Anybody know if there's a specific IRS form for requesting penalty abatement for Form 8938 penalties? Or do you just write a letter explaining the reasonable cause?

I've handled several similar cases with international students, and your approach sounds solid. One thing I'd add - make sure to document the timeline carefully. When did she receive the bad advice, when did she discover the requirement, and when is she coming forward? The IRS likes to see that taxpayers acted promptly once they became aware of their obligations. Also consider having her write a personal statement (in her own words) explaining her situation as a student, her reliance on university advisors, and her good faith intent to comply. Sometimes these personal narratives carry more weight than just the technical reasonable cause arguments. The fact that there's no actual tax due is huge in your favor. The IRS is generally much more forgiving when it's purely a reporting issue without tax avoidance. I'd be optimistic about getting the penalties waived, especially if you present it well.

My accountant told me it's usually cleaner to just form a new LLC for real estate investments rather than repurposing an old one, especially if the old one was ever used for active business operations. The filing fees aren't that expensive compared to the headache of explaining the transition to banks, insurance companies, etc.

I'd lean toward forming a new LLC specifically for your real estate venture. While reusing your old LLC is technically possible, you'll need to consider several factors that could make it more trouble than it's worth: 1. **State compliance**: Check if your dormant LLC has missed any annual reports or franchise taxes. Many states require these even for inactive entities, and you might face penalties or need to pay back fees. 2. **Clean slate benefits**: A new LLC gives you a fresh start with an operating agreement tailored specifically for real estate holding, without any language or history tied to your consulting business. 3. **Lender preferences**: While most banks will work with existing LLCs, some commercial lenders prefer entities with clear, single-purpose histories for real estate loans. It just eliminates questions during underwriting. 4. **Future complications**: If you ever need to explain the entity's history to partners, investors, or in legal situations, having a straightforward "formed for real estate" story is much cleaner. The cost difference between reactivating/repurposing your old LLC versus forming a new one is usually minimal when you factor in potential compliance catch-up costs. I'd recommend getting quotes for both options from your state filing office and making the decision based on total cost and complexity.

Has anyone here used 1031 exchanges for inherited property? I know OP mentioned using funds for personal residence and debt, but just wondering if that's an option for deferring gains if they wanted to remain in real estate investing?

One important consideration that hasn't been mentioned yet - since you've held this inherited property for 8 years, make sure to check if you've been claiming depreciation on it as a rental property on your tax returns. If so, you'll owe depreciation recapture tax on that amount (taxed at 25%) in addition to the capital gains tax on the appreciation. Also, regarding your debt payoff strategy - while paying off $85K in debt is generally smart, consider the interest rates. If your debt is low-interest (like a mortgage under 4%), you might be better off investing some of those proceeds rather than paying it all off, especially since you'll be taking a tax hit on the sale anyway. For the new home purchase, financing vs. paying cash won't affect your capital gains tax liability from the inherited property sale - that tax is based solely on the sale transaction itself. Choose your financing based on current interest rates, your cash flow needs, and other investment opportunities.

Setting up a separate bank account for your photo sales is also super helpful for keeping things organized. Most banks offer free student checking accounts, and this way you can keep all business transactions separate from personal ones. Makes it WAY easier at tax time and helps you track your actual profits more accurately. Plus, if your mom somehow sees your regular account, there won't be any suspicious transactions to explain!

As someone who's been through this exact situation, I want to emphasize something that might not be obvious: even though you're trying to keep this private from your mom, you still need to think about how this affects your overall tax situation. If your mom currently claims you as a dependent on her tax return, your photography income could potentially affect that. Once you start earning significant income, there are rules about whether you can still be claimed as a dependent. You might want to have a conversation with her (without getting into specifics about what you're selling) about potentially filing your own return this year. Also, don't forget about estimated quarterly payments if you start making decent money. The general rule is if you'll owe more than $1,000 in taxes at the end of the year, you should be making quarterly payments to avoid penalties. You can calculate this easily once you know your approximate income. One last tip: consider opening a business savings account too, not just checking. Set aside about 25-30% of your income for taxes so you're not scrambling come tax time. Self-employment tax plus regular income tax can add up faster than you'd expect!

Just to add another wrinkle to this discussion - don't forget about the Section 1256 election under 1256(d) that lets traders avoid the 60/40 split and mark-to-market rules for certain hedging transactions. If your client was using these contracts as hedges for their business rather than for speculation, they might qualify for this election, which would change how the losses are treated.

This is a great discussion about Section 1256 contract losses! I wanted to add one more consideration that hasn't been mentioned yet - the timing of when you file the amended return for the carryback. You have up to 3 years from the due date of the original return (or the date it was filed, if later) to file the amended return claiming the carryback. However, if you're also dealing with NOL carrybacks or other loss carrybacks, the interaction between different types of losses can get complex. Also, keep in mind that carrying back the Section 1256 losses might affect other items on the prior year return, like the 3.8% net investment income tax if your client's AGI was high enough. Sometimes the additional tax savings from avoiding NIIT can make the carryback even more valuable than just the regular income tax savings. One last tip - if you do decide to proceed with the carryback, make sure to include a detailed statement with the amended return explaining the calculation and referencing the Section 1256 contracts that generated the loss. This helps prevent any confusion during IRS processing.