Yes, that's exactly what happens and it's called "phantom income." It's one of the downsides of partnership investments. You're taxed on your share of partnership earnings whether or not they distribute that cash to you. Think of it this way: the partnership is not a separate taxpayer - it's a pass-through entity. So when the partnership earns $100, and you own 10%, it's treated as if YOU earned $10 directly, regardless of whether they distribute that $10 to you or keep it in the business. The lockup only affects when you can withdraw your capital, not when income is recognized for tax purposes.

No, you don't get taxed twice. When you eventually receive distributions, they're generally not taxable again (assuming they don't exceed your basis in the partnership). The distribution is basically a return of capital that you've already paid tax on. Your basis in the partnership increases by your share of income (that you've already paid tax on) and decreases by distributions. This accounting mechanism prevents double taxation.

Thank you so much for this insider perspective! I filed my 1040-X yesterday and included a letter explaining the honest mistake. Knowing this is something that happens all the time and isn't considered criminal makes me feel sooooo much better. I haven't been able to sleep for days thinking about this!

You're welcome! This is exactly the right approach - filing the amendment promptly with a brief explanation. The letter is a nice touch that shows good faith. You'll get a notice in a few weeks acknowledging the amendment and telling you what amount is due with the calculated interest. Pay that promptly and the case will be closed. For future reference, always double-check that you have all tax documents before filing. Many employers also provide electronic copies of W-2s that you can download, which helps ensure you don't miss paper copies. Sleep well knowing you're definitely not prison-bound over this!

If you received a CP2000 notice that correctly identifies the missing income, you can simply respond to that notice rather than filing an amended return. Review the notice carefully to make sure all the information is correct, then follow the instructions to pay the amount due. The IRS has already done the recalculation for you.

Thanks for bringing this up! 2019 was definitely my first year in the US - I arrived in August 2019 for fall semester. I'm certain I should have filed as a non-resident. I just wasn't familiar with US tax laws at all and TurboTax didn't really ask the right questions about my visa status.

Sounds like you're definitely right to amend then! Just wanted to make sure since I've seen people mistakenly amend when they were actually residents for tax purposes. For your first partial year in 2019, the 1040-NR is absolutely the correct form. Good luck with the amendment!

I amended my 2020 return last year and did get a refund! It took about 7 months to process but I eventually got a check for $642. The key was documenting everything very clearly and including all supporting materials.

That's really helpful to know, thanks! 7 months is a long time but still worth it if I get money back. Did you have to do anything special to follow up, or did they just process it without you having to check in?

I've never heard of "true-up" contributions. Would that explain why ADP insists the W-2 box 12 amount is "meaningless" compared to when contributions actually hit my account?

Yes, that might explain their strange language about the W-2 being "meaningless." With true-up contributions, the employer makes additional deposits to your 401(k) to ensure you receive the full match you're entitled to, even if your own contributions were front-loaded during the year. These adjustments typically happen in January for the previous year, which aligns with what they told you about January 2024 crediting. However, for contribution limit purposes, the IRS still looks at the tax year shown on your W-2. I'd suggest specifically asking ADP if your final "contribution" was actually a true-up adjustment rather than a regular paycheck deduction.

The limit for 2023 was $22,500, but don't forget they might have both traditional and Roth 401k contributions combined in that box, or maybe there's employer matching included? Not all money in box 12 counts toward the employee limit.

Thanks for this info! Did you end up filing Form 3520 for your TFSA, or did you go with just FBAR and 8938? I'm trying to understand what the majority of people in this situation are doing.

I initially filed Form 3520 for my TFSA for two years, following advice from my first cross-border tax specialist. It was a paperwork headache and added considerable complexity to my returns. After consulting with another tax professional who specializes specifically in US-Canada issues, I switched to reporting my TFSA on FBAR and Form 8938 only, with a note explaining the account's status. This professional provided me with several IRS memorandums and case examples supporting the position that most standard TFSAs don't meet the technical definition of foreign trusts requiring 3520 filing.

This is so frustrating! So even if I properly report the TFSA now, any interest, dividends, or capital gains inside it are still taxable for US purposes? That completely defeats the whole purpose of having a TFSA.