Thanks for bringing this up! You're absolutely right. I've been so focused on whether I could be at risk that I haven't really pushed him enough on addressing his own situation. Do these payment plans usually require some kind of initial payment? He literally has almost no money right now.

Most state tax agencies do require some initial payment to establish a payment plan, but the amount can often be negotiated based on financial circumstances. For someone with extremely limited income, some states will accept as little as $25-50 to start a plan. The key is documentation. Your nephew should gather proof of his current financial situation - bank statements showing low balances, unemployment documentation, job search records, etc. Many states have hardship programs specifically for people in dire financial situations. Some might even temporarily place the account in "currently not collectible" status if he can prove he has no ability to pay anything right now.

This is actually a really good point that I hadn't considered. When I worked at an accounting firm, we definitely saw increased audit rates for returns with adult dependents who had their own tax compliance issues. Doesn't mean you shouldn't claim them if they legitimately qualify, but worth being aware of.

What happens if you can't find documentation of the exact value on date of death? My dad left me some stocks but passed away during COVID and everything's a mess with paperwork.

If you can't find the documentation, you can try to reconstruct it. You'll need to determine the date of death and then research what the stock was trading for on that day - most financial websites have historical price data. Get the closing price on that date and multiply by the number of shares. If it was a significant inheritance, the estate may have filed an estate tax return (Form 706) which would have the valuation. You can request a copy from the IRS with Form 4506. Another option is to contact the broker who handled the account - they often have historical valuations on record.

That's actually a good point. I was holding onto some Lehman Brothers shares after they went bankrupt thinking they might bounce back, but in the end I would have been better off just taking the tax loss. The shares did briefly spike to about 20 cents though.

This! I live in NY and they're just as aggressive as the feds about taxing foreign income. Double check your state tax laws.

This happened to me with a much smaller amount ($150k) from selling property overseas. My account got frozen for like 2 weeks while they verified everything. Super annoying.

Yes, it's become extremely common even with smaller amounts. The banking regulations have tightened significantly under anti-money laundering laws. I recommend contacting your bank before the transfer to ask about their specific documentation requirements and procedures for large incoming international wires. Some banks handle it much better than others. I've seen people have funds held for up to 30 days during verification, which can be a serious problem if you need access to the money. Having all your documentation organized in advance and possibly even working with a private banker at your institution can make the process go much more smoothly.

Do you have to have a certain amount of tax debt to qualify for the Fresh Start stuff? I owe about $8,500 from 2022 and 2023... is that even enough to bother with these programs?

There's no minimum debt requirement for the Fresh Start provisions, so your $8,500 definitely qualifies. For smaller debts like yours, you might especially benefit from the streamlined installment agreement option, which has simplified application requirements for debts under $50,000. With $8,500, you might also consider whether you have any means to fully pay the debt, such as a personal loan with a lower interest rate than the IRS charges. The IRS interest and penalties continue to accrue even while you're on a payment plan, so sometimes it makes financial sense to pay it off another way if possible. But if that's not an option, definitely look into the streamlined installment agreement.

This sounds like you're advising tax evasion which is literally a crime. You should ALWAYS file your tax returns even if you can't pay. Not filing is way worse than filing and setting up a payment plan.

But isn't it still smart to plan ahead? I mean, even if the full 44.6% doesn't pass, there could be some increase, right? Better safe than sorry...

Planning ahead is always good, but I wouldn't make any drastic moves based on proposals that haven't even made it to committee yet. If you're really concerned, the best approach is probably to run multiple scenarios - what happens if rates stay the same, what happens if they go up moderately, and what happens in the worst case. Then identify strategies that work reasonably well across all scenarios. The biggest mistake would be making irreversible financial decisions based on tax proposals that might never materialize.

I've been using H&R Block Premium, and they have a "tax calculator" feature that lets you adjust income types and tax rates to see different scenarios. It's not super sophisticated but it gave me a rough idea of how different capital gains rates would affect my bottom line.

Thanks for the suggestion! I'll take a look at H&R Block. I really need something that can help me visualize the impact since I'm planning to sell a rental property next year that I've owned for about 15 years. The potential tax difference between current rates and the proposed rates would be substantial for me.