How would you verify if the company is legitimate? I got offered something similar recently and now I'm worried.

Good question! Here are some ways to verify legitimacy: Research the company name + "scam" or "reviews" online. Check for a professional website with proper contact information, physical address, and company registration details. Be suspicious if they have no online presence or very new websites. Look them up on business registries. For UK companies, you can check Companies House (the UK's official company register). If they claim to be a registered business but don't appear in official records, that's a major red flag.

Did you have to file any special forms because the company was foreign? I'm starting something similar next month.

What about the prior year loss issue? If they reclassify prior years, won't that potentially create passive loss limitations that weren't applied before? Could that actually hurt the partners if they didn't have other passive income in those years?

You raise a valid concern. Reclassifying prior year income/losses from ordinary to rental could trigger passive activity loss limitations that weren't previously applied. If the partners didn't have sufficient passive income from other sources, some losses that were previously deducted might be suspended. This requires a careful analysis of the partners' entire tax situation for those years. The self-rental rule might actually help here - if the rental partnership leases to a business in which the partners materially participate, the rental income might be treated as nonpassive under the self-rental recharacterization rules, which could allow the losses to remain deductible. It's definitely worth running the numbers both ways before amending.

You absolutely need to separate those activities. The rental portion should be reported separately from the operating business. There are several ways to handle this, but the simplest is probably to report the business operations on page 1 and the rental activity on Schedule K and the appropriate rental real estate income lines. This ensures the rental income isn't subject to SE tax.

Is it true that the IRS is more likely to audit earned income tax credit claims than millionaires now? I read something about that and it seemed outrageous.

Yes, that's unfortunately accurate. EITC audits are largely automated and can be completed quickly, which makes them an easy target for meeting statistical goals. A revenue agent might complete 50-100 EITC audits in the same time it takes to thoroughly examine one complex high-wealth return. The IRS uses a cost-benefit analysis that looks at "return on investment" for audit hours. While a wealthy taxpayer audit might ultimately recover more money, the hours required are exponentially higher. Combined with the staffing shortages in specialized divisions, this creates a system where lower and middle-income taxpayers face proportionally higher audit rates than they should.

Some of the funding is supposed to go toward hiring specialized agents for high-income and business audits, but there's a huge training gap. Even if they hire people now, it takes 2-3 years to get them fully trained on complex audit issues like partnership returns and international tax. Meanwhile, experienced agents are retiring or leaving for private sector jobs that pay 2-3x their government salary.

That makes sense, but it still feels like such a fundamentally unfair system. Really appreciate the explanation! I guess we shouldn't expect this to be fixed anytime soon then.

I tried creating an IRS account and they wanted me to verify my identity through ID.me which required uploading my driver's license and doing a video selfie. Is that normal or did I click on something phishy?

That's completely normal. The IRS uses ID.me as their identity verification service. They do require documents like your driver's license and a video selfie to confirm you're really you. It feels intrusive, but it's their official process to protect tax data. The alternative verification methods (like answering questions about your credit history) sometimes don't work for everyone, so the ID verification becomes necessary. Once you get through that initial setup though, accessing your tax records becomes much easier for future filings.

Wait really? So if it gets accepted anyway, there's no problem? I've been stressing for no reason?

Have you had any issues with FreeTaxUSA? I've used TurboTax for years and I'm nervous about changing. Does it import previous returns or do you have to start from scratch?

I've used it for two years now with no issues. Their interface isn't quite as polished as TurboTax, but it gets the job done perfectly fine. You can't directly import a TurboTax return, but you can use your previous year's PDF to reference information. The learning curve is minimal - takes maybe an extra 15 minutes your first time, but you save $40-90 compared to TurboTax. Their customer service was also surprisingly responsive when I had questions about reporting multiple interest accounts on Schedule B.

Thanks for posting this! Is Cash App Taxes actually reliable though? I'm always worried about these free services having hidden catches or missing something important.