This is super helpful! Does this ordering change at all depending on whether you're dealing with federal vs. state tax issues? I'm trying to figure out where state tax court decisions fit in this hierarchy.

Great question! For state tax issues, you'd have a parallel hierarchy, starting with the State Constitution, then State Statutes, State Regulations, State Revenue Rulings, etc. For conflicts between federal and state tax law, federal law generally prevails due to the Supremacy Clause of the U.S. Constitution, but states have significant autonomy in creating their own tax systems. State tax court decisions would only be authoritative for that state's tax laws and wouldn't impact federal tax law interpretation.

IRS Notices and Announcements generally fall below Revenue Procedures in the hierarchy. They're considered "official pronouncements of tax policy" but don't have the same weight as Revenue Rulings or Revenue Procedures. That said, Notice 2020-75 specifically is pretty influential regarding state and local tax (SALT) workarounds since it announced the Treasury's intent to issue regulations on a particular matter. If your tax preparer is citing it, it's probably relevant to your situation, but just know that if it ever directly conflicted with a statute or regulation, those higher sources would prevail.

That's a really good question! I've actually been wondering about that too. My initial plan was to have everything under one LLC for simplicity, but now I'm second-guessing if that's the best approach. Did your tax person explain any specific benefits to having them separate?

The main reason he gave was liability protection. If someone sues your property management business, they could potentially go after your personally owned properties if they're in the same LLC. With separate LLCs, there's a stronger legal separation. From a tax perspective, he mentioned it can be cleaner for accounting and if you ever want to sell either business. Also said it might give more flexibility with how you handle certain deductions and expenses. The downside is more paperwork and potentially higher costs for maintaining multiple LLCs depending on your state.

This is super important! I learned this the hard way in California. Was managing just two properties for family members and got hit with a fine because I didn't have the required real estate license. Rules vary by state but better to check before you get too far along.

But aren't there legitimate advantages to being a contractor? I've heard you can deduct all kinds of things as business expenses - home office, car, phone, even meals sometimes. Couldn't those deductions make up for the extra taxes?

There are some legitimate advantages to being a contractor, but they rarely outweigh the costs for most workers. Yes, you can deduct business expenses, but there are strict rules about what qualifies. Home office deductions require exclusive use of that space for business. Vehicle deductions only apply to business use, not personal or commuting. Meal deductions are limited to 50% and must be directly related to business. These deductions rarely offset the additional 7.65% self-employment tax burden, loss of unemployment benefits, lack of workers' comp protection, no paid time off, and no employer-provided health insurance. Plus, you take on all the administrative burden of tax filings, estimated quarterly payments, and keeping meticulous records. For most personal assistants, employee status is financially advantageous unless the contractor rate is significantly higher.

The 20-factor test is actually outdated. The IRS now uses a simplified approach with three categories: Behavioral Control, Financial Control, and Relationship of the Parties. Much easier to understand than the old system. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Does claiming the Recovery Rebate Credit also trigger a review? I claimed that for a missing stimulus payment.

Recovery Rebate Credit can definitely trigger additional review, especially if the amount you're claiming doesn't match IRS records. The IRS is extra careful with these credits because there were a lot of issues with improper claims (both accidental and fraudulent) during the pandemic years. The good news is that even with the delay, you should eventually get the refund if you're legitimately entitled to it. But it might take 6-8 weeks instead of the usual 21 days.

Thanks for this info! I checked and I do have that PATH Act hold. Wish the "Where's My Refund" tool would just tell you this instead of the vague "still processing" message.

Do they really care about such a small amount though? The tax difference would only be like $20-30. Seems like more trouble than it's worth to amend.

While the IRS is certainly more concerned with larger discrepancies, their automated matching system flags all mismatches between reported income and what they received on information returns, regardless of the amount. A $100 discrepancy alone probably wouldn't trigger an audit, but it could trigger an automated CP2000 notice proposing additional tax, interest, and potentially penalties. When you receive such a notice, you'll end up having to respond anyway, and at that point, interest will have accrued. It's generally better to correct small issues proactively rather than dealing with IRS notices later. Plus, establishing a pattern of compliance and good faith corrections helps if you ever face more serious tax issues in the future. Think of it as an insurance policy against future headaches.

I ignored a similar situation with a $200 discrepancy back in 2020 and got a CP2000 notice about 18 months later. Had to pay the tax, plus interest, plus a 20% accuracy-related penalty. The penalty was small, but it was annoying to deal with. Definitely would just amend if I could do it over.