I'm still confused about one thing - is the GSTT calculated on the amount AFTER the gift tax is paid or on the original amount? For example, if I'm giving $1M to my grandson and I've used up all exemptions: 1) Do I pay 40% gift tax ($400k) and then 40% GSTT on the remaining $600k ($240k) for a total of $640k tax? OR 2) Do I pay 40% gift tax ($400k) and 40% GSTT on the full $1M ($400k) for a total of $800k tax? The difference is huge!

This is such a helpful thread! I'm dealing with a similar situation where my elderly father wants to set up education funds for his great-grandchildren, and we were completely shocked when our attorney mentioned the potential for 80% combined taxation. One thing I learned from our estate planning attorney that might help others: if you're making direct payments for education or medical expenses, those payments don't count as taxable gifts at all - no gift tax AND no GSTT - as long as you pay the institution directly instead of giving the money to the family member. So instead of giving your grandchild $50,000 for college (which would trigger both taxes if exemptions are used up), you can pay $50,000 directly to the university with zero tax consequences. Same with medical bills - pay the hospital or doctor directly. It's not a complete solution for large wealth transfers, but it's at least one way to help the younger generations without getting hammered by taxes. We're now structuring my father's gifting strategy around maximizing these direct payments plus the annual exclusions before considering any larger transfers that would trigger the double taxation nightmare.

One thing to consider - if the IRS gives you the June 2021 effective date and you keep the S election, you'll need to file amended returns for any periods you treated as an S corp before that date. That could mean filing C corp returns for 2020 and part of 2021, which might trigger some nasty tax consequences. Have you calculated what the actual tax difference would be between the two scenarios? Sometimes it's not as bad as people expect.

I went through almost the exact same situation last year with my LLC's S corp election. The IRS initially gave me an effective date that was 18 months later than what I requested, which would have cost me thousands in additional self-employment taxes. Here's what worked for me: I submitted a detailed letter specifically citing Revenue Procedure 2013-30 Section 5.03, which provides relief for situations where the original election was filed but not processed due to IRS administrative issues. The key is proving you had the intent to be an S corp from your requested effective date. I included copies of my original Form 2553 (even though it apparently got lost), certified mail receipts, all my S corp tax returns I'd been filing, and a timeline showing consistent S corp treatment. I also referenced the IRS's own acknowledgment of processing delays during COVID as reasonable cause for the late election. The whole process took about 3 months, but they ultimately approved my original effective date. Before considering revocation, I'd strongly recommend trying this approach first. The documentation requirements are pretty specific, so make sure you hit all the points in Section 5.03 of the Revenue Procedure. If you need help getting through to the IRS to check on your current request status, definitely consider using one of those callback services mentioned above - it saved me weeks of frustration trying to get through on my own.

One option I haven't seen mentioned yet - your brother could file Form 2848 (Power of Attorney) to authorize a tax professional to act on his behalf. This might be worth the cost because tax pros often have access to dedicated practitioner priority service lines at the IRS that have much shorter wait times. A good enrolled agent or CPA who deals with payroll tax issues could likely get this resolved much faster than trying to navigate it alone. They can request the PIN reissuance, update the address, and even negotiate a payment plan with more favorable terms than what's typically offered through automated systems.

Your brother should also consider calling the IRS Federal Tax Deposit Processing Center directly at 1-800-555-4477. This is a specialized line specifically for EFTPS and federal tax deposit issues, separate from the general business tax line. They may be able to expedite his PIN replacement or provide alternative solutions. In the meantime, he should document everything - keep records of all calls, dates, reference numbers, and any correspondence. This documentation will be crucial if he needs to request penalty abatement later or if he ends up working with the Taxpayer Advocate Service. Also, make sure he's still filing his quarterly employment tax returns (Form 941) even if he can't make the payments yet. Filing on time, even without payment, can help reduce some penalties and shows good faith compliance efforts to the IRS. The key is to act quickly on multiple fronts - try the specialized phone line, consider the Form 8109 option mentioned earlier, and start documenting his efforts to resolve this. The IRS is generally more willing to work with taxpayers who are proactive about resolving issues rather than those who just ignore them.

Has anyone dealt with an innocent spouse relief situation? My friend is dealing with something similar but her ex apparently hid some income and now she's on the hook for taxes on money she never knew about. She's making payments but I told her she should look into innocent spouse relief.

This is a great question that confuses a lot of people! Just to add to what others have said - when you set up that payment plan under your name, you're actually setting it up for both of you since you filed jointly. The IRS doesn't track "your portion" vs "your spouse's portion" internally. One thing that might help clarify this: if you log into your IRS online account, you should be able to see the current balance and payment history for your joint returns. Your spouse should also be able to see the exact same information when they log into their own IRS account - because it's the same debt. Also, just a heads up - if you're planning to continue filing jointly in future years, any refunds you might get will automatically be applied to your existing balance before you receive anything. Same goes for any economic impact payments or other credits. The IRS will offset those against your outstanding balance automatically.

One thing that nobody has mentioned yet is that many law firm partners have their partnerships structured as S-Corps specifically to reduce the self-employment tax burden. By taking part of their income as salary (which is subject to FICA taxes) and part as distributions (which aren't), they can legitimately reduce their overall tax burden. You do have to pay yourself a "reasonable salary" first, which the IRS looks at closely, but this strategy is very common among high-earning professionals. My brother-in-law is a law partner and saves tens of thousands each year with this approach.

Sorry to jump in with a basic question, but can someone explain WHY law partners have to pay self-employment tax in the first place? I thought that was just for independent contractors and freelancers. If they're partners in a big established firm, why aren't they just considered employees for tax purposes?