Thanks for the advice. Do you think if he files an amended return now before any investigation happens, would that help minimize the damage? Also, should he report the tax preparer?

Filing an amended return quickly will definitely help minimize the damage. The IRS is generally more lenient when taxpayers voluntarily correct errors before being contacted about an examination. He'll still have to pay back the incorrect refund amount, but may avoid or reduce the fraud penalties. And yes, he should absolutely report the tax preparer. He can file Form 14157 (Complaint: Tax Return Preparer) with the IRS. Tax preparers who knowingly file false returns can face significant penalties themselves, including potential criminal charges and being barred from preparing returns.

This is a good point. I sold some stuff on eBay last year and got a 1099-K even though it wasn't a business. Maybe his preparer is counting something like that?

Really? That would be so much easier! How did you calculate the difference in what you owed? Did you still use tax software to figure out the corrected amount or just calculate it manually?

I used TurboTax to calculate the correct amounts but didn't actually file an amended return through them. I basically entered all my original tax info plus the missing crypto transactions, saw what the new tax liability was, then compared it to my original return to get the difference. On the CP2000 response form, I entered my recalculated amount which was actually less than what the IRS estimated (they always seem to assume worst-case scenario on crypto gains). I included a brief explanation letter along with my completed Schedule D and 8949 showing all the transactions with correct basis amounts.

This is super important advice. The IRS is really backed up right now, but they don't extend the same courtesy to taxpayers. I learned this the hard way last year.

That's surprising! I work with a foundation and we never ask about which 501(c)(3) application was used. Maybe that foundation has had bad experiences in the past?

I hadn't even thought about state taxes! Do you know if states typically use the same forms (Schedule D and 8949) for reporting this kind of income?

Most states use forms that correspond to the federal forms, but they may have different names. Usually your state tax return will ask for information from your federal return, including your Schedule D amounts, and then make adjustments based on state-specific rules. For example, in my state (California), we use Schedule D for capital gains just like the federal return, but some states have their own forms with different names. The good news is that most tax software will automatically handle this for you once you input the information on the federal forms.

Anti-scalping laws vary widely by location and are rarely enforced for individual resellers. Most target large-scale operations. The tax obligation remains regardless of any potential scalping issues.

Does this apply only to the second beneficiary or would it continue if there was a third beneficiary down the line? Like if the aunt also passes away and leaves it to her child?

The same principle applies to any subsequent beneficiaries down the line. If your aunt passes away and names a third beneficiary, that person would continue with the same distribution schedule that was established when your uncle first inherited the IRA. This creates what's sometimes called a "cascading beneficiary" situation, where each new beneficiary must follow the original schedule. No one gets to reset the clock or use their own life expectancy. This is why proper planning for these pre-2020 inherited IRAs is so important - the distribution schedule follows the assets regardless of how many times they change hands.

This is really good advice. I work at a financial institution, and you wouldn't believe how often we have missing or incomplete beneficiary documentation, especially for accounts that have transferred between custodians multiple times.