS reviews. Like so many others here, my return is ridiculously simple - one W-2, standard deduction, nothing fancy at all. What's really getting to me is the complete lack of transparency. I've called twice now and both times got the same scripted "120-day review" response with zero explanation of what triggered it. The representatives are polite but basically useless when it comes to actual information. I'm a newcomer to this community but wow, reading through everyone's experiences here has been both reassuring (I'm definitely not alone in this!) and terrifying (some people are really waiting the full 4 months?). It seems like 2025 tax season has been particularly brutal for these mysterious reviews. One question for those who've been through this before - is there any benefit to calling back periodically, or should I just wait it out? I don't want to waste more hours on hold if they're just going to give me the same non-answers. Also definitely going to double-check my address is current with them after reading some of the horror stories here about notices going to old addresses. The financial stress is real when you're counting on that refund. Hoping we all get some movement soon! š¤
I've been following this discussion and wanted to add something that might help other small partnership owners. The confusion around criterion #4 is super common, and I think part of the issue is that the IRS instructions use the term "reportable entity partner" without clearly defining it upfront. A "reportable entity partner" is basically a corporation, partnership, or other business entity that's already required to file its own Schedule M-3. So unless your LLC is owned by another company or partnership that files M-3 (like if a corporation bought into your business), you don't need to worry about this criterion. The key thing to remember is that individual people - even if they own 50% or more - are never considered "reportable entity partners." This rule is really targeting situations where large corporations or complex partnerships have ownership stakes in other businesses, not simple partnerships between individuals. For what it's worth, I've never seen a small two-person LLC partnership need to file Schedule M-3 unless they had some really unusual circumstances or grew to meet one of the first three criteria (assets/receipts thresholds).
This is really helpful clarification! I think you've hit on exactly why so many of us get confused by this - the term "reportable entity partner" isn't defined clearly in the initial instructions, so when you see "50% or more ownership" you naturally think it applies to any partnership where someone owns half or more. Your explanation makes it crystal clear that this is specifically about business entities (corporations, other partnerships) that already have their own M-3 filing requirements, not individual people. Even if I owned 90% of our LLC and my partner owned 10%, as long as we're both individuals, we still wouldn't trigger this criterion. I wish the IRS would just say something like "owned 50% or more by a corporation or partnership that files Schedule M-3" instead of using the technical term that requires you to hunt through other sections to understand what it means. Would save a lot of confusion for small business owners! Thanks for breaking this down so clearly - definitely bookmarking this thread for future reference.
This whole discussion has been incredibly helpful! I'm in a similar situation with my business partner and was getting completely overwhelmed by the Schedule M-3 requirements. What really clicked for me reading through all these responses is that the IRS is essentially asking "Is your small partnership owned by a big company that already has to deal with complex tax reporting?" rather than "Do you have partners with significant ownership percentages?" For those of us with simple two-person LLCs where we're both individuals, it sounds like we can breathe easy and stick with Schedule M-1. The language in the tax code definitely makes it sound scarier than it actually is for small partnerships! I appreciate everyone sharing their experiences - from the software recommendations to the tools for getting IRS clarification. It's reassuring to know that so many others have been in the same boat and figured it out successfully.
Aaron Boston
Has anyone dealt with this by sending a letter through certified mail? I'm in a similar situation and wondering if regular mail is good enough or if I should spend the extra money on certified mail with return receipt.
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Sophia Carter
ā¢ALWAYS send important IRS correspondence through certified mail with return receipt! Regular mail can get lost and then you have zero proof you responded. The few dollars for certified mail is worth avoiding potential headaches if they claim they never received your response.
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Ayla Kumar
I went through almost the exact same thing last year! The IRS penalty notice made no sense since I had clear proof of payment before the deadline. Here's what I learned from my experience: First, get your account transcript from the IRS website (irs.gov) - it's free and shows exactly how they've recorded your payments. In my case, the transcript revealed that my payment was applied to the wrong tax year due to a data entry error on their end. Second, gather ALL your payment documentation - bank statements, confirmation numbers, screenshots from your tax software, anything that shows the payment date and amount. The IRS will need this to correct their records. Third, respond to the notice in writing with copies of all your proof. I sent mine certified mail with return receipt (costs about $7 but gives you proof they received it). In my letter, I requested penalty abatement under "reasonable cause" since I had paid on time and it was their processing error. The whole process took about 6 weeks, but they completely removed the penalty and sent me a letter confirming the correction. Don't just ignore it hoping it goes away - these penalties can grow with interest if not addressed promptly. The frustrating part is that these processing errors happen more often than the IRS likes to admit, especially during busy filing season. But they will fix it once you provide the documentation.
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Nia Wilson
ā¢This is really helpful advice! I'm dealing with a similar situation right now where I paid on time but got a penalty notice. Quick question - when you requested your account transcript online, did you need any special information beyond your SSN and filing status? I've never done this before and want to make sure I have everything ready. Also, did you include a specific form number or reference when you wrote your penalty abatement request, or did you just explain the situation in your own words?
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