That's really interesting - I didn't realize education expenses could qualify for avoiding the penalty. About $6,000 of what I withdrew actually did go toward my final tuition payment. Would I need to file an amended return to claim this exception, or can I just dispute the CP49 notice directly?

You can address it directly in your response to the CP49 notice. You'll need to complete Form 5329 for the tax year in question, entering the distribution amount on line 1, then the amount used for qualified education expenses on line 2 of the "Exceptions" section. I'd also include proof of payment to your educational institution from that year. The IRS will recalculate your liability based on this information. Since it's been a few years, gather as much documentation as possible - receipts, account statements, anything showing you used those funds for education.

This is a really important point. When I cashed out part of my 401k years ago, they automatically withheld 20%. It should show on your 1099-R in Box 4. If withholding happened but wasn't accounted for in your original return, that could significantly reduce what you owe.

Thanks for this advice - I actually have a folder with all our home improvement receipts since we bought our house in 2017. Should I be keeping those separate from the regular tax stuff then? And how long should I keep investment statements?

Yes, absolutely keep home improvement receipts separate and basically forever, or at least until 3 years after you sell the house. These directly affect your tax basis and can save you thousands when you sell by reducing potential capital gains tax. For investment records, keep purchase confirmations, dividend reinvestment statements, and records of any stock splits indefinitely for any investments you still own. For investments you've sold, keep the purchase and sale confirmations for at least 7 years after filing the tax return reporting the sale.

I do this too but make sure you're encrypting sensitive docs before uploading them to cloud storage! Regular PDFs in Google Drive aren't that secure. I use encrypted archives or password-protected PDFs.

Thank you for mentioning this! I completely forgot about his IRA. He does have a small one with about $42,000 in it. I guess that means he'll need to take distributions from that too? Does that change how much he should withhold from the pension?

Yes, at 73 he definitely needs to take required minimum distributions (RMDs) from his IRA. For his age, it's roughly 4% of the balance, so that's about $1,680 for the year based on the $42,000 balance you mentioned. This additional income should factor into his total tax picture. While it's not a huge amount, it does push his total income higher. I would probably increase the pension withholding slightly to account for this - maybe closer to 15-18% rather than the 12-15% others suggested. Alternatively, he could have taxes withheld directly from the IRA distributions when they're taken, which many people find simpler.

No, that's not right. If you check that box, they won't withhold ANY taxes. That's definitely not what OP's father wants based on his situation.

You're right, I should have been clearer. Checking that box means NO withholding at all. I was thinking of a different scenario. For OP's father, he should NOT check that box, and instead complete Step 2 to indicate his filing status and Step 4c to specify any additional withholding he wants beyond the standard calculation. Most pension administrators will calculate a base withholding amount, and Step 4c lets you add more if needed. Thanks for the correction!

Thanks for this advice! Can you clarify what "same type" means in this context? Like could I group all my NBA TopShot NFTs together even if purchased/sold on different dates? Or does "same type" mean they need to have the same dates and cost basis percentage?

By "same type," the IRS generally means transactions that share the same characteristics for tax purposes. Grouping should maintain separate categories for: short-term vs long-term holdings (more/less than 1 year), whether they were reported on a 1099-B, and whether you have any adjustments to the basis or proceeds. You couldn't group all NBA TopShot NFTs together just because they're from the same platform if they have different holding periods or acquisition dates. The summary should still separate short-term from long-term gains and maintain the integrity of your actual tax position. The goal is to simplify the paperwork while still accurately reporting your total capital gains and losses. Your detailed transaction records should include the specific dates, cost basis, and sale price for each NFT in case you're ever asked to substantiate your summary.

This is actually incorrect and potentially dangerous advice. The IRS has been very clear that Like-Kind Exchange treatment (Section 1031) does NOT apply to cryptocurrency or NFT transactions after 2017. This position has been stated multiple times in IRS guidance. Every NFT trade is considered a taxable event - when you trade one NFT for another, you're technically selling the first one for its fair market value and using those proceeds to buy the second one. Both transactions need to be reported. Trying to claim NFTs as collectibles for Like-Kind treatment would likely trigger an audit and potentially penalties for incorrect filing. NFTs are treated as digital assets under current IRS guidance.

That sounds terrifying, but I'm skeptical they'd go straight to fraud allegations just based on an algorithm without other factors. Did your friend maybe ignore multiple notices or miss meetings with the examiner? The IRS generally starts with accuracy-related penalties (20%) before jumping to fraud penalties (75%) unless there's pretty clear evidence.

DIF scores are primarily used for audit selection, not fraud determination. A high DIF score might get your return selected for examination, but fraud penalties only come into play when the examination uncovers evidence of intentional wrongdoing. That said, what triggers a high DIF score (unusual patterns, statistical outliers, etc.) might also raise questions during an audit. The difference is that for fraud, the IRS needs to establish that discrepancies were intentional, not just unusual. They look for affirmative acts of concealment or misrepresentation beyond just claiming questionable deductions. But you're right about certain deductions increasing audit risk - particularly those that are frequently abused like home office, vehicle expenses claimed as 100% business use, or hobby losses disguised as business losses. The key is having proper documentation and a legitimate business purpose.