Thanks for the breakdown! I did some quick math and my purchase price minus land value works out to about $268,000 back then. Dividing by 27.5 gives almost exactly $9,745. So at least the amount seems right, even if the documentation is missing. Is there any risk to me that he wasn't filing the actual Form 4562? Or is it just important for proper record keeping going forward?

The good news is that the amount being claimed appears to be correct based on your calculation, which suggests your preparer was using the proper depreciation method even if they weren't providing you the documentation. The risk is primarily related to record keeping and potential audits. Without a proper Form 4562 history, you might face challenges if you ever sell the property and need to calculate your adjusted basis for determining capital gains. Additionally, if you were ever audited, the IRS would expect to see proper documentation supporting the depreciation claimed each year.

$150 seems really cheap. My accountant quoted me $375 to recreate a depreciation schedule for just one property that I'd owned for 5 years. I wonder if there's a big difference in complexity between properties or just in what different preparers charge?

Wow I didn't even think about that smaller capital gain part. So even with a same-day sale there could still be a tiny gain or loss between the exercise price and the actual sale price? In my case my shares were worth about $52 at exercise but I think they sold at $51.87 or something like that since the price dropped slightly during the day. Would that mean I actually had a small capital loss?

That's exactly right. In your example, if the shares were worth $52 at exercise (and that value was included in your W-2), but you sold at $51.87, you actually have a small capital loss of $0.13 per share. This loss should be reported on Schedule D. When responding to the CP2000, make this calculation clear to show you understand both components: the W-2 income portion AND the small capital loss. This demonstrates to the IRS that you're addressing the complete tax situation, not just half of it. It's these small details that make your response more credible and can help eliminate penalties.

Does this reasonable cause argument work if you've had other CP2000 notices in prior years for different issues? I got one back in 2018 for a missed 1099-INT but now I'm dealing with this ISO problem for 2021.

Does the spouse need to file anything special along with the return when they mark the other person as deceased? Like a death certificate or anything official?

For a joint return where one spouse is deceased, you generally don't need to submit a death certificate with the return itself. You simply write "DECEASED" after the deceased spouse's name at the top of the return, and include the date of death. If the surviving spouse is filing as the deceased taxpayer's personal representative, they should sign the return and write "Filing as surviving spouse" in the signature area. For more complex situations involving larger estates that require Form 706, additional documentation would be needed, but for typical joint returns, the notation is sufficient.

So sorry for your loss. I went through this with my husband last year. Another tip: request a tax transcript from the IRS for the past few years. Sometimes there are refunds or issues you didn't know about, and it gives you a complete picture of what the IRS has on file.

I tried the Taxpayer Advocate last year and they told me they couldn't help with identity verification cases unless there was a genuine financial hardship. Has this policy changed recently?

The policy hasn't officially changed, but in practice, it varies by office and how you present your case. Identity verification cases can qualify if you can demonstrate actual financial hardship (like facing eviction, utility shutoff, inability to pay for medications, etc.) caused by not receiving your refund. What's also changed is that some Taxpayer Advocate offices now have specialized staff just for handling identity verification backlogs. Worth calling your local office to check their current procedures, as they've been updating their approach to handle the massive backlog of these cases.

I did this last month and it worked perfectly! Called the appointment line (844-545-5640), got an appointment for the following week at my local office. Brought my ID, social security card, the IRS letter, and copies of my tax returns. The agent verified my identity on the spot and released my return for processing. Refund showed up 3 weeks later!

Thanks for this simple breakdown! So just to confirm - in my case with $10,400 paid, $6,500 deducted, and $1,400 refunded - the refund is completely non-taxable? And would I still get a 1099-G from my state for the refund even though I don't need to report it?

Yes, your $1,400 refund would be completely non-taxable since it's less than the $3,900 difference between what you paid and what you were able to deduct. And yes, you'll still receive a 1099-G from your state because they don't know your specific federal tax situation. You'll need to report it on your federal return, but the tax software or worksheet will help you calculate that the taxable amount is $0. Don't skip reporting it just because the taxable amount is zero - that can trigger a mismatch notice from the IRS.

You'll need to report the state refund on Schedule 1, Line 1. But you should complete the "State and Local Income Tax Refund Worksheet" in the 1040 instructions first to determine how much (if any) is actually taxable. If you're dealing with the SALT cap situation described in this thread, you may well calculate that $0 is taxable, but you still need to work through the worksheet.