This is a common confusion. LLCs are state-level entities, but how they're taxed is a federal matter. The IRS doesn't actually recognize LLCs directly - they look at how you operate. Since you have 2 people sharing profits, the IRS considers it a partnership regardless of state paperwork. Filing Schedule C is ONLY for sole proprietors. Your partner's CPA is correct - you need Form 1065. By the way, you should definitely amend that LLC registration too.

Just wanted to add some clarity on the TurboTax question - when you're preparing a partnership return (Form 1065), you'll actually need TurboTax Business, not the individual version. In TurboTax Business, you select "Partnership" as your business type, then indicate it's an LLC taxed as a partnership. The software will walk you through entering both partners' information and generating the required K-1 forms for each partner. One important note: make sure you have an EIN (Employer Identification Number) for the partnership before you start filing. Even if your LLC originally had an EIN as a single-member entity, you may need a new one now that it's being treated as a partnership for tax purposes. The IRS website has a clear guide on when you need a new EIN versus keeping your existing one.

BTW that 971 means theyre sending you a notice explaining everything. Keep an eye on your mail

Code 826 is basically the IRS saying "hey, we're taking this money to pay off something you owed us from before." In your case, they applied $1,071.54 from your 2022 refund to cover a balance on your 2021 return. This happens automatically when you have an outstanding liability from a previous year - they'll always offset current year refunds against prior year debts before sending you the remainder. The good news is your accounts are all squared up now with zero balances!

I just wanted to add - watch out for state tax implications too! I had a CSF-1099R with $0 in Box 2a, and while it was correct for federal purposes (after-tax contributions), my state didn't recognize the federal treatment. I had to add back some of it on my state return. The treatment varies by state, so check your state's rules specifically regarding pension and retirement distributions.

I'm dealing with a very similar situation right now! Got my CSF-1099R last week with Box 2a showing $0 but about $15,000 in Box 1, and Code 7 in Box 7. Box 2b is checked for "Taxable amount not determined." From what I'm gathering here, it sounds like I need to dig into my old contribution records to figure out what portion was pre-tax vs after-tax. Problem is, I left that government job 5 years ago and honestly can't remember the details of my contributions. @Luca Esposito - when you mention contacting the former employer's benefits department, do they typically keep records going back that far? And if I can't get those records, am I really stuck having to treat the whole distribution as taxable? That seems like it could result in a significant overpayment of taxes. Has anyone had success getting this information from HR departments of former government employers? I'm wondering if there's a standard form or process they use for these requests.

Great thread! I've been wrestling with Form 6252 calculations myself. One thing I learned the hard way is to always double-check whether you're dealing with a "qualifying installment sale" versus a regular installment sale - the rules can be different. Also, for anyone still struggling with the calculations, don't forget that if the installment sale involved depreciation recapture, that portion gets recognized in the year of sale regardless of when payments are received. This can throw off your principal vs. interest allocations if you're not accounting for it properly. The IRS also has some specific rules about minimum interest rates (imputed interest under Section 483) that kick in if the stated rate is too low. Worth checking if your sale meets those thresholds, especially for family transactions or sales without adequate stated interest.

This is such a comprehensive thread - thank you everyone for sharing your experiences! As someone who's been preparing returns for about 8 years, I can definitely relate to the confusion around Form 6252 calculations. One additional tip that might help: I always create a reconciliation worksheet that ties back to the original sale agreement. This helps catch errors early and makes it easier to explain the calculations to clients. I track the original sale price, down payment, total contract price, and gross profit percentage, then verify that each year's calculations tie back to these base numbers. Also, for anyone dealing with balloon payments or other non-standard payment structures, remember that the gross profit percentage stays constant throughout the installment period, but you need to recalculate the interest portion for each payment based on the outstanding principal balance at that time. The key is consistency - whatever method you use in year one, stick with it for the entire installment period unless there's a compelling reason to change (like correcting an error). The IRS really doesn't like to see calculation methods changing randomly from year to year. Has anyone dealt with situations where the buyer defaulted partway through the installment period? The calculation adjustments for repossessions can get really tricky!

9 Edward Jones is 100% right on this. I'm a tax preparer and see this confusion all the time. Code 2 means "Early distribution, exception applies" which is EXACTLY what a backdoor Roth conversion is - it's technically an early distribution but exempt from the 10% penalty. Code B is for "Designated Roth account distribution" which is for EMPLOYER plans like 401ks, not IRAs. Your CPA has mixed up retirement account types. I'd suggest: 1. File an amended return ASAP with Form 8606 2. Consider finding a new CPA who understands Backdoor Roth conversions 3. In the future, specifically tell your tax preparer about any special situations like this

I'm dealing with a very similar situation right now! My tax preparer also questioned the code 2 on my 1099-R from my backdoor Roth conversion last year. After reading through all these responses, it's clear that Edward Jones is correct and your CPA needs to learn more about backdoor Roth procedures. What really helped me understand this was realizing that the distribution code is just how the custodian categorizes the transaction - it doesn't change the underlying tax treatment. Code 2 is appropriate because the conversion is technically an early distribution that's exempt from penalties. The critical piece is Form 8606, which you absolutely need to file regardless of the distribution code. This form tracks your non-deductible contribution basis and ensures you don't get double-taxed on the money when you eventually withdraw from the Roth. I'd recommend filing an amended return with Form 8606 as soon as possible. The $50 penalty for late filing is usually waived if you can show reasonable cause, and it's much better than the potential tax consequences of not documenting your basis properly. You might also want to find a tax professional who's more familiar with advanced retirement account strategies.