Thanks for bringing this up! How would I know if I have profits interests vs capital interests? The agreement uses the term "restricted incentive units" throughout and mentions something about only being eligible for distributions after I've vested and after all capital contributions have received a return of some percentage. Does that sound like profits interests?

That definitely sounds like profits interests based on the language about distributions only happening after capital contributions receive their return. This is good news tax-wise! Profits interests are designed to give you a share of future growth without taxing you on existing value. The "after all capital contributions have received a return" language is classic profits interest structure - it means your units only have value after the existing investors get their money back plus some preferred return. Just make sure you understand the vesting schedule and any potential acceleration clauses. Also, check if your company will provide tax distribution provisions to cover any phantom income that might be allocated to you.

This is so true. My friend got hit with a massive surprise tax bill because of self-employment taxes on her LLC equity income. Her company didn't withhold anything, and she ended up owing like $15k unexpectedly. Definitely something to budget for!

Thanks for this insight! I'm actually W-2 at my main job but I've been picking up some independent security gigs on weekends (about 10-15 hours per week) where I'm paid as a contractor. Would that change things since I'm partially self-employed? And what kind of documentation would you recommend keeping?

That definitely changes things! For the independent contractor work, you can potentially deduct a portion of the karate lessons that corresponds to your self-employment income. So if your 1099 work is 25% of your total income, you might reasonably deduct 25% of your martial arts training. For documentation, keep receipts for all classes, a log of your training hours, and most importantly, documentation showing how these specific skills are used in your contract work. I also keep client contracts that mention security skills required, emails discussing security requirements, and a written explanation of how each training element directly contributes to my services. The more specific you can be about the connection between the training and your security services, the better.

Does the same principle apply to gym memberships for personal trainers? My wife is trying to deduct her CrossFit membership claiming it's "research" for her training business.

What kind of reasons can you give for an appeal? Do you have to have some special circumstances or can anyone file one?

You don't need special circumstances to request a Collection Due Process (CDP) hearing - it's your right after receiving a final notice. You can appeal based on procedural issues (like if you believe you don't actually owe the tax), propose alternative collection methods (like an installment agreement), or claim financial hardship. Even if you know you owe the tax, requesting a CDP hearing buys you time to get your finances in order while collections are paused. During the hearing, you can propose an installment agreement, an Offer in Compromise, or request Currently Not Collectible status. The important thing is that it stops the immediate threat of a levy while you work things out.

What happened after they took the money? Did they keep coming after you for more or was that the end of it?

Did you use a CPA or did you handle the amendment yourself? I've heard different things about whether professional preparation makes a difference in how returns get processed.

We used the same CPA who did our original return. He basically said the same things others have mentioned here - that reducing income isn't typically as concerning to the IRS as increasing deductions would be. He did recommend we include a clear explanation letter that he drafted, which specifically explained the exact nature of the accounting error (duplicate counting of specific transactions) and referenced our supporting documentation. I think having that professional guidance did help give us peace of mind, but from what I've learned, the risk was probably low either way.

Good point! I made this exact mistake a few years ago and got hit with a state penalty even though I fixed the federal return properly. The states don't automatically get notified when you amend your federal return.

How long does Currently Not Collectible status typically last? Will interest and penalties continue to add up during that time?

Currently Not Collectible status doesn't have a fixed duration - it lasts until your financial situation improves. The IRS will periodically review your case, typically every 1-2 years, to see if your income has increased enough to resume payments. Some people remain in CNC status for many years if their financial hardship continues. Yes, unfortunately, interest and penalties do continue to accrue while you're in CNC status. The debt isn't forgiven - collection activity is just paused. However, there's an important benefit: the 10-year statute of limitations on collecting the tax debt continues to run during this time. So if your boyfriend's financial situation doesn't improve significantly for several years, some or all of the debt might expire before the IRS can collect it.

This is really good advice. The IRS takes worker misclassification seriously. I had a "contractor" job years ago where I was clearly an employee - set hours, company equipment, direct supervision. Filed SS-8 and got about half my tax bill wiped out!