This is actually good advice. I had selected paper check on my return but they sent direct deposit anyway using my bank info from the previous year. Worth checking both!

I just tried but couldn't create an account because they want me to verify identity with a credit card or loan number and I don't have either of those right now. Seems like there's no easy way to get info from the IRS unless you're already financially established. So frustrating!

Thank you for this detailed response. We've checked the letter more carefully and it does have a CP504 notice number on it, so I think it's legitimate. What's the difference between Currently Not Collectible status and an Offer in Compromise? Would either of these permanently resolve the debt or just delay collection?

Currently Not Collectible (CNC) status temporarily pauses collection actions when paying the tax debt would create an economic hardship. The debt doesn't go away, but the IRS stops trying to collect while you're in financial hardship. The IRS reviews your status periodically (usually annually) to see if your financial situation has improved. An Offer in Compromise (OIC) is a settlement agreement where the IRS accepts less than the full amount owed to resolve the debt permanently. You have to demonstrate that you cannot pay the full amount due to financial hardship, and they consider your income, expenses, asset equity, and ability to pay. If accepted, you fulfill the terms of the offer (usually a reduced lump sum or payment plan), and the debt is considered paid in full.

Innocent Spouse Relief only applies if the debt is from a joint tax return where one spouse didn't know about income that wasn't reported or incorrect deductions. From OP's post, it sounds like this is solely the wife's tax debt, not joint debt, so probably wouldn't apply here.

Thanks for clarifying! You're right - I missed that detail that it's solely in her name. In that case, exploring the hardship provisions others mentioned is probably the better route.

Isn't that technically tax fraud though? Even if it's a small amount? Not judging, just curious about the potential consequences.

Technically yes, but realistically the IRS operates on a threshold system even if they don't publicly admit it. The cost of pursuing someone for a few dollars in tax would far exceed what they'd collect. I'm not advocating tax evasion for significant amounts, but there's a practical reality to how tax enforcement works. The IRS themselves have had their resources cut for years and focus on larger discrepancies. That said, everyone should make their own decision based on their comfort level with risk - even if that risk is extremely minimal for amounts this small.

I used Cash App Taxes last year for my returns including some stock sales. It was completely free and handled Schedule D without issues. The interface isn't as polished as TurboTax, but for free you can't complain! It asks straightforward questions and walks you through everything. Definitely recommend for simple-to-moderate tax situations with some investment income.

That's a really good point about state taxes that I hadn't considered. I'm in Texas which doesn't have state income tax, but we did live in California for two years during our marriage. Should I be concerned about that?

Yes, absolutely contact California's tax authority (Franchise Tax Board) immediately! California is extremely aggressive about collecting back taxes, and they have a lookback period of up to 20 years for tax fraud. If your ex didn't pay proper taxes while you lived there, California could come after you separately from the IRS. California does have an innocent spouse program, but you need to be proactive about it. Don't wait for them to find you. The good news is that if you get innocent spouse relief from the IRS, California generally follows the federal determination, but you still need to file the proper paperwork with them.

Adding to this excellent advice - be prepared for a long process. My innocent spouse case took 14 months to resolve completely. The IRS isn't known for speed. Make sure you respond to every letter they send within the timeframe they specify, and always send things certified mail so you have proof of delivery.

How complicated was it to switch from partnership to S-Corp taxation? Did you have to create a new entity or just file some paperwork? Also, ballpark, how much did you save in taxes by making the switch?

The switch wasn't that complicated - just filed Form 8832 to be taxed as a corporation and then Form 2553 for the S-Corp election. Didn't need to create a new entity at all. The LLC remained the same, just the tax treatment changed. As for savings, it varies based on profit levels, but we probably saved around $15,000-$20,000 in self-employment taxes the first year after switching. The key is paying ourselves reasonable salaries (which are subject to FICA taxes) and taking the rest as distributions (which aren't). Just make sure you have a good accountant to help determine what's "reasonable" for your industry and area.

Nevada is way better for LLCs if you can establish a presence there. No state income tax and way lower fees. That's what my cousin did with his construction business after getting killed with California fees for years.