Thanks for sharing your experience! Do you think having the previous counter offer will help his case? Also, did you have to provide any special documentation that might not be obvious?

The previous counter offer is absolutely golden - it shows the IRS was already willing to settle. He should definitely include all documentation from that previous interaction and reference it prominently in his new submission. As for non-obvious documentation, medical bills were huge in my case. The IRS allows for necessary medical expenses, but most people don't document them thoroughly enough. Have him gather EVERY prescription, doctor visit, and medical expense for the past year. Also, if he has any unusual expenses that aren't on the standard IRS forms (like caring for an elderly parent, special education needs for children, etc.), he needs to document these with receipts and explanations. The IRS can be surprisingly reasonable about legitimate unusual expenses if they're properly documented.

What tax software would you recommend for someone wanting to DIY an Offer in Compromise? Can regular software like TurboTax handle this or do you need something special?

I used TaxSlayer last year and it doesn't have OIC forms. Had to do those manually. Not sure about other programs though.

There are some exceptions to this though! Even if you take the standard deduction, you can still deduct things like student loan interest, IRA contributions, self-employment taxes, and health insurance premiums if you're self-employed. These are called "above-the-line" deductions and they work differently.

Absolutely right! Those "above-the-line" deductions reduce your Adjusted Gross Income (AGI) directly and you can claim them regardless of whether you take the Standard Deduction or itemize. This is why tax terminology is so confusing for beginners - there are "deductions" that aren't affected by the Standard Deduction vs. itemizing choice. Thanks for pointing that out!

Yeah but tax software can mess this up sometimes. I had a friend who had major medical expenses that would have pushed him over the threshold to itemize, but his software didn't properly explain this to him. Always worth double-checking if you have unusual expenses.

Wait this is confusing me. So if I was in the US for 120 days this year, 90 days last year, and 60 days the year before, how do I calculate this? Is it 120 + (90/3) + (60/6)?

Yes, you've got it right! For your example it would be: 120 + (90/3) + (60/6) = 120 + 30 + 10 = 160 days. Since that's less than 183, you wouldn't meet the substantial presence test based on those numbers. But remember, if you're in the US at least 31 days in the current year AND you hit or exceed 183 days with this calculation, then you meet the substantial presence test and would be considered a US resident for tax purposes unless you qualify for exceptions like the closer connection.

Did you use any particular tax software to file the 8840? I'm trying to figure out if I can just submit it on its own or if I need to file it with a tax return.

Both are definitely mortgages - we used them simultaneously to purchase the home (one conventional loan and one through the employer's first-time homebuyer assistance program). The employer loan doesn't show up anywhere on the W-2, it's a completely separate arrangement with its own 1098. I'm wondering if it's because the employer loan has a much lower interest rate (2.5% compared to 3.25% on the main mortgage), and that's somehow affecting the overall calculation? Could a lower rate on the second mortgage somehow reduce the total benefit?

That's interesting. Even with the lower rate, more interest should still be more deduction. The fact that it's an employer loan makes me think there might be some fringe benefit taxation going on behind the scenes. Check if the interest rate on the employer loan is below market rate. If it is (which 2.5% would likely qualify as), the IRS can consider the difference between your rate and the market rate as taxable income - essentially treating the below-market rate as a benefit from your employer. This "imputed income" might be what's reducing your refund when you add the second 1098.

This is a really good point. AMT can definitely cause this kind of counterintuitive result. The software should tell you if AMT is being applied though - there's usually an AMT worksheet or form that appears.

7 This is super important info - I had no idea! If you have existing Traditional IRA money, is there any way to still do a backdoor Roth without triggering this pro-rata rule? I've got about $30k in an old Traditional IRA.

19 Yes, there's a workaround! If your employer's 401(k) plan accepts rollovers from IRAs, you can roll your existing pre-tax IRA funds into your 401(k) before doing the backdoor Roth. Since 401(k)s don't count in the pro-rata calculation, this effectively zeroes out your pre-tax IRA balance. This only works if your 401(k) plan allows for incoming rollovers from IRAs, so you'll need to check with your plan administrator. If this is possible, you could roll the $30k into your 401(k), then do a clean backdoor Roth conversion without pro-rata tax consequences. Timing matters though - you'd need to complete the rollover to the 401(k) before December 31 of the tax year you're doing the conversion.

4 You can file amended returns (Form 1040-X) for the previous years where this mistake was made. You'll also need to include Form 8606 for each of those years to establish your non-deductible basis. The statute of limitations for amending returns and claiming refunds is generally 3 years from the original filing date, so your 2021-2023 returns should all still be eligible for amendment.