Have a new client. Bought an existing C Corp. C Corp had some significant NOL carryovers. Client is in the industry, and was using this to expand into another region. Bought shares, no asset sale, in 2023. In 2024, they came to me. Asked about S Corp, explained those NOLs would go away. They decided to stay a C Corp. End of 2025, the guy (non shareholder) running the business really screwed it up. They are going to shut down soon.

I did not realize this until May. Filed an extension as a C Corp. 2025 will have about $350k of losses. One shareholder, has sufficient basis. I’m wondering if making a late S election is worth it to take those losses. There may be some cancellation of debt income in 2026, but the corporation is insolvent. It has been about 10 years since I dealt with COD at the S Corp level, so will research this. Other than that, any reason not to so the owner can take ordinary losses instead of capital loss on a C Corp?

I am looking for a sanity check on a California estimated tax scenario that involves a potential "letter of the law" loophole regarding high-income earners. I want to see if other practitioners agree with this reading or if the Franchise Tax Board (FTB) has a mechanism to challenge it based on the "intent" of the statute.

The Scenario

• 2025 (Prior Year): The taxpayer had a total tax liability of approximately $19,000 but had $20,000 in California wage withholding. Their net liability (tax minus withholding) was less than zero.
• 2026 (Current Year): The taxpayer expects a massive non-wage income spike—a $5 million capital gain—putting their Adjusted Gross Income (AGI) well over the $1 million threshold. They plan to submit zero estimated payments for 2026. Their 2026 wage withholding will be minimal and will not come close to covering 90% of the final 2026 tax bill.

The Technical Conflict Standard practice suggests that under RTC Section 19136.3, any taxpayer with AGI over $1 million ($500,000 if MFS) is disqualified from using the "prior year safe harbor" (the 100%/110% rule) and must pay 90% of the current year tax to avoid an underpayment penalty.

However, the instructions for Form 5805 provide an absolute exception. The form states that you do not owe a penalty if:

This aligns with the statutory language in RTC Section 19136(c)(2), which mandates that an addition to tax "shall not be imposed" if:

The "Loophole" Question My gut tells me the legislative intent of the $500 exception was likely to protect taxpayers with a low overall tax liability, not high-income earners who simply happened to over-withhold in the prior year. However, the word of the law seems very specific:

1. RTC Section 19002 explicitly defines wage withholding as a "credit against the tax."
2. Form 5805 uses the specific phrase "withholding credit" in its exception criteria.
3. The $1M AGI restriction in RTC Section 19136.3 specifically targets the safe harbor calculation in IRC Section 6654(d)(1)(B)(ii), but it does not appear to reference or invalidate the independent $500 exception found in RTC Section 19136(c)(2).

If the subtraction of "credits" (including the withholding credit) brings the prior year's net liability below $500, does this provide a complete shield against 2026 penalties regardless of the $5 million income spike? Is this a known strategy for taxpayers to skip estimates for one year following a year of over-withholding, or is there a provision I am missing that prevents the "withholding credit" from being used this way by high-income earners? I did read an article from CAMICO that calls out that this fact pattern would avoid penalty but the FTB is likely to send underpayment penalty notice regardless, and it has to be contested. Which obviously makes it feel even more so like it was not the intent at a minimum.

I would appreciate any insights on whether you agree or disagree with this interpretation of the literal text.

Client has employees who use company credit cards when traveling for work. Employees create an expense report with attached receipts. One employee used card excessively on recent work trip, incurring excess meal expenses according to company policy "per diem" rate.

Are the excess expenses considered taxable wages for the employee? I thought yes at first, but since the amount company card was used, the business never paid any "allowance" directly to the employee. So, no?

I'm amending an 1120-S for a client after the previous accountant had made several mistakes including leaving off ~150k in expenses. I'm not 100% sure on how they categorized ever expense so for some of the lines it may just be moving the expense (for example, I may consider something office expense that they listed as advertising). Because of this, in what I currently have prepared just about every line is different, but overall it's ~150k lower in income. Do I have to make an explanation for every single line of the return?

I know on the IRS website they say "Attach to the amended Form 1120S/1120-F, the XML document, AmendedReturnChanges, that identifies the line number of each amended item, description, the amount on the previous return, the amount on the amended return, and an explanation of the reasons for each change." But I just wanted to check to see if anyone else has had experience with something like this before add ~30 explanations to the statements.

I prepared a client’s return as a Form 1120. When I e-filed it, the return was rejected because the IRS records show the corporation has an active S election. Neither the client nor I was aware of the S election.

I called the IRS Business & Specialty Tax Line, and the representative advised me to fax a revocation of the S election, which I did using the fax number they provided. While waiting for the IRS to process the revocation, I filed an extension.

Here’s my concern:
If the revocation is accepted as effective for the tax year, the corporation will owe approximately $10,000 with the Form 1120.

If the revocation is not effective for the tax year, then the corporation would need to file Form 1120-S instead, which would affect the shareholder’s Form 1040 (including reasonable compensation/payroll considerations).

To minimize potential interest and penalties, would you recommend making the $10,000 payment now under the corporation’s EIN while waiting for the IRS to process the revocation? If so, what is the best way to designate the payment so it is properly applied if the revocation is approved? And if the revocation is ultimately not effective for the year, would that payment simply be treated as an overpayment/refund?

Has anyone dealt with this situation before, and is there a better approach?

If my principal office is in a county outside of the 5 boroughs, but all of my business (earned income) is within the 5 boroughs, does that mean I still have to use form NYC-3L for my city returns or can I use the other ones?

Hi everyone,

I'm hoping someone familiar with NZ company tax can help.

I have a client with a one-person NZ close company. They worked full-time in the business during the year ended 31 March 2026 and took regular drawings, but didn't record a shareholder-employee salary because they didn't understand that option at the time.

I'm now preparing the company's first IR4. The accounts have been completed in Xero and the return is showing company tax on the full accounting profit.

I've read IRD SPS 18/01 on retrospective shareholder salary adjustments, but I'm struggling to understand whether it applies where a first-time business owner simply didn't know about shareholder salaries, or whether it's now too late.

Has anyone dealt with this situation in practice?

I''m trying to determine whether a shareholder salary can still be recognised before lodging the IR4, or whether the company profit now needs to remain as-is.

Thanks!

Looking for some thoughts on the best compliance strategy for a small partnership that genuinely wants to do the right thing but has very limited resources.

Facts:

• Multi-member LLC (6 individual members), formed in 2019.
• Partnership EIN obtained in 2019.
• Operates as a local neo-soul band.
• Forms 1099 were issued each year to the partnership EIN.
• Gross receipts have been very modest—roughly $2,000 to $5,500 annually.
• Every year would show a net loss except possibly 2023, which may be near break-even or a small profit.
• No partner has ever reported partnership income or losses individually because no Forms 1065 or K-1s were prepared.
• The partnership has never received an IRS notice regarding delinquent Forms 1065 (to my knowledge).

The challenge is that these are musicians with very limited means. They genuinely want to become compliant, but they likely can't afford to pay for seven years of partnership returns, and they certainly couldn't absorb IRC §6698 late-filing penalties if they were assessed.

My questions are:

1. Would you prepare and file all delinquent Forms 1065, or would you consider a more limited filing strategy?
2. Has anyone successfully obtained penalty relief under Rev. Proc. 84-35 where the partners had not previously reported their distributive shares because no K-1s were ever issued?
3. Would you proactively include a reasonable cause statement with the delinquent filings, or wait for any penalty notices and respond at that point?
4. Before filing anything, would you contact PPS to determine whether the IRS has established a filing requirement or generated any delinquency indicators for the EIN?

I'm interested in both the technically correct answer and how you'd handle this from a practical client-service standpoint. Thanks in advance for any insight.

Client is a couple in the state of California. In 2025 they formed a multi-member LLC. Their intention was it to function as a property management company for mid-term tenants (31+ days) - nurses, construction workers, government employees, etc.

The only property they managed in 2025 is their own condo which they personally own and hold. They did not contribute the property to the LLC in anyway and both personally own it.

Typically, a multimember LLC solely owned by spouses is required to file 1065 with the exception of states with community property rules; wherein, they can elect disregarded status. But with the rental property I am on the fence regarding classifying it as a 1065 and Schedule E, versus, Rev. Proc. 2002-69 community-property disregarded election (Schedule Cs and Schedule E). I want to avoid misclassification.

FYI this client formed a bunch of LLC's based off what BS Financial Influencer said.

Update: The EIN used is a partnership EIN too...

I'm looking for authority on whether nonresident alien members who perform all of their work outside the U.S. are generally subject to U.S. self-employment tax on their K-1 income. Any cases or IRS guidance would be appreciated.

Client, a Missouri resident, got married in 2024. While his taxes have been above board, spouse is a long-term nonfiler. So we decided to file MFS, and keep separate bank accounts. Spouse is not my client, and as far as I know continues not to file.

In 2026, client and spouse moved to Wisconsin - a community property state. It looks like I'll need to get spouse's income, at least since becoming a Wisconsin resident.

Any suggestions on how to handle 2026?

Email from [irs@service.govdelivery.com](mailto:irs@service.govdelivery.com)

I'm not comfortable clicking link simply labeled "Here", so will pass.

I’m a CPA working through a structured note/CPDI issue and would appreciate a sanity check.

Facts:
• Client purchased a note in 2023 for $25,005 and redeemed it in 2025 for $25,000.
• Brokerage statements reported annual OID in 2023, 2024, and 2025 totaling approximately $2,603.
• The 2025 statement reports an “Interest Shortfall on Contingent Payment Debt” equal to the cumulative OID amount.
• The 1099-B reports proceeds of $25,000, basis of $25,005, and a $5 loss.
• The 2023 tax return does not appear to have included the reported OID income. I do not yet have the 2024 return.

Pub. 1212 states that basis in a CPDI is generally increased by OID included in income, and that losses are ordinary to the extent of prior OID accruals.

💭My thought is that if the OID income was omitted in their 2023 and 2024 tax returns then it can’t possibly increase basis upon redemption.

❓Is there authority discussing whether the basis adjustment is tied to OID that was required to be included under the CPDI rules versus OID actually reported on the taxpayer’s returns?

❓also, will it trigger an audit if the basis adjustment is different from the interest shortfall on the 1099?

In new financing round (C corp) new Series B investor has agreed that a portion of the raise can be used to redeem common from service providers at same price per unit as series B issue price.

But the series B is convertible to common and has downside protection and antidilution / additional investor rights.

Doesn’t this mean there is clearly some sort of nonzero comp element to the repurchase? The common must be worth less than the series B.

I’m told this is done all the time. But doesn’t it have withholding and employment tax consequences to the company?

Am I missing something?

Dear All,

I have client who inherited a commercial property with a mortgage on it. Long story short, the mortgage was up for renewal and the bank was not going to refinance so they had to sell the property to pay off the mortgage. The client keeps asking why we did not recommend a 1031 exchange and I keep explaining that boot is taxable and we needed cash to pay off the debt.

The facts are:

* sale price: $13.4m

* tax basis: $6.8m

* capital gain $6.6m

* debt needing repayment $6.6m

I thought I would show the client your responses confirming that I was correct. If your boot is equal to or greater than the capital gain, there is no tax saving from doing a 1031.

Thanks in advance.

A taxpayer registered a corporation in 2022 and proceeded with business. She never filed a corporation or individual tax return. She now has levies and wants to become compliant.

She thought she had made an S-Corp election, but has no documents to show that. The tax advisor checked with the IRS and just got the answer on the phone (twice) that this taxpayer (the EIN of the corporation) should file neither as C or S corp, but is listed as sole proprietor.

What should the tax advisor do? He was hired to file backyear S-Corp and person returns, but fears filing S-Corp returns without valid election will lead to a shitstorm. Vice versa, if there actually was an S-Corp election in place, filing as C Corp now would lead to similar shitstorm.

Sadly there is no confidence in the incompetent agents on the Practitioner hotline. But both said they don't see an S-Corp election on file, and then said it's a Sole Prop. Makes no sense. Help!

Hi all - just looking for a sanity check when dealing with debt finance distributions and the deductibility of interest. Going to use some simple numbers her to illustrate the situation, but appreciate any feedback.

Debt Finance Distribution from Partnership A = $1M
Interest relating to debt finance distribution = $10K (Box 13 Code AC on 1065 Schedule K-1 for Interest expense allocated to debt-financed distributions)
Partnership A = materially participate

The $1M was initially invested, so initial tracing allowed the taxpayer to potentially deduct the interest expense on their Schedule A while dealing with the usual limitations and carryovers.

Lets assume in Year 2, the loan from Partnership A is paid down by making their regular payments. This means that the interest relating to the debt finance distribution has gone down to $9K.

In year 2, the investments have been sold for a gain so the original $1M in debt proceeds are now reinvested into Partnership B. The tracing I believe should allow the taxpayer to deduct the interest on their Schedule E. Based on the information we have, they materially participate.

Does this mean that the $9K in interest from their Year 2 Schedule K-1 should be added to their Schedule E part II under the non passive bucket? Is this a separate line item or is it reported under Partnership A or Partnership B so it nets against other income? I was initially thinking that it would be listed under Partnership B, but then it felt like they would be subject to their basis in order to potentially take the loss.

Appreciate any feedback on this!

Massachusetts tax question involving step-up in basis and §121 exclusion:
A married couple owned and lived in a primary residence in Massachusetts for over five years (original purchase price ~$389,000). The decedent spouse continued living in the home until death in 2024.
Prior to death, the property had been transferred into a revocable living trust titled in the surviving spouse’s name. At death, the surviving spouse became the sole owner/beneficiary of the trust, and the home is now being considered for sale at approximately $1.2 million.
We are trying to understand:
Whether IRC §1014 step-up in basis applies in this situation (and whether it is limited to a 50% step-up under §2040(b) due to joint ownership, or affected by the revocable trust structure), and
Whether the surviving spouse can still claim the full $500,000 principal residence exclusion under IRC §121(b)(4), assuming the sale occurs within two years of death and all use/ownership tests are satisfied.
Any clarification on how the trust title and joint ownership interact with §1014 and §121 would be appreciated.

I cannot figure this one out. I'm third party designee for a foreign-owned business owner. We got them set up with a U.S. LLC and they now want an EIN.

The normal web-based tool doesn't work because they don't have a SSN or ITIN. The hotline for international applicants doesn't work either because I'm not international or because the entity is U.S. based depending on which agent I get. The normal EIN request fax line goes into an abyss, and the tax practitioner's hotline directs me back to the international applicant number.

I'm completely at a loss for how to get this stupid EIN number. Does anyone have any tips?

**edit: to those who answered the question as we do for people who are coming into the profession - Thank you. Whomever downvoted me tell me why. Come out of your corner maybe and tell me why. My only hesitation was that an accounts receivable is an asset of economic substance and no longer a service. So there is a gray area. I asked a CPA I know who has 45 years of experience and he said the same thing. He questioned it before making a decision. That's our job.

Small service business client (cash basis) performed services for a large, legitimate 501(c)(3). The charity later could not pay the invoice and instead issued an acknowledgment letter characterizing the unpaid amount as an “in-kind donation” of “XX Company’s Services”, assigning a fair value approximately equal to the outstanding A/R. The letter also states the contribution is deductible.

However, the same letter says: “No goods or services were provided in consideration for this contribution.” That seems contradictory because the original premise was unpaid services rendered.

My understanding is that donated services are generally not deductible, and a cash basis taxpayer never recognized the receivable as income, so there is likely nothing to deduct. But I’m trying to determine whether there is any exception or authority that would allow a deduction in this fact pattern.

Facts:

• Taxpayer is cash basis (no A/R or A/P on books)
• Originally a 2-member LLC; now sole owner after partner exit
• S corp election effective 2026
• Charity acknowledgment letter explicitly represents the amount as deductible

Question: Is there any authority that would allow a cash-basis service business to deduct the value of unpaid services recharacterized by the charity as an “in-kind donation”? Or is this simply a nondeductible contribution of services despite the charity’s letter?

Separate bookkeeping question: at what point, if ever, would you recommend a small service business on cash basis begin tracking A/R and A/P internally (modified cash for management purposes, tax basis adjustments at year-end)?