For what it's worth, if you end up getting audited, remember that the burden of proof is on the IRS to show why your reported numbers are wrong IF you have some reasonable documentation. They can't just say "we don't believe you" without evidence. I went through an audit last year over some stock sales where I was missing basis documentation. I provided my best reconstruction with explanations and they actually accepted most of it. Only had to pay additional tax on a small portion where I really couldn't substantiate anything. Make sure to keep EVERYTHING - notes, screenshots, emails about transactions, bank statements. If the worst happens, hire a tax pro who specializes in crypto. They've seen it all and know how to deal with the IRS in these situations.

You're absolutely right to be concerned about this - the IRS can and will assess tax on the full $17,500 if you can't substantiate your cost basis. I've seen this happen to clients multiple times. Here's what I'd recommend based on your situation: 1. **Reconstruct everything you can NOW** - Log into every exchange account you still have access to and download complete transaction histories. Even if they didn't send 1099s, most exchanges maintain records you can access. 2. **Your bank statements are crucial** - Those transfers to/from Coinbase establish a clear timeline and amounts. Print them out and organize them chronologically. 3. **Create a detailed methodology document** - Write out exactly how you calculated your $5,500 gain, noting any assumptions or estimates. Be transparent about what you know vs. what you're estimating. 4. **Consider amended reporting if needed** - If you discover your calculations were off during reconstruction, it's better to file an amended return than get caught in an audit with wrong numbers. 5. **File Form 8949 with detailed notes** - Use the description field to explain your methodology for transactions where documentation is limited. The key is demonstrating good faith effort. The IRS is generally more reasonable when you're transparent about limitations in your records rather than trying to hide gaps. Keep all your reconstruction work - if audited, showing your process can make a huge difference in how they treat your case.

Ok but what about practical advice? My son (16) makes about $7,500 working part-time. Does he need to file? Will he get all that tax money back? His W-2 shows they took like $450 in federal taxes!!!

This is such a great discussion! I went through the same confusion when my 17-year-old nephew started working last summer. What really helped me understand it was looking at it from a different angle - minors DO benefit from government services that taxes fund, like public schools, infrastructure, emergency services, etc. The representation piece is tricky though. Technically, minors are "represented" through their parents/guardians who vote, and through elected officials who are supposed to consider all constituents. But you're right that it feels weird philosophically. One thing I learned is that the tax system has some built-in protections for minors - like the standard deduction Sofia mentioned, and the fact that most working teens end up getting refunds. It's not perfect, but there is some recognition that their situation is different from adult taxpayers. Have you looked into whether your sister qualifies for any of the education credits when she starts filing in future years? That might help offset some of the "taxation without representation" feeling!

mine was stuck like this for 3 months last year... hope you have better luck than me 💀

The verification of non-filing letter is totally normal for recent filers! I had the same panic when I filed early last year - acceptance doesn't mean processed. The IRS basically sends you this letter as a placeholder until they finish working through your return. Once they complete processing, it'll switch to showing your actual return transcript. Just keep checking weekly, and don't worry about the "no record" language - it's just their standard wording for returns still in the queue.

Just to clarify something important: Letter 12C is different from CP12 notices. A CP12 is about math errors and automatic adjustments, while 12C requests specific documentation. Make sure you're looking for the right letter when it arrives. The letter will have the exact notice number in the upper right corner. Also, if you haven't received it within 7-10 business days of the IRS telling you it was sent, you can request a copy by calling the number listed on the IRS notice line. Don't delay your response waiting for the original if it got lost in the mail.

As someone who's dealt with multiple IRS notices over the years, I want to add that the 12C letter will have very specific instructions about what documentation to send and where to send it. Don't send everything you have - only what they specifically request. I made that mistake once and it actually delayed my case because they had to sort through unnecessary paperwork. Also, if you're missing any of the requested documents (like a lost receipt), you can often substitute with bank statements showing the transaction, canceled checks, or even a sworn statement explaining the missing documentation. The key is to respond within the timeframe given - usually 30 days from the letter date - and to be thorough but focused in your response.

One thing nobody has mentioned yet - if your son has expenses related to earning that 1099-NEC income, he should definitely track those and deduct them on Schedule C. For example, if he bought any supplies, paid for software, or used his car for this work, those are legitimate business expenses that can reduce his taxable income and therefore the self-employment tax he owes.

Don't forget that your son might also have to make quarterly estimated tax payments for next year if he continues this work! If he expects to owe more than $1,000 in taxes for the year, he should make estimated payments to avoid penalties.