Building on the excellent advice already given, I want to emphasize a few critical points that could save you significant headaches: First, regarding the estate vs. direct distribution issue - while technically the promissory note should have gone through probate as personal property, the practical impact may be minimal if beneficiaries are receiving their correct proportional shares. However, you should definitely consult with your estate attorney about whether to file a Form 1041 for the estate or issue K-1s to beneficiaries. This decision affects where the tax liability sits. Second, the step-up basis issue is unfortunately clear-cut - installment obligations don't receive step-up treatment under IRC Section 1014(c). The original sale created the installment obligation, and that's what was inherited, not the underlying property. Even with the security interest, you inherited the right to payments, not ownership of the real estate. For reporting, you'll need your father's final Form 6252 to determine the gross profit percentage that continues to apply. Each payment you receive will be split between: (1) return of basis (not taxable), (2) gain recognition (capital gains), and (3) interest (ordinary income). Given the multi-state complexity (NC/WV) and the estate administration questions, I'd strongly recommend getting professional help from a tax attorney or CPA experienced with installment sales and estate taxation. The potential tax savings from proper planning could easily justify the professional fees. One last note - make sure you're keeping detailed records of all payments received and how they're being distributed among beneficiaries. The IRS will want to see this documentation if they ever examine the returns.

I'm dealing with a somewhat similar situation right now with my mom's estate, and I wanted to share a few additional considerations that might help. One thing I learned from my estate attorney is that even though you've been distributing payments directly to beneficiaries, you might want to consider having the estate "adopt" those distributions retroactively through proper accounting entries. This can help establish a clear paper trail showing the estate received the income and then distributed it, which might be cleaner for tax reporting purposes. Also, regarding the WV/NC state tax issue - I'd definitely recommend checking if West Virginia has any special provisions for inherited installment obligations. Some states have different rules for inherited vs. original installment sales, and a few even provide partial basis adjustments in certain circumstances, though this is rare. From a practical standpoint, since you're the executor and dealing with monthly payments, consider setting up a dedicated estate account just for these transactions going forward. It makes the accounting much cleaner and gives you better documentation if the IRS ever questions the distributions. Have you considered whether it might make sense to accelerate the remaining payments or sell the note entirely? Sometimes the administrative burden and ongoing tax complexity of installment reporting makes it worth exploring other options, especially if the security interest gives you leverage with the buyer. The multi-state complexity alone probably justifies getting professional help, but don't let anyone tell you this is impossible to sort out - it's just a matter of getting the right guidance and documentation in place.

Something important that nobody has mentioned yet - you need to make sure you're still explicitly electing Section 179 on your Form 4562 even though the deduction is completely phased out this year. If you don't make the election, you can't carry forward the disallowed amount!

This is such a helpful discussion! I'm dealing with a similar situation where we purchased $3.2 million in equipment this year and got completely phased out of Section 179. Reading through everyone's responses, I think I need to seriously consider the bonus depreciation route that Natalie mentioned instead of carrying forward the Section 179. Quick question for the group - if I'm understanding correctly, with bonus depreciation at 80% for 2024, I could potentially deduct $2.56 million this year ($3.2M × 80%) versus waiting to use a Section 179 carryforward in future years when bonus depreciation will be lower? That seems like it could be significantly more advantageous, especially since bonus depreciation drops to 60% next year. Has anyone done the math comparison between taking bonus depreciation now versus Section 179 carryforward for large equipment purchases?

Has anyone had success requesting abatement online through the IRS account portal rather than mailing in Form 843? I thought I saw something about being able to do it electronically now but can't find clear instructions.

Based on your situation, you have an excellent case for both penalty and interest abatement. Since you maintained perfect compliance for years while overseas and the IRS clearly had your correct address on your filed returns, this is a textbook example of IRS error causing unnecessary penalties and interest. Here's what I'd recommend doing immediately: 1. **Get your account transcripts** - Download transcripts showing your filed returns with the correct address vs. the notices with the wrong address. This is your smoking gun evidence. 2. **File Form 843** - Request both penalty AND interest abatement. Be very specific about the interest abatement request citing IRC 6404(e) and explain how the IRS error in using the wrong address caused unreasonable delay. 3. **Document everything** - Include copies of your returns showing correct address, copies of notices showing wrong address, and evidence of your clean compliance history. The fact that you paid immediately upon discovering the issue actually strengthens your case - it shows good faith and that you're not trying to avoid payment, just seeking relief from charges that shouldn't have accrued. Don't be surprised if the penalty abatement gets approved quickly (you clearly qualify for First Time Penalty Abatement) but the interest takes longer. Interest abatement has a higher bar but your address documentation should meet the "unreasonable IRS error" standard.

Has anyone used the IRS Identity Protection PIN system? After my sister went through this nightmare last year, our whole family signed up for IP PINs to prevent fraudulent filings. You get a new PIN each year that must be used when filing.

I went through this exact same situation last year with the IND-517-01 reject code, and I totally understand the panic! In my case, it turned out my ex-spouse had claimed our shared dependent without discussing it with me first (we alternate years but he got confused about whose turn it was). Here's what I learned: Don't assume it's identity theft right away - sometimes it's just miscommunication between divorced parents, or like someone mentioned, a FAFSA filing error. But definitely don't ignore it either. My recommendation is to call the IRS Identity Protection line that Zoe mentioned, but also think through anyone else who might have a legitimate reason to claim your dependents - ex-spouses, grandparents who provided significant support, etc. Sometimes a quick phone call can resolve things faster than going through the full identity theft process. The paper filing route is unavoidable at this point, but include a detailed cover letter explaining your situation. The IRS agents reviewing these cases see them all the time and are usually pretty good at sorting out the legitimate vs fraudulent claims. Good luck!

Has anyone used one of those tax relief companies that advertise on the radio for an OIC? They claim they can settle for "pennies on the dollar" but I'm wondering if they're worth the fees they charge.

I'm currently in the middle of my OIC process (submitted about 4 months ago) and wanted to share what I've learned so far since you're just getting started. The biggest thing that's helped me is staying incredibly organized with a dedicated filing system for every single document. I created separate folders for initial application materials, correspondence with the IRS, financial documentation, and backup copies of everything. This has been a lifesaver when they've requested additional info. One thing I wish I'd known upfront - the IRS can take 6-24 months to process your offer, and during that time you MUST stay current on all new tax obligations. If you fall behind on estimated payments or filing requirements while your OIC is pending, they'll automatically reject your offer. I almost learned this the hard way. Also, don't let the anxiety get to you too much. Yes, it's intimidating dealing with the IRS directly, but if you're thorough with your documentation and honest about your financial situation, the process is more straightforward than it seems. The IRS agents I've spoken with have actually been professional and helpful when I've had questions. Good luck with your application! Feel free to ask if you have specific questions about the forms - I'm still fresh on all the details.