Because the IRS doesn't know whether your distribution is contributions, conversions, or earnings without you telling them. That's what Form 8606 does - it helps you calculate and show which part of your distribution is taxable. Without it, they'd have to assume the worst (that it's all earnings).

What kinds of things could be missed on a home sale? I thought it was pretty simple - if you lived there 2 of 5 years you get the exemption up to $250k/$500k depending on if you're single or married?

The basic exemption rule is straightforward, but there are several areas where people commonly miss opportunities or make mistakes. Home improvements can be added to your basis (original purchase price + improvements), which reduces your capital gain. Many people don't keep good records of these or don't know which improvements qualify. This includes major renovations, additions, new roof, HVAC systems, etc. - not regular repairs or maintenance. If you ever used part of your home for business or rental purposes, the calculation gets more complex since that portion may not qualify for the full exemption. This requires proper allocation and depreciation recapture considerations.

Second FreeTaxUSA! Used it for the last 3 years and it's just as good as TurboTax for way less. I had a home sale last year too and it walked me through it fine. Saved like $120 compared to TT.

Thanks for the warning. I tried the online transcript request but couldn't verify my identity because my phone isn't in my name (I'm on my parents' family plan). How long does the mail request usually take? I'm worried it won't arrive in time for my deadline.

Mail requests generally take 5-10 business days to process plus mailing time, so you're right to be concerned about meeting your deadline. Since you're in a time crunch, I would recommend using Claimyr as others have suggested to get through to an IRS agent who can provide your wage information immediately over the phone. Alternative verification methods for the online transcript system include using a credit card number (doesn't have to be in your name) or getting a one-time code mailed to your address of record, but that also takes 5-10 days. The fastest solution is definitely speaking directly with an IRS agent who can read your wage information to you from their system.

This is great advice! I had a similar issue and my school's financial aid office was able to give me a 30-day extension on tuition payments once I showed them proof I had filed my taxes. Saved me from having to drop my classes while waiting for the loan disbursement.

Thanks for the Social Security suggestion! I just checked my ssa.gov account and found the wage info, which is definitely helpful. Unfortunately I don't have copies of those old federal returns either - they were on a hard drive that crashed. But at least having the exact income amounts will help me start the process. Do you know if RITA would accept a statement from Social Security showing the wages as partial proof?

RITA might accept the SSA earnings record as supporting documentation, especially if you pair it with an explanation about the company being defunct. I'd call them directly and ask what they'll accept in lieu of the actual W2. One other thing - if you used any tax preparation software like TurboTax or H&R Block for those years, you might be able to log into your account and download copies of your past returns which would include the W2 information they had on file. Many of these services keep your returns for several years.

This is smart! Ohio tax dept was actually super helpful when I had a similar issue. They can often calculate what you owe RITA based on your state info.

Thanks for the insight from an HR perspective. She says they never filled out new W-4 forms during the transition, which seems weird to me. They just transferred everyone's data to the new system. Could they legally use her old W-4 information, or does a company acquisition require new forms?

They technically should have had everyone complete new W-4 forms since it's considered a new employer (unless it was just a name change of the same legal entity). Most acquisitions require new paperwork precisely to avoid these kinds of issues. Without new W-4s, they should have at minimum transferred the withholding settings from the previous system. The fact that everyone is experiencing the same issue suggests a systemic problem rather than individual errors. I'd recommend having your wife request to complete a new W-4 immediately and specifically note she wants federal withholding according to the latest tax tables.

I was thinking the same thing about possible confusion with COVID-era policies. My company temporarily messed up withholding in early 2022 thinking some of those policies were still in effect when they'd actually expired. Took them a month to fix it and everyone had to make catch-up withholding payments.