Has anyone considered the state tax implications? Each state handles entity transitions differently. In California, for example, using an old sole prop bank account for your corp can trigger a "successor liability" issue where your corp could be responsible for any unpaid taxes from the sole prop. On the flip side, in some states incorrectly attributing income to a corporation when it should be on the sole prop could trigger minimum corporate tax requirements you otherwise might have avoided.

This is a really complex situation that touches on several areas - entity separation, tax compliance, and banking regulations. From what I've seen in similar cases, the key is to act quickly to clean this up before it becomes a bigger problem. First, I'd strongly recommend getting that bank account ownership updated to your corporation ASAP. Most banks will let you do this with the right paperwork (corporate resolution, new signature cards, etc.). This eliminates the appearance that your sole prop is still operating. Second, you need to be very careful about how you're documenting any transfers between accounts. The IRS will want to see clear business purposes for any money movement between entities. If it looks like you're just using them interchangeably, that could jeopardize your corporate status. One thing I haven't seen mentioned yet - make sure you're not accidentally triggering any state franchise tax or minimum tax requirements by keeping the sole prop "active" through bank activity. Some states consider any business banking activity as evidence the entity is still operating, which could create ongoing tax obligations you don't need. I'd also suggest talking to a CPA who specializes in entity transitions. They can help you figure out if you need to file any forms with the IRS to properly document the transfer of assets from your sole prop to the corporation. Getting this documented properly now could save you major headaches if you ever get audited.

I just wanted to add my experience to help ease anyone's anxiety about this. I'm a CPA and have been helping clients navigate this exact confusion for months now. The IRS has been gradually rolling out these new portal features throughout 2024, and the "Audit Status" tab is appearing for virtually all users regardless of their actual audit status. The key thing to remember is that the IRS operates on a very structured timeline for audits. They typically have 3 years from your filing date to initiate an audit (with some exceptions), and they MUST send written notice before beginning any examination process. This isn't optional - it's required by law. Since you filed in February, received your refund in March, and haven't received any correspondence, you can be confident you're not under audit. The IRS processes over 150 million individual returns each year, and less than 1% are actually audited. The new portal tabs are just poor user experience design - they should only show relevant information to each taxpayer's situation. If you want peace of mind, keep checking your mail for the next few weeks, but based on everything you've described, you're in the clear!

I completely understand the panic you must have felt seeing that tab! I went through the exact same thing about two months ago and it really threw me for a loop. What helped me was understanding that the IRS has been rolling out these new portal features in waves, and they're appearing for everyone regardless of their actual tax situation. The fact that you already received your refund is actually the most reassuring sign possible. The IRS has automated systems that flag returns for review BEFORE they issue refunds, not after. If there had been any issues with your 2022 return, they would have held your refund while they reviewed it. I ended up calling the IRS (which took forever to get through) and the representative confirmed that these new tabs are part of their system modernization but don't indicate your personal status unless you've received official mail from them. Since you haven't gotten any letters, you're almost certainly not being audited. Try not to stress too much - the new interface is just poorly designed from a user experience standpoint. They really should only show relevant tabs instead of displaying everything to everyone!

One additional consideration that might be helpful - make sure to review your S-corp election timing and any potential Section 1202 Qualified Small Business Stock (QSBS) benefits. If your LLC made the S-corp election early enough and you've held your interest for at least 5 years, you might qualify for the QSBS exclusion which could eliminate federal taxes on up to $10 million of the gain (or 10x your basis, whichever is greater). This would be even better than just avoiding the 3.8% NIIT - it could potentially eliminate the entire federal capital gains tax on your $875K gain. The QSBS rules are complex and have specific requirements around when the election was made, the type of business, and how the stock was acquired, but it's definitely worth having your accountant review this when they return. Also, since you mentioned multiple owners, each owner can potentially claim their own $10M QSBS exclusion, so the total benefit for your group could be substantial. This is one of those situations where the entity structure (LLC electing S-corp treatment) might actually work in your favor for tax planning purposes.

Looking at your situation, you're in a really strong position to avoid the 3.8% NIIT on your $875K gain. Since you've been actively involved in running the business since 2018, you almost certainly meet the material participation requirements that exempt you from NIIT. A few key points based on the great discussion above: **Material Participation** - With 6+ years of active involvement, you likely qualify under multiple tests (500+ hours annually, substantially all participation, or the 5-of-10 years test). The LLC/S-corp structure doesn't change this fundamental exemption. **Documentation Priority** - Start gathering evidence of your participation NOW: emails showing business decisions, calendar entries, meeting minutes, travel records, contracts you signed, etc. Even without perfect hour logs, multiple types of evidence showing consistent involvement will be convincing. **QSBS Potential** - This could be huge! If your LLC made the S-corp election early and you've held your interest since 2018, you might qualify for Section 1202 QSBS exclusion. This could eliminate federal taxes on your entire $875K gain (not just the 3.8% NIIT). Given the potential $131K+ in tax savings, consider having your accountant prioritize this analysis even if they're on vacation. **Next Steps** - Gather all formation documents, S-corp election paperwork, and ownership records. Document your business activities timeline. If QSBS doesn't apply, the material participation exemption alone should save you about $33K in NIIT. With the sale in 6 weeks, time is critical but you have multiple strong paths to significant tax savings. This is definitely worth expediting professional review!

Ok so here's my actual timeline from last year when I had to verify ID for state (North Carolina): - Filed Feb 10 - Got letter requesting verification March 15 - Sent docs March 20 - Called April 25 (couldn't get through) - Finally got through May 2 (used claimyr.com after wasting days trying to call) - Was told docs were received and being processed - Refund deposited May 12 So about 7.5 weeks total from sending docs to getting money.

I'm going through the exact same thing right now! Filed in early February, federal came through fine but state is doing the whole ID verification dance. The uncertainty is killing me - I keep checking the status tracker obsessively even though it never changes. Reading through everyone's experiences here, it sounds like Michigan can be pretty slow with this stuff. I'm trying to stay patient but it's hard when you're counting on that money. At least we're not alone in this frustrating process! Hopefully both our refunds come through soon. Keep us posted on how it goes for you!

Has anyone filed a Form 709 electronically? When I go through TurboTax or H&R Block software, they seem to handle income tax returns but not gift tax returns. Am I missing something, or do these forms still need to be filed on paper?

Great question about Form 709! I went through this exact situation last year when I sold my townhouse to my nephew for $180k when it was worth $420k. One crucial detail that hasn't been mentioned yet - make sure you understand the timing requirements. Form 709 is due by April 15th of the year following the gift (so April 15, 2025 for your 2024 transaction). However, if you request an extension for your income tax return, it automatically extends your Form 709 deadline to October 15th. Also, since your gift amount ($405k) exceeds the 2024 annual exclusion of $18,000, you'll definitely need to file Form 709 even if you don't owe any gift tax due to the lifetime exemption. The IRS wants to track these large gifts against your lifetime exclusion amount. One more tip - if this is your first Form 709, make sure to include a clear cover letter explaining the transaction. The IRS appreciates transparency, and it can help avoid follow-up questions later.