That's a really good point I hadn't considered. Do you know how we can find out what kind of audit they'd likely do for something like this? And did you find that having representation made the field audit less stressful? My cousin is already pretty anxious about the whole situation.

It's hard to predict exactly, but generally, the larger the deduction and more complex the situation, the more likely it is to be a field audit. For a significant theft loss, I'd plan for at least an office audit if not a field audit. Having representation absolutely made the process less stressful. My tax attorney handled most of the direct interaction with the auditor, prepared me for questions I needed to answer, and made sure I didn't volunteer unnecessary information that could expand the scope of the audit. Worth every penny for the reduced stress alone. Before hiring anyone, ask specifically about their experience with the type of audit they think you might face. Some preparers are great with correspondence audits but have never handled a field audit.

I second this! My enrolled agent charges about half what CPAs in my area charge, and she used to work for the IRS so she knows exactly how they think. She's saved me so much money and stress over the years. Definitely worth considering as an option.

What's the difference between a CPA and an EA? Are EAs actually qualified to handle complex situations? No offense but I always thought they were like a step down from "real" tax professionals.

This is super helpful, especially the Google Scholar tip! I hadn't thought of using that for tax research. Do you find the search results are accurate or do you get a lot of unrelated cases to sort through?

Google Scholar works surprisingly well if you use specific terms. For instance, instead of searching "business expenses tax court," try "ordinary and necessary 162(a) tax court" to get more relevant results. You'll still get some unrelated cases, but far fewer than a general search. I usually add the specific code section in my search along with any technical tax terms. If you're looking for cases on a particular issue, adding terms like "held that" or "we conclude" can help find cases where the court actually made a ruling on your issue rather than just mentioning it in passing.

Westlaw and LexisNexis are industry standards for a reason - they have excellent search capabilities and organizing features. But they're prohibitively expensive for most individuals unless you have access through work or school.

Thanks for the input. I'll check if any local law libraries offer public access terminals. Might be worth the drive to use those resources occasionally for complex research.

The charitable remainder trust is interesting but wouldn't work in my case since I don't own the asset - it's just a profit share agreement that pays out when the company sells. Could opportunity zone investments still work after I receive the payout? How quickly would I need to invest in one after getting the profit share payment?

You're right about the CRT - it only works for assets you currently own, not future payments you'll receive. Sorry I missed that detail. For opportunity zone investments, you generally have 180 days from realizing the capital gain to reinvest into a qualified opportunity fund. So you could potentially use this strategy after receiving your profit share payout. The deferral benefits aren't as strong as they were initially, but you can still defer the tax until 2026 and potentially reduce your taxable gain by 10% if you hold the investment long enough.

Installment sales are complicated though right? I tried to do one last year and my tax software couldn't handle it - ended up needing to pay an accountant extra to file correctly.

1 You make a good point about intent. We definitely went into this planning to be partners from day one - we split costs 50/50, made decisions together, and had a handshake agreement about profit sharing. So it sounds like we really should file as a partnership for 2023. If we do file Form 1065 for 2023 now, how complicated is the process for a business that technically existed but had no income, only startup expenses?

7 Since your intent was clearly to operate as partners from the beginning with your 50/50 cost splitting and shared decision-making, filing Form 1065 for 2023 is definitely the correct approach. Filing a Form 1065 for a startup year with only expenses isn't particularly complicated. You'll report zero income and list all the qualified business expenses on the appropriate lines. The form will show a loss, which will flow through to each partner's K-1 based on your ownership percentages. Make sure to include a statement that clearly identifies these as startup costs under IRC Section 195. The main challenge is just categorizing all your expenses correctly.

11 I used TurboTax Business for a late 2022 partnership return last year. You need to buy the software for the specific tax year you're filing for (so 2023 TurboTax Business for a 2023 return). They keep previous years' versions available for download on their website specifically for late filings.

But what if the numbers on the paystub don't match what should've been on the W-2? Can you get in trouble for that? Who's responsible if there's a discrepancy?

If there's a discrepancy between your pay stub and what would have been on your W-2, you won't get in trouble as long as you're using the best information available to you and documenting your efforts to get the correct information. The responsibility ultimately falls on the employer to provide accurate tax documents, and the IRS understands that sometimes taxpayers have to file with estimated information. When you file Form 4852, there's actually a section where you explain how you determined the amounts and what efforts you made to obtain the correct W-2.

Did anything actually happen after you filed that form? I'm wondering if it's worth the effort or if the IRS just files it away somewhere and never follows up.