Wait really? I didn't know the IRS pays interest! Do they just add it automatically or do you have to request it somehow? I'm still waiting on my 2021 refund too.

They add it automatically! You don't have to do anything to request it. The interest starts accumulating from the original filing deadline for that tax year (so for 2021 returns, interest started accumulating from April 18, 2022). They'll keep adding interest until the day they issue your refund. Just be aware that the interest payment IS taxable income, but you'll report it on next year's return. They'll send you a Form 1099-INT in January 2026 for any interest paid during 2025. The current interest rate is pretty decent too - around 7% annually.

Thanks for this! I just created an account on the IRS website to check my transcript, but it says I need to wait for a verification code in the mail. Is that normal?

Actually it's the opposite. "Being processed" is the normal status, while "still being processed" often indicates some sort of review or delay. The transcript is definitely the way to go for more info though!

Thanks for sharing your experience! Did you respond to everything by mail or did you have the option to upload documents electronically? I'm curious about how the process actually works.

They initially contacted me by mail with a request for the documentation, but I was able to create an account on their examination portal and upload all my documents electronically. It was actually pretty straightforward - I scanned everything, created a single PDF, and uploaded it with a cover letter explaining each item. They did have questions about two of my documents which required a follow-up phone call, but overall the process was less painful than I expected. Just make sure you respond within their deadlines and keep copies of absolutely everything you send them. The digital option definitely sped things up compared to mailing everything.

I had the exact opposite experience. IRS increased my NIIT by $1200 and when I got audited, they found they had made the mistake. Took forever to get resolved tho. Like 8 months of back and forth.

That's really helpful, thank you. She did have substantial medical bills in her final month. Would those count even if they were paid by her health insurance? Also, what's the threshold for medical expenses to be deductible?

Medical expenses are only deductible for the portion that exceeds 7.5% of her adjusted gross income. So if her AGI was $40,000, only medical expenses above $3,000 would be deductible. And you can only include the part she actually paid, not what insurance covered. However, there's a special rule for deceased taxpayers that lets you include medical expenses you paid on their behalf within one year of death, even if you paid them after she passed away. So if you personally covered any of her medical costs, those might qualify too. Just make sure to keep all receipts and documentation in case the IRS has questions.

Absolutely right about the stepped-up basis. That was a huge benefit when we sold my father's home. The house had appreciated by about $175,000 since he bought it, but since we sold it for only about $15,000 more than its value on his date of death, we only paid capital gains on that small amount. Saved us thousands in taxes.

But what about Section 336(e)? Doesn't that election let you treat the liquidation differently for basis purposes? I thought that gave corporations some flexibility in how assets are valued during liquidation.

Good question about 336(e). That election is different - it applies to certain stock dispositions, not to the liquidation itself. A 336(e) election can apply when a corporation sells stock of a subsidiary, and it essentially treats the transaction as an asset sale rather than a stock sale. But in a straight 332 liquidation where the parent is receiving assets directly from its subsidiary, 334(b)(1) controls and mandates carryover basis. The flexibility you're thinking about might relate to planning opportunities before the liquidation, but not to the basis determination once you're in a qualifying 332 liquidation.

Totally agree. My company did a subsidiary liquidation last year and we got caught by the built-in loss limitations we didn't know about. Cost us a fortune. Would have been worth paying a specialist!

Yes! This happened to me too. They coded mine as a "7" (I'm over 59.5) even though it was definitely a rollover. My tax guy said the important thing is to mark it as a rollover when entering it into tax software. He said the IRS reconciles this with the 5498 form your receiving institution files showing the money went into another IRA.

Thanks for confirming! That makes me feel better. I didn't realize the receiving institution files a Form 5498 that the IRS can match to my rollover. That makes sense that there would be a paper trail on both ends. I've been keeping all my documentation just in case, but it's good to know there's an additional safeguard in the system.

Oof, that's a really good point. I had the same issue with a 401k rollover (not an IRA). Had to scramble to find extra cash to make up the withheld amount. Then had to wait for the tax refund the following year to get that withheld money back.