The Taxpayer Advocate Service is practically useless these days. I tried contacting them for help with an identity theft issue and they told me they're so backlogged they're only taking "extreme hardship" cases. Apparently owing the IRS $9,000 I don't actually owe isn't "extreme" enough lol.

That's disappointing but unfortunately not surprising. Their resources have been stretched thin over the past few years. For identity theft cases specifically, the IRS has a specialized unit you can contact directly at 800-908-4490. They handle cases where someone filed a fraudulent return using your information. For the incorrect tax debt situation, you might need to send a formal written dispute with certified mail. It's slower but creates an official record of your dispute that's harder for them to ignore. The key is to explicitly state the economic hardship the incorrect assessment is causing you - using those specific terms can help get your case prioritized.

This isn't a browser issue, it's the IRS being understaffed and overwhelmed. No amount of clearing cache is going to make them respond to a submitted ticket faster 😂

Thank you for mentioning this! My fictional taxpayer has an AGI of $123,000, so they'd be in that phaseout range. How exactly do I calculate the deductible portion of the $7,500 rental loss in this case? Is there a specific worksheet in the instructions?

For an AGI of $123,000, you're right in the middle of the phaseout range. The calculation is pretty straightforward: you lose $0.50 of the $25,000 maximum deduction for every $1 over $100,000. So take $123,000 - $100,000 = $23,000 over the threshold. Multiply that by 0.5 = $11,500 reduction. This means your maximum deduction would be $25,000 - $11,500 = $13,500. Since your loss is only $7,500, you can deduct the entire amount because it's less than your modified maximum. Form 8582 is where you'd calculate this for a real return, but for your assignment, just showing this calculation should be sufficient unless your professor specifically required Form 8582 as part of the project.

Our professor had us use the free fillable PDFs from the IRS website for older tax years. Way less headache than dealing with outdated software! You can still download the 2017 forms and instructions directly from irs.gov/prior-year

That's really helpful! Did you use a specific form for that detailed expense breakdown or did you just create your own document to attach? And did you have to get anything notarized or officially verified?

I created my own spreadsheet that listed each expense category (housing, utilities, food, transportation, etc.) with the monthly amount and annual total. I didn't get anything notarized, but I did include recent statements for everything - utility bills, bank statements showing rent payments, etc. I also wrote a cover letter explaining my financial hardship situation and specifically referenced IRM 5.8.5.22 (the Internal Revenue Manual section that covers the bank account exemption). The tax advocate told me that making it easy for the reviewer to verify your information greatly increases your chances of approval.

I had mine accepted about 3 months ago. The acceptance rate is lower, but that's largely because people submit incomplete or inaccurate applications. If you document everything thoroughly and calculate your offer correctly, you've still got a good chance.

That's really good to know - my bankruptcy was discharged about 14 months ago, so sounds like I should be past that waiting period. I do have one tax return I haven't filed yet because I knew I'd owe and couldn't pay. Should I get that filed ASAP before contacting them about the Fresh Start options?

Yes, absolutely file that outstanding return immediately. The IRS won't even discuss resolution options until you're in compliance with all filing requirements. Even if you can't pay what you owe, getting the return filed is the necessary first step. Think of it this way - the IRS sees unfiled returns as someone trying to hide or avoid their obligations entirely, while someone who files but can't pay is at least being transparent about their situation. Once you've filed everything, then you can approach them about payment options through the Fresh Start program with a much better chance of success.

I think this depends on your specific situation though. The IRS doesn't actually expect you to create more debt (like maxing out credit cards) to pay tax debt. They look at reasonable collection potential. When I submitted my OIC, I just had to document my current financial situation honestly.

Thanks for the tip about entering them separately! Do you know if TurboTax will automatically ask me about the medical insurance exception, or do I need to look for that specifically somewhere?

TurboTax should ask you about exceptions after you enter each 1099-R form. When it asks about the distribution code (Box 7), it will then follow up with questions about your situation. If you indicate you were unemployed, it should specifically ask if you used any of the money for health insurance premiums. If it doesn't automatically prompt you, look for a section called "Exceptions to Tax Penalties" or something similar after entering your 1099-R information. Make sure you have documentation of your insurance premium payments during your unemployment period, as you'll need this if you're audited.

I used it last year for a similar retirement withdrawal situation. The expert was helpful in confirming I qualified for an exception to the penalty since I was using the money for health insurance during unemployment. For complex situations like multiple 1099-Rs with no W-2s, I'd say it's worth the extra cost for the peace of mind.