Has anyone used the "safe harbor" rule to avoid this whole issue? I think if you withhold 100% of your previous year's tax liability (or 110% if your AGI was over $150k), you don't have to worry about penalties regardless of bonuses, right?

Great advice in this thread! I want to add one more consideration - timing matters a lot when you receive your bonus. If you got it late in the year (like Q4), the allocation method on Form 2210 Schedule AI becomes even more beneficial because it shows the IRS that you couldn't have reasonably withheld enough earlier in the year when you hadn't received that income yet. I had a similar situation with a December bonus that pushed me into underpayment territory. The standard calculation assumed I should have been withholding for that income all year long, but the allocation method properly showed that the income (and corresponding tax liability) only existed in Q4. One tip: keep really good records of your pay dates and withholding amounts by pay period. You'll need this info whether you're using tax software or tools like the ones mentioned above. Having everything organized makes the whole process much smoother.

My wife was in almost the exact same situation with her German GmbH! We submitted through the Streamlined Foreign Offshore Procedures last year with multiple missed Form 5471s. Our non-willful statement explained that we simply had no idea about the filing requirements as she had never lived in the US as an adult. The good news: No penalties were assessed! We received acceptance of our streamlined submission about 4 months after filing. Make sure you're thorough with the Form 5471s though - they're incredibly complex. We ended up hiring a specialist for just those forms while doing the rest ourselves.

This is a very manageable situation! I handled a nearly identical case with my Canadian corporation last year. The key points everyone has covered are correct - the Streamlined Foreign Offshore Procedures are designed exactly for situations like your brother's. A few practical tips from my experience: 1. **Document everything**: Keep detailed records of the company's financials, your brother's ownership percentage, and any payments he received. The IRS will want to see the complete picture. 2. **Foreign Tax Credit**: Since your brother likely paid Australian taxes on his share of the company income, he can claim foreign tax credits to offset most or all of his US tax liability. With such small amounts (AUD 1200/year), his actual US tax burden will probably be minimal or zero. 3. **Timeline**: Start gathering documents now. The Form 5471 requires detailed financial information about the company for each year, including balance sheets and profit/loss statements. This takes time to compile properly. 4. **Professional help**: While the streamlined procedures are straightforward for basic returns, Form 5471 is notoriously complex. Consider getting professional help just for those forms while handling the rest yourself. The penalty relief under SFOP is very reliable for genuine non-willful cases like this. Your brother's situation - living abroad, small family business, no knowledge of US filing requirements - is exactly what the program was designed to address.

I'm in a similar situation but with a twist - I'm a German citizen with a US corporation, but I do take a small salary. My accountant filed Form 5472 but made a mess of it and now I'm dealing with follow-up questions from the IRS. Has anyone used TurboTax or any other software for this form? My accountant wants to charge me another $1500 to fix the issues he created.

I went through this exact scenario last year as a Canadian founder with a US-incorporated startup. Your accountant is absolutely correct to include Form 5472. The key issue that many founders miss is that even unpaid work constitutes a "reportable transaction" under current IRS rules. When you're making business decisions, developing strategy, or doing any work for your corporation without compensation, the IRS considers this a service provided by a foreign related party (you) to the US corporation. This triggers the Form 5472 requirement regardless of whether money changes hands. The "no reportable transactions" exception that you found is much narrower than it appears. It really only applies if you're a completely passive investor with zero involvement in business operations. Since you're the founder actively running the company, you definitely have reportable transactions. I'd recommend filing the form as soon as possible. If you're late, you can request penalty abatement based on reasonable cause - the fact that you genuinely misunderstood the requirements and sought professional advice can help your case. The $25,000 penalty is no joke for a bootstrapped startup, but acting quickly and showing good faith effort to comply usually results in reduced or waived penalties. Your accountant may be from a smaller firm, but they're giving you correct advice on this one. Better to file it properly now than face the consequences later.

Just want to add that the difference in penalties/interest between the CP2000 and CP3219a is normal. The CP2000 calculates projected interest through an estimated payment date. The CP3219a recalculates based on current date. Since you already paid more than what's on the CP3219a, you'll likely get a small refund once everything is sorted out (though it might take months). When I had this issue, they eventually sent me a check for about $47 without me even requesting it.

This is such a helpful thread! I'm dealing with a similar situation where I received a CP2000 last month and I'm terrified of making the same mistake. Based on what everyone's shared here, it sounds like the key is making sure you properly fill out the response form AND include payment, not just send a check. Can someone clarify exactly which boxes need to be checked on the CP2000 response form? I see there are options to agree, disagree, or partially agree with the proposed changes. If I agree with everything and want to pay the full amount, do I check "agree" and then also sign and date it? I want to make sure I do this right the first time so I don't end up in the same situation as OP with conflicting notices. Also, should I send the payment and response form together in the same envelope, or separately? The instructions aren't super clear about this.

My tax guy says a key factor is whether your employer would back you up if audited. Does your company have any written policies that reference self-defense training? Or even an email from your supervisor acknowledging the karate helps your job performance? Documentation is everything with unusual deductions.

I'm confused about job-related training deductions in general. Are they still deductible for employees after the tax law changes? I thought most job expenses went away unless you're self-employed?