Thanks for this advice! I'm working on my response letter now and will definitely format it with clear headings. Did you also include a table or some kind of visual that showed the duplicate income side by side? I'm trying to make it as obvious as possible.

Yes! A simple table was incredibly helpful. I created a three-column table: first column had the income source, second column showed where it appeared the first time (W-2 or 1099), and third column showed where it appeared the second time. I also included the exact dollar amounts and highlighted that they were identical. Another tip - make copies of EVERYTHING before you send it. I had to reference my submission during a follow-up call, and having copies of exactly what I sent made the conversation go much more smoothly. The IRS representative appreciated that I could tell them precisely what page to look at.

This is gold! Thank you for sharing this insider info. I'm dealing with a similar notice and would never have known to ask for this specific code. Does this work for regular CP2000 notices too or just the CP3219A?

So what you're saying is it's basically impossible for an app to do this right? That's pretty depressing considering how advanced AI is getting these days. Shouldn't a good AI be able to parse the tax code?

It's not impossible, but it's a massive undertaking that would require substantial resources. Current AI systems are getting better at parsing complex documents like the tax code, but the challenge isn't just understanding the code - it's applying it correctly to individual circumstances. The real complexity comes from how the different parts of the tax code interact with each other. Some deductions phase out based on income levels, some can't be combined with others, some require specific documentation or timing. AI systems are making progress in this area, but we're not yet at the point where they can replace the judgment of a tax professional who understands all these nuances.

Free File is terrible for finding deductions though. It's basically just electronic versions of paper forms. You have to already know which forms to fill out and which deductions you qualify for. It's the opposite of what OP is looking for.

How do you calculate what to pay quarterly? I've been getting 1099 income for 6 months now and haven't made any quarterly payments yet. Am I already in trouble?

You'll want to estimate your annual income, calculate the approximate tax (including self-employment tax), and divide by four for your quarterly payments. The IRS Form 1040-ES has worksheets to help with this. You can also use the IRS withholding estimator tool online, which helps figure out your estimated tax burden. Don't panic about the six months you've missed. The safe harbor rule means you generally won't face penalties if you pay 100% of last year's tax liability (or 110% if your income is over a certain threshold) through timely quarterly payments. Since you're only recently receiving 1099 income, you might have flexibility for this first year. Just start making the payments going forward, and you might want to increase the remaining payments to cover some of what you missed. The most important thing is to start the quarterly payment habit now!

This is really interesting! I hadn't even thought about retirement accounts as a way to reduce my tax burden. Do these accounts need to be set up before the end of the tax year to qualify for deductions? And is one better than the other for someone at my income level?

For SEP IRAs, you actually have until your tax filing deadline (including extensions) to both set up the account AND make contributions for the previous tax year. So you could potentially set one up in April 2026 and still make a deduction for the 2025 tax year! For Solo 401(k)s, you need to establish the plan by December 31st of the tax year, but you can still make "employer" contributions until your tax filing deadline. At your income level ($42k), a SEP IRA might be simpler to set up and maintain. The contribution limit would be about 20% of your net self-employment income after deducting self-employment tax. The Solo 401(k) has more paperwork but potentially allows higher contributions if you can afford them. If you're just starting with retirement savings, the SEP IRA is probably the way to go for simplicity. As your income grows, you might want to graduate to a Solo 401(k) for the higher contribution limits.

Thanks for this! I've been using H&R Block online but might switch to TurboTax if they handle this better. Do you know if you have to use a specific version? And does it specifically have clergy options or do you have to find a general "add explanation" function?

You'll need at least TurboTax Deluxe to handle this situation properly. There isn't a specific clergy module that I've found, but the "Form 1099-R Not Taxable" section works well when you indicate the amount is for housing allowance. For the explanation, I use the general "Miscellaneous Forms" section and select "Statement" where you can type in a detailed explanation. I basically copy the same statement I used to mail in, with the reference to Section 107, the three values compared (amount received, actual housing expenses, and fair rental value), and which one is lowest/being excluded.

Ive been filing returns for my husbands church for 10 years and never knew about Revenue Ruling 75-22! We just cite section 107. What does that ruling specifically say? Do we need to change our documentation?

I like this approach - it flips the script from rejection to accommodation with conditions. That might work much better with my client base. Do you have clients sign anything specific for the split payment arrangement? And have you had any issues with people not paying the second portion?

I have a simple one-page addendum they sign that outlines the payment schedule and the consequences of non-payment (which include me not filing their return and potentially taking them to small claims court for unpaid services if necessary). I've only had one person not pay their second installment in three years of offering this. I called them, reminded them firmly but professionally about our agreement, and they paid within 48 hours. Having the signed document is key - it turns a verbal agreement into a legal contract they've committed to.

Exactly this. Why is everyone making this so complicated? It's YOUR business. YOU set the terms. If clients don't like it, they can go to H&R Block or do their taxes themselves on TurboTax. Stand your ground or people will walk all over you forever.

I appreciate the straightforward approach, but I'm also conscious about maintaining relationships with long-term clients during tough economic times. Some of these people have been with me for years, so I'm trying to find a balance between good business practices and accommodating loyal customers. That said, you're right that clear boundaries are important. I think I need to be more direct and confident when explaining my policies instead of feeling apologetic about it.