That's an excellent point about possibly getting outdated advice. She mentioned getting this information from "her tax guy" who I suspect might be someone she's been using for decades. Where can I find that IRS publication online to show her? And is there a specific section that directly addresses this gift vs income deduction issue?

You can find Publication 559 directly on the IRS website (irs.gov), but the publication that most directly addresses gift taxes is actually Publication 950 "Introduction to Estate and Gift Taxes." Look specifically at the section titled "Gift Tax" which clearly explains that gifts aren't income tax deductible. Another helpful resource is the IRS's FAQ page on gift taxes which explicitly states that gifts to individuals don't qualify as income tax deductions. Showing her these official sources should help, especially if her tax preparer is giving outdated or incorrect advice. If she's been doing this for years, she might want to consult with a different tax professional to see if amended returns are necessary.

Did your aunt have to file amended returns for all those years or did the IRS just assess the additional tax? I'm worried about my parents who might have been doing something similar.

What happened with the audit? Did you have to pay penalties or just return the tax benefit?

I don't think he's filed taxes the last couple years since he hasn't had income. But that's a good point, I should probably ask him to be sure before I file.

This is super important! Both of you can't claim him. I had this happen with my niece and it delayed my refund by 5 months while the IRS sorted it out. Make sure you have that conversation before either of you file.

Thank you for this information! I found the section in H&R Block you mentioned and it did ask for the advanced payment amount. Once I entered the total from my bank statements (around $1,800), it adjusted my refund calculation and everything made more sense. It does actually do the Form 8812 automatically. I also realized I was comparing to years when my child was younger and I qualified for additional credits. Getting half the child tax credit in advance definitely explains the difference in my refund amount.

I used H&R Block and it seemed to handle it fine. Make sure you're entering the EXACT amount of advance payments you received. If you put in even a slightly wrong number it can mess up the calculations. I had to go through my bank statements and add up all the deposits to get it right.

Thanks for the suggestion. I double-checked my bank statements and realized I was off by about $300 in what I thought I received. After correcting the amount, both software packages gave me the same result. You're right that even small differences can affect the calculation.

Thanks for sharing your brother's experience. I'm really torn about what to do here. Did your brother just keep it and not file any forms or make any reports about it? Did he just pretend he never got it?

He literally just kept it and did nothing. It's been over a year and he hasn't heard anything from the IRS. Not saying that's what you should do, just sharing what happened in his case. I think the IRS is so swamped that small individual cases like this aren't high priority for them to track down. But of course, the right thing to do would be to return it according to their procedures.

This is actually a good point. The American Rescue Plan expanded eligibility for adult dependents for the third stimulus payment. College students who are dependents didn't qualify for the first two stimulus payments but might qualify for the third one. Double-check which payment this is before returning anything.

Thanks for the suggestion! We actually do use TaxJar for calculations, but the issue is still around whether we can legally turn on collection in states where we don't have the permit yet. Seems like from what others are saying, we definitely need to wait until the permits are approved. I'll mention the filing service to my boss though - might help lighten the load once we're up and running!

That makes sense! Yes, definitely wait for the permits. One other tip - many states will give you a registration date that's earlier than the date you actually receive the permit. This is normal and means you can start collecting as soon as you get approval, even if you're "technically" registered as of an earlier date. Just make sure to keep good records in the meantime!

Oof, that's rough. Which states hit you with backdated liability? I'm currently in the permit process with NY, NJ, and California.

California was the worst offender - they backdated my liability to exactly when I crossed the threshold ($500,000 in sales or 200 transactions). Illinois and Massachusetts did something similar, but they were more reasonable about waiving penalties since I registered promptly after exceeding the threshold. Just be especially careful with California - they track your sales somehow and knew almost exactly when I hit nexus!