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Ask the community...

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  • DO post tips & tricks to help folks.
  • DO NOT post call problems here - there is a support tab at the top for that :)

Monique Byrd

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I've done this exact adjustment in ProSeries for clients for years. Go to the Form 8582 worksheet in ProSeries, and look for Line 16 of the actual form (within the software). There should be an override field where you can enter your desired allowed loss amount instead of the calculated amount. Important: Make sure you keep detailed records of your calculations and remaining carryforwards. Create a supporting statement in ProSeries explaining your calculation and why you're choosing to limit the allowed losses. This will help if you ever get questioned about it.

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Ellie Perry

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Thanks for the specific guidance on ProSeries! When I create the supporting statement, should I explicitly mention the AMT avoidance strategy, or just document the calculation of limited PAL?

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Monique Byrd

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I would recommend documenting both. In your supporting statement, first detail your calculation of the limited PAL amount - showing the total available, the amount you're choosing to use, and the remaining carryforward. Then I would also briefly explain the tax planning strategy - that you're limiting the PAL utilization to minimize Alternative Minimum Tax impact. This shows the IRS there's a legitimate tax planning purpose behind your decision. It's completely legal tax strategy, and being transparent about it actually strengthens your position if there's ever a question.

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Has anyone considered the impact this might have on passive activity grouping elections? If you're selectively limiting losses on certain activities, could it affect how the IRS views your grouping?

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Lia Quinn

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Good point. If you've made grouping elections for your passive activities, you should be consistent in how you treat the entire group. You can't cherry-pick which specific property's losses to use within a grouped activity. You would need to proportionally limit losses across the grouped activities.

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Another option you might consider is having your friend make individual $1,000 payments directly to each person. That way, you avoid having the entire $10k hit your account at once. If each person just gets their $1,000 directly, it's less likely to trigger any reporting requirements since it's under typical thresholds, and you don't have to worry about explaining why you received $10k that mostly wasn't yours. Just a thought to potentially simplify the whole situation!

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Paolo Longo

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But don't some payment apps have daily or weekly transfer limits? My PayPal only lets me send like $2-3k per week without upgrading or something. Might be annoying for the friend to space it out over time.

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You're right about the limits on some platforms. Venmo's standard limit is $4,999.99 per week for person-to-person payments, so the friend would need at least 3 weeks to pay everyone individually if using Venmo. PayPal has similar restrictions as you mentioned. Banks typically have higher limits for Zelle transfers, often $2,000-$5,000 daily depending on the bank. Your friend could potentially use multiple payment methods or speak with their bank about temporarily increasing limits if they wanted to make all payments quickly.

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Amina Bah

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Has anyone mentioned gift tax implications? If someone gives you more than $17,000 in a year (2023 annual exclusion amount), they're supposed to file a gift tax return. I know this isn't technically a gift since it's repayment, but could the IRS see it that way if they just notice a large transfer?

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This is a good question, but no, the gift tax wouldn't apply here. The IRS defines gifts as transfers made without receiving full consideration (value) in return. In this case, the $10k is repayment of money previously provided - it's settling a debt, not a gift. Even if the IRS initially questioned it, you would explain that this was repayment of a loan. That's why documentation of the original arrangement is important. Text messages, emails, or even witnesses who can confirm the nature of the original transaction can help establish this wasn't a gift.

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Don't forget that while you're waiting for the reconsideration process, the IRS can still move forward with collection efforts unless you specifically request a collection hold. Make sure you include a line in your letter requesting that collections be suspended while your reconsideration is being processed.

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I learned this the hard way. Had a lien filed while my reconsideration was "under review." Definitely call and confirm that they've put a hold on collections!

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Just want to add my experience - I submitted an audit reconsideration last year and got denied, but then I submitted a second one with better documentation and they accepted it. Don't give up if the first attempt doesn't work! Make sure you address whatever specific reasons they give for denying the first request.

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4 This happens frequently with tax software, unfortunately. Make sure to also check if the extension was actually accepted by the IRS or just transmitted by TaxAct. There's an important difference - transmission doesn't guarantee acceptance. If TaxAct tries to tell you "we transmitted it" without confirmation of acceptance, that's not good enough. When you speak with the IRS, ask them to check if there's any record of an extension being filed for your EIN, even if it was later rejected. Sometimes extensions get rejected for technical reasons but still show up in their system. Also, act quickly! The longer you wait to address this, the harder it can be to get penalties removed.

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11 Would it be better to call the IRS first before dealing with TaxAct? I feel like TaxAct might just try to cover for themselves.

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4 I'd actually recommend contacting both, but start with TaxAct since they can provide documentation faster. The IRS will want to know what happened on TaxAct's end anyway, so having that information first will make your IRS conversation more productive. You make a good point about TaxAct potentially being defensive, so be direct with them - ask specifically for confirmation records showing what happened with your extension transmission. Request a formal statement from them about whether the extension was actually received and accepted by the IRS, not just whether it was transmitted from their system. Most tax software companies keep detailed logs of all transmission attempts and IRS acknowledgments.

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19 Has anyone else had other issues with TaxAct this year? I've used them for years but this filing season they seemed to have way more glitches than usual. My personal return had to be resubmitted twice because of some weird transmission error.

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17 Yes! I had a similar issue where my state return showed as "transmitted" but when I checked the status a week later, it showed no record of filing. Had to resubmit and ended up with a late filing penalty for my state taxes. Their customer service wait times were insane too.

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Aidan Hudson

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One thing nobody's mentioned yet - if you think you're due refunds for some of those years, be aware that you can only claim refunds within 3 years of the original filing deadline. So for tax years 2021, 2022, and 2023, you can still get refunds if you're owed them, but for 2019 and 2020, that money's probably gone forever if you were due a refund. But you STILL need to file those returns to get in good standing with the IRS, even if you can't get the refund money anymore.

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That makes me so sad to think I might have lost money I was owed. Is there any exception to that 3-year rule for refunds? Like if I had a really good reason for not filing?

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Aidan Hudson

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Unfortunately, the 3-year rule for claiming refunds is pretty strict, with very few exceptions. Even legitimate reasons like illness, being deployed overseas, or natural disasters rarely qualify for extensions beyond what the IRS already grants for those situations when they occur. The best approach now is to focus on filing all returns to get compliant, secure the refunds you can still claim (for the more recent 3 years), and move forward with a clean slate. If your income was low enough in those older years, you might not have actually been required to file, which could be a small consolation. Either way, getting everything filed now prevents much bigger problems down the road.

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Zoe Wang

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As someone who works with tax issues (not a CPA, just experienced), I'd also suggest requesting your IRS transcripts FIRST before filing anything. Create an account at irs.gov/transcript and pull your wage and income transcripts for all 5 years. This will show you EXACTLY what the IRS already knows about your income, which helps prevent discrepancies that could trigger problems. Sometimes employers report things incorrectly or there might be income you forgot about. Better to know upfront!

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I tried creating an account on the IRS site and couldn't get verified. Something about my phone not being in my name? Is there another way to get these transcripts?

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