Thanks for mentioning that about scholarships! I didn't realize they don't count toward my support calculation. I received about $3,200 in scholarships that went directly to tuition, so I guess I need to subtract that from my contribution. So recalculating: I personally paid about $9,800 (not counting scholarships), and my parents contributed $8,500. That's still more than half from me, but closer than I thought. Is there anything else I might be missing in my calculations?

You're on the right track with your recalculation. Also consider any health insurance your parents might provide - that counts as support from them. Same with cell phone plans if they pay for yours, car insurance if they cover it, or any medical expenses they paid. Don't forget to include the fair rental value of housing if you lived with them any part of the year (like during summer break). This often gets overlooked but can significantly impact the support calculation. With your adjusted numbers ($9,800 from you vs $8,500 from parents), you're still providing more than 50%, but it's close enough that these other factors could potentially tip the balance.

That approach gets into murky territory. The IRS looks at the substance over form. If parents give money specifically for education, it's still considered support FROM the parents, even if it passes through the student's bank account first. What matters is the source of the funds, not who physically makes the payment. If the parents are the true source of the money, they're providing that portion of support - regardless of whether they pay the school directly or give the money to the student to pay.

Don't bank statements expire after 7 years? How would someone even get statements from 10 years ago to reconstruct income?

Most banks only provide online access to 7 years of statements, but they often retain records for longer periods. Your client can request older statements directly from their bank - there's usually a fee, but many banks can produce statements from 10+ years ago if needed. This can be extremely valuable for income reconstruction. If bank statements truly aren't available, there are alternative approaches: industry standard rates applied to known work activity, client's recollection of approximate customer counts and average charges, third-party records (like appointment books or contracts), and even client's lifestyle expenses during those periods can establish baseline income needed to maintain that lifestyle.

FTA typically only applies to one tax year - usually the earliest one with penalties. However, I've had success requesting reasonable cause abatements for the additional years by documenting why the client failed to file (medical issues, natural disasters, bad advice from previous accountants, etc). Worth trying for all years, but expect FTA to only work for one.

How exactly did you document the "worthlessness"? Did you need an independent appraisal or was your own documentation sufficient? I'm in a similar situation but don't want to spend more money on an appraiser if I don't need to.

I used a combination of internal financial statements and business records rather than paying for an expensive appraisal. I created a documentation package that included monthly P&L statements showing consistent losses, screenshots of competitor pricing that showed we couldn't compete profitably, documentation of failed attempts to sell the business (emails with potential buyers or brokers), and a formal business memo explaining the market conditions that made continuation impossible. My CPA said the key was showing I had made legitimate efforts to make the business work or sell it before declaring it worthless. We also included bank statements showing the business accounts were depleted. This approach worked for me, but situations vary - if your business had substantial physical assets rather than just a website, you might need more formal valuation. The most important thing is showing you've exhausted reasonable options before taking the tax loss.

If you're expecting lower income next year, it might make sense to delay the liquidation until January. Capital losses (which some of this likely will be) are more valuable in higher income years since they offset income. But if some qualifies as ordinary loss under Section 1244, that might be more valuable in a higher income year.

Do you know if you can get the earned income credit if your business operated at a loss? I thought you needed actual earned income to qualify for that. Also, would educational expenses count if they were related to improving business skills?

For the Earned Income Tax Credit, you generally do need some earned income to qualify, so a complete business loss might not help there - I should have been more specific. However, even minimal earned income (like side gigs) can sometimes qualify if you meet the other requirements. For educational expenses, if they were directly related to improving skills for your current business, they might be deductible as business expenses rather than qualifying for education credits. Business-related education can usually be deducted on Schedule C if you're a sole proprietor or flow through on partnership returns. This is actually where documenting business losses properly becomes important for future tax benefits.

Do you know if there's any minimum amount you need to earn before you're required to file? I've heard different things like $600 or $12,000 but I'm not sure what's accurate. Just trying to understand if there's an actual legal requirement to file with zero income or if it's just recommended.

Thanks for this perspective! I called the H&R Block office this morning and asked for the manager. At first they tried to stick with the "IRS will catch it" line, but when I mentioned their guarantee that covers preparer errors, their tone completely changed. They've scheduled me to come in tomorrow where they'll handle the amendment for me and they're giving me a document stating they'll cover any related penalties. Should I bring anything specific to the appointment?

Bring all your original tax documents (W-2s, 1099s, etc.), your payment receipt showing how much you paid, and the final tax return they prepared. If you have any emails or documentation about the error being discovered, bring those too. Also ask them to provide you with written confirmation that they'll track the amendment until completion and notify you when the refund is expected. Get the manager's direct contact information in case you need to follow up. Don't leave without copies of everything they submit on your behalf, including the 1040-X form they prepare.

The Taxpayer Advocate Service is great but they're super backed up right now. I called them last month about a similar issue and they told me they're only taking cases with financial hardship or where you're facing immediate negative action from the IRS. Did you have to prove hardship to get their help?