I hadn't thought about that option. Is the OIC process more complicated than setting up an installment agreement? And do they accept a lot of these offers or is it really difficult to qualify?

An OIC is definitely more complex than a standard installment agreement. You'll need to complete Form 656 and Form 433-A (OIC) with much more detailed financial information. The process typically takes 6-12 months for a decision. As for acceptance rates, they've improved in recent years. The IRS accepts about 40-45% of OICs submitted these days, which is much better than the historical 10-15% acceptance rate from years ago. The key is being realistic about what you offer - they use a formula based on assets, income, and expenses to determine the minimum they'll accept.

This is good advice. I was placed in CNC status for 2 years when I had a medical issue that wiped out my savings. The IRS reviewed my case after about 24 months and by then I was able to set up a reasonable installment plan. Without that breathing room I would have been completely underwater.

What kind of penalty did they charge? Was it a percentage or just a flat fee? I have a similar situation but the W-2 is for only like $300.

They charged him a 20% accuracy-related penalty on the unpaid tax amount, plus interest that had accrued from the original filing deadline. The dollar amount wasn't huge because the income was small, but it was the principle and hassle that was the real cost. Even for $300, they'll still catch it through their matching program. The underreporter notice (CP2000) takes time to generate and send out, but it's an automated system that will eventually find even small discrepancies. Better to just include everything upfront than deal with the paperwork and potential flags on your account later.

Actually, if including the W-2 would result in a LARGER refund for you, the IRS won't penalize you - they just won't give you the additional refund unless you amend your return. The penalties are designed for when you underreport tax owed, not when you shortchange yourself. That said, they'll still send you a notice about the discrepancy. And if you repeatedly have mismatches on your returns, it could trigger more scrutiny in future years even if those mismatches were in the IRS's favor.

Thank you for the specific form recommendation! I didn't know about the 14157-A. Would you mind sharing how long the investigation into your preparer took? And did you end up having to pay back all the incorrect refunds you received in your situation?

The investigation took about 8 months before I received notification that action had been taken against the preparer. The IRS doesn't share specific details about penalties they impose, but I did receive a letter confirming my complaint was substantiated and that "appropriate action" had been taken. Regarding repayment, yes, I did have to pay back the incorrect refunds plus interest. However, the IRS did waive most of the accuracy-related penalties after reviewing my documentation showing I'd been misled. I was able to set up a payment plan with manageable monthly payments. The most important thing was separating myself from the fraudulent behavior by being completely transparent and proactive.

This is incorrect advice. They said they filed SEPARATELY, not jointly. Innocent spouse relief only applies to joint returns. Please be careful giving tax advice when you don't fully understand the situation.

That's really helpful to know! Do you happen to know if VITA volunteers can help with Schedule C for self-employment? That's the main complication in my return this year.

Most VITA sites can handle simple Schedule C filings, especially if your business doesn't have employees, inventory, or losses. However, there are limitations - if your business expenses exceed $35,000 or you have more complex situations like home office deductions or depreciation, some sites might not be able to help. I'd recommend calling your local VITA site directly to ask about their specific capabilities regarding self-employment income. Some sites have specialized volunteers who can handle more complex returns, while others stick to simpler cases. You can find the nearest location by using the VITA Locator Tool on the IRS website or calling 800-906-9887.

Is there any quality control at these places? I thought tax preparers had to pass some kind of test or certification. It's scary to think someone with minimal training is handling something as important as taxes.

I hadn't thought about Roth conversions at all. How would you determine how much to convert each year? Is there some kind of sweet spot?

You want to convert just enough each year to "fill up" her lower tax brackets without pushing her into a bracket where the tax cost becomes too high. It's often best to convert amounts that keep her in the 10% or 12% federal brackets. For the Social Security taxation specifically, you'd ideally convert amounts that keep her combined income (AGI + nontaxable interest + 1/2 of SS benefits) below $25,000 if possible, or at least below $34,000 to avoid the 85% taxation threshold. Many people find converting $5,000-8,000 per year strikes a good balance, but it's very specific to her overall financial situation.

I've had good luck with H&R Block Premium. It has a feature that lets you run scenarios for the following year and shows how different income levels affect your Social Security taxation. Not perfect but better than TurboTax for this specific issue in my experience.