Just a warning to everyone - if you don't file Form 8865 when required, the penalty is $10,000 per year! And there are additional penalties if the IRS requests you file and you don't comply within 90 days. I found this out the hard way when I ignored a foreign partnership interest. I thought since it was just passive income reported on a K-1, I only needed to put it on Schedule E. Totally missed the Form 8865 requirement because I met Category 2 (owned >10%). If anyone's unsure, definitely consult with a tax professional with international tax experience. Regular CPAs often miss these requirements.

This is a great discussion that highlights how complex foreign partnership reporting can be! I wanted to add something that hasn't been mentioned yet - the importance of understanding the "constructive ownership" rules that can catch people off guard. Even if you only directly own 1% like Javier, you might be deemed to own more under IRC Section 267 attribution rules. This includes ownership attributed from family members, related entities, or even certain trust arrangements. I've seen cases where someone thought they were safely under the 10% threshold but actually exceeded it due to their spouse's ownership or business relationships. Also, for those mentioning PFIC issues - this is crucial. Foreign partnerships often hold investments that are classified as PFICs (like foreign mutual funds or certain foreign corporations). Even if you don't need Form 8865, you might still need Form 8621 for each PFIC the partnership holds. The partnership should provide details about PFIC holdings, but many foreign partnerships don't understand US reporting requirements. One last tip: keep detailed records of your partnership agreement, K-1s, and any correspondence. If you're ever audited, having clear documentation of why you believed you weren't subject to Form 8865 filing requirements will be essential for avoiding penalties.

I work for a CPA firm and we see this exact situation several times a year. The good news is that it's completely fixable, and you have multiple options depending on how cooperative your payroll company is. First option (cleanest): Push harder for a W-2C from your payroll company. The person telling you they "can't make changes after W-2s are issued" is either misinformed or trying to avoid the work. W-2C forms exist specifically for this purpose. Ask to speak with a supervisor and reference IRS Publication 15-A, which clearly states that employers must correct W-2s when there are errors in state tax allocation. Second option (if W-2C isn't possible): File in both states as others have mentioned. Your home state gets all the income reported, and you file a non-resident return in the wrong state claiming zero income earned there. Include a brief explanation letter with documentation of the payroll error. Pro tip: If you're using tax software, most major programs (TurboTax, H&R Block, etc.) have specific workflows for handling incorrect state tax withholding due to payroll errors. Look for "multi-state filing" or "payroll error correction" in the help sections. The key is acting quickly since you're approaching filing deadlines. Don't let the payroll company drag this out past April 15th, as that could complicate things unnecessarily.

I'm dealing with a very similar situation right now! My company's payroll system had a glitch during a department reorganization and incorrectly withheld state taxes for a state I've never even visited, let alone worked in. Reading through all these responses has been incredibly helpful - especially the advice about pushing for a W-2C correction and the specific reference to IRS Publication 15-A. I had no idea that was the exact publication to cite when dealing with stubborn payroll departments. One thing I'm wondering about that I haven't seen addressed yet - has anyone dealt with this situation where the incorrect state withholding happened across multiple pay periods? In my case, it wasn't just one week like the original poster, but rather about 6 weeks before someone caught the error. I'm worried this might complicate the correction process since it involves multiple paychecks rather than just one isolated incident. Also, for those who successfully got W-2C corrections issued - approximately how long did that process take from when you first contacted payroll to when you received the corrected forms? I'm trying to gauge whether I have enough time to pursue that route before the filing deadline or if I should just go straight to the dual-state filing approach. Thanks to everyone who's shared their experiences - this community has been a lifesaver for navigating what seemed like an impossible situation!

I'm about 6 weeks into this same waiting game and honestly, this entire thread has been more helpful than anything I could find on the IRS website! Filed my Form 2553 in mid-January for a 2025 effective date and the silence has been deafening. What's particularly stressful is that I'm trying to transition from freelance work to a more structured business, and not knowing my tax classification is making it impossible to properly plan my financial setup. I've been hesitant to start payroll for myself or make other S-Corp specific moves without that official confirmation. Reading through everyone's experiences, I'm definitely going to start that dual-scenario spreadsheet approach and begin operating as if the election will be approved (with detailed documentation). The success stories from Evelyn and the progress update from Zadie are giving me hope that this process does eventually work out. I'm also planning to try calling the Business & Specialty Tax Line using that 7am Eastern strategy - seems like early morning is the key to actually getting through. Will definitely send a certified mail duplicate at the 8-week mark too. It's frustrating that we have to create our own workarounds for such a basic business process, but at least this community exists to share strategies and keep each other sane during the wait!

I'm dealing with this exact same situation right now! Just filed my Form 2553 about 3 weeks ago and was already starting to get nervous about not hearing anything back. Finding this thread has been such a relief - it's both terrifying and reassuring to see that 8-12+ week wait times are apparently the norm. What's really helpful is seeing all the practical strategies people have developed while waiting. I'm definitely implementing that dual-scenario spreadsheet approach for quarterly estimated payments - brilliant idea to prepare for both LLC and S-Corp possibilities rather than being paralyzed by uncertainty. I'm also planning to set up that 7am calling routine to try reaching the Business & Specialty Tax Line, and will send a certified mail duplicate at the 8-week mark with that "DUPLICATE - DO NOT PROCESS IF ORIGINAL ALREADY PROCESSED" language everyone's been recommending. It's honestly mind-blowing that in 2025 we can track a $2 coffee order in real-time but can't get a simple status update on a critical business tax election. At least this community exists to share workarounds and keep each other sane during this bureaucratic nightmare! For anyone else just starting this journey - definitely start operating as if your election will be approved (with meticulous documentation) rather than putting your business plans on hold. This thread has been more valuable than any official IRS resource I've found.

Does anyone know if we still need to physically tag converted assets with asset numbers like businesses do? My accountant mentioned something about this but it seems excessive for my small home office with converted personal items.

One thing to keep in mind is the mixed-use percentage if any of your converted items aren't used 100% for business. For example, if you're using that MacBook for both business and personal activities, you can only depreciate the business-use percentage of its FMV at conversion. Also, make sure to document the date you actually started using each item for business purposes - this is your "placed in service" date for depreciation. It doesn't have to be when you officially started your business, but rather when each specific item began being used for business activities. For QuickBooks setup, create your fixed asset accounts first, then enter each converted item at its FMV (not original cost) with the conversion date as the acquisition date. The software should handle the depreciation schedules automatically once you specify the asset class and recovery period for each item.

Don't panic about the missed June payment! The IRS isn't as scary as everyone makes them out to be. I missed TWO quarterly payments last year when I switched from W2 to freelancing and the penalty was only like $75 when I filed. The most important thing is to start making payments now for September and January. You can easily do this online at IRS.gov using Direct Pay - takes like 5 minutes. And definitely dont worry about "bothering" your accountant. That's literally his job! Even if it's his off season, he should at least respond to urgent questions. If he won't, might be time to find someone new.

I've been freelancing for about 3 years now and can share some practical advice from my experience: For your first question - yes, definitely start making quarterly payments now. The general rule is if you expect to owe $1,000+ in taxes when you file, you need to make estimated payments. Regarding the June deadline - don't stress too much about it. The penalty is calculated as a percentage (currently around 8% annually) of the underpaid amount for the time it was late. So if you owe $2,000 for that quarter and pay it 2 months late, you're looking at maybe $25-50 in penalties, not hundreds. One thing that really helped me was using the "safe harbor" rule - if you pay 100% of what you owed last year (or 110% if your prior year AGI was over $150k), you won't face any penalties even if you end up owing more when you file. This gives you a baseline to work with. For tracking, I highly recommend QuickBooks Self-Employed or even just a dedicated business bank account like others mentioned. Makes everything so much cleaner at tax time. And honestly, if your tax guy disappears completely during off-season, that's a red flag. A good tax professional should at least be available for urgent questions year-round, even if they're busier in spring.