That's a good point! I should double-check the exact amount on the 1099-NEC they're referencing in the notice against what we have. Is there a way to get a transcript of what was reported to the IRS directly from them?

Yes, you can request a "Wage and Income Transcript" directly from the IRS which will show exactly what was reported to them on your behalf! You can get this online through the IRS website by creating an account at irs.gov/transcripts or by filing Form 4506-T. This is super helpful because it shows the exact amounts that were reported to the IRS by third parties (employers, banks, clients, etc). That way you can see if what you have matches what they have. In my sister's case, her client had submitted a higher amount to the IRS than what was on the copy they gave her.

Omg this happened to me too! Spent weeks trying to figure out why the IRS said I underreported when I knew I included everything. Turned out the payment processor filled both boxes with the same amount, essentially reporting my income twice. Such a headache to fix.

That's a really good point about the percentage seeming high. I hadn't thought about that. Do you have any recommendations for a good app or system to track mileage? I'm terrible about remembering to log trips.

MileIQ and Everlance are both great apps for tracking mileage automatically. They run in the background on your phone and detect when you're driving. At the end of each trip, you just swipe right for business or left for personal. Super simple and creates IRS-ready reports. For your situation, I'd also recommend taking photos of receipts for any supplies you purchase during these trips and noting any additional rental-related stops. The more documentation you have connecting these trips directly to your rental business, the better position you'll be in if questioned.

The rental property expenses would go on Schedule E as rental expenses, not as unreimbursed employee expenses. The 2018 tax law changes (TCJA) didn't eliminate deductions for legitimate rental property expenses. Since they're managing their own rental property, the vehicle expenses related to that rental activity are deductible on Schedule E regardless of their W2 status for their day jobs. The key is properly allocating and documenting what portion of vehicle use is specifically for the rental activities versus personal use.

The 65-day rule is huge. So many preparers don't realize you can make distributions up to 65 days after year-end and elect to treat them as made in the prior tax year. Great planning opportunity if the trust has high income.

This is such practical advice - thank you! I've never thought about using the IRS audit guides as learning tools. Do you think starting with those might help me identify my knowledge gaps more effectively than just trying to read the code?

Absolutely! The audit guides are written in much more accessible language than the code and regulations. They focus on practical application rather than technical language. Plus, they highlight the areas where mistakes commonly occur, which helps you prioritize what to learn. The partnership ATG specifically has great examples of what proper allocations, basis calculations, and distributions should look like. It also explains the economic substance doctrine in a way that's much clearer than most textbooks. Just remember that they're written from an enforcement perspective, so they emphasize areas of non-compliance rather than planning opportunities.

Thanks for the info about TaxSlayer and IRS Direct Pay! I was wondering about making the payments online instead of mailing them. Does the Direct Pay system give you a confirmation that you can save for your records?

Yes, the IRS Direct Pay system provides a confirmation number immediately after your payment processes. You can print this confirmation page or save it as a PDF. I recommend doing both and keeping a folder (digital or physical) for each tax year with all your payment confirmations. They also send a confirmation email if you provide your email address during the payment process. I personally save these emails in a dedicated tax folder in my email account for easy reference later.

This is such an important point. I had the same thing happen in New York. Paid all my federal estimated taxes but completely forgot about state requirements. Ended up with almost $200 in penalties even though my actual state tax bill wasn't that high.

Thanks for this advice - I hadn't even thought about checking my credit reports. Is there anything else I should do besides responding to the IRS letter and checking my credit? Should I put a freeze on my credit or file a police report?

Responding to the IRS letter should be your first priority to get your refund moving. After checking your credit reports, consider placing a fraud alert with the credit bureaus if you see anything suspicious. A credit freeze is a good precaution if you find evidence of actual identity theft on your reports. A police report generally isn't necessary unless you find concrete evidence of identity theft beyond just the IRS letter. Many of these flags are preventative measures by the IRS, not confirmation that theft has occurred. If your credit reports are clean, you likely just got caught in the IRS screening system, which has been extra sensitive lately.

Yes! This is actually a big red flag - it means someone definitely tried to file a fraudulent return using your information. You need to call the IRS identity theft hotline immediately at 800-908-4490. And file your legitimate return by paper as soon as possible with Form 14039 (Identity Theft Affidavit) attached.