Just an FYI - I'm an enrolled agent and we've seen this exact issue with multiple tax software packages this year. It seems to be a software implementation problem rather than an actual change in IRS policy. The Form 5329 instructions (even the 2023 version) still clearly state you can request a waiver by entering "RC" and attaching an explanation. Nothing in SECURE Act 2.0 changed this procedure. If you're using tax software that won't let you properly code the waiver, you might consider switching software or as someone else suggested, paper filing with the appropriate modifications.

As someone who's dealt with similar Form 5329 penalty waiver issues, I can confirm that the IRS hasn't changed their policy on this. You're absolutely right to be confused by H&R Block's approach - their software seems to have a bug or misinterpretation of the rules. I encountered this exact same problem last year with excess IRA contributions. After getting frustrated with my tax software insisting I pay upfront, I called the IRS directly (took forever to get through) and spoke with a specialist who confirmed that the waiver process hasn't changed. You still enter "RC" in the penalty amount box on Form 5329 and attach your reasonable cause statement. The specialist also mentioned they've been getting a lot of calls about this because several tax software companies seem to have implemented incorrect logic around Form 5329 penalties. She specifically said that SECURE Act 2.0 didn't change the penalty waiver procedures at all. My suggestion would be to either switch to software that handles this correctly (like FreeTaxUSA as you mentioned), or if you're committed to H&R Block, use their software to prepare everything else but paper file with manual corrections to Form 5329. Don't let software bugs force you into paying penalties you legitimately don't owe!

Thank you all for the helpful advice! I'm feeling much less panicked now. Based on everyone's suggestions, I'm going to: 1. Complete Form 3520 today and mail it certified mail tomorrow morning 2. Include a brief explanation letter with my SSN and tax year info 3. Keep it simple - acknowledge the oversight and emphasize I'm filing immediately upon discovery Maya, your experience with being 2 weeks late and having no penalty is really reassuring. I'm also going to look into both taxr.ai and Claimyr in case I need additional help or need to speak with the IRS directly. One quick question - should I reference the specific foreign trust details in my explanation letter, or just keep it general about discovering the filing requirement? I don't want to overcomplicate things but also want to be transparent. Really appreciate this community helping a stressed taxpayer out!

Just wanted to chime in as someone who's dealt with Form 3520 issues before. Your plan sounds excellent - certified mail with return receipt is absolutely the way to go, and keeping the explanation letter brief but clear is smart. One thing I'd add: make sure you're filling out the form completely and accurately. The IRS is pretty particular about Form 3520, so double-check all the sections that apply to your situation. If you're unsure about any part, it might be worth having a tax professional review it before you send it in. Also, keep copies of everything - the completed form, your explanation letter, the certified mail receipt, and the return receipt when it comes back. Having that paper trail will be invaluable if any questions come up later. You're handling this the right way by addressing it immediately. Most people in your situation who file promptly with a reasonable explanation don't face penalties. The IRS tends to be more understanding when you show good faith effort to comply once you realize the requirement.

This thread has been incredibly informative! I'm dealing with a similar reasonable cause situation for my late S corp election due to a serious car accident that left me hospitalized and unable to handle business matters for several months. Reading through everyone's experiences, I feel much more confident about my chances of approval. The detailed advice about documentation, timelines, and what to include in the reasonable cause letter is exactly what I needed. I especially appreciate the tips about certified mail delivery and keeping detailed records of everything. One question for those who have been through this process: Did any of you face additional scrutiny from the IRS during the review process, like requests for additional documentation or follow-up questions? I want to make sure I'm prepared with comprehensive documentation from the start to avoid delays. Also, for those using professional help (whether tax preparers or services like taxr.ai), did you find it worth the investment given the complexity and potential penalties at stake? I'm trying to decide whether to tackle this myself or get professional assistance. Thanks to everyone for sharing their experiences - this kind of real-world insight is invaluable when dealing with IRS procedures!

I've been following this discussion with great interest as I'm currently preparing my own reasonable cause submission for a late S corp election. The wealth of practical advice here has been incredibly helpful! One additional point I'd like to add based on my research: if you're dealing with family health issues as your reasonable cause, it can be helpful to include a brief explanation of your role as a caregiver and how that specifically prevented you from handling business matters. The IRS seems to give more weight when you can show that you weren't just personally affected, but that you had unavoidable responsibilities that consumed all your time and attention. I'm planning to include documentation showing I was the primary caregiver for my spouse during their cancer treatment, along with treatment schedules and my involvement in medical appointments. This helps establish that it wasn't just a matter of being distracted, but that I literally couldn't access my business records or communicate with tax professionals during the critical filing period. Has anyone else used the caregiver angle in their reasonable cause explanation? I'm hoping this approach will strengthen my case, especially since the medical situation lasted several months and overlapped directly with the S corp election deadline. Also, huge thanks to everyone who shared their experiences with the various tools and services - it's given me a much better roadmap for navigating this process!

As someone who went through this exact same panic last year, I can tell you it's not as scary as it seems once you get organized! The key things that helped me were: 1) Download your complete betting history from each platform ASAP - some only keep records for a limited time, 2) Don't try to net everything out yourself - report the full winnings and then deduct losses separately if you itemize, and 3) Consider talking to a tax professional if your winnings are substantial (over $5K or so). One thing I wish someone had told me earlier is that you can actually request detailed transaction reports from most sportsbooks that break everything down by bet type, which makes record-keeping much easier. Most platforms have this buried in their account settings under something like "Tax Documents" or "Account History." Also, don't stress too much about the audit risk - sports betting is becoming so common that the IRS has pretty standard procedures for handling it. Just be accurate and keep good documentation. You've got this!

Just want to echo what others have said about keeping detailed records - this is absolutely crucial! I made the mistake of not tracking everything properly my first year betting and it was a nightmare trying to reconstruct everything at tax time. One thing I haven't seen mentioned yet is that if you receive any promotional bonuses or free bets that result in winnings, those are also taxable! So if you got a "risk-free" $100 bet that you won, that winning amount needs to be reported too. The sportsbooks don't always make this clear in their tax documents. Also, for anyone using multiple apps like Omar mentioned, I'd strongly recommend consolidating to fewer platforms next year if possible. Having 3-4 different sets of records makes everything much more complicated. I now stick to just two main sportsbooks and it's made my record-keeping so much simpler. The good news is that once you get through your first year of reporting sports betting income, it becomes much more routine. Just stay organized and don't panic - the IRS deals with gambling income all the time and has pretty clear guidelines for how to handle it.

Quick tip for everyone confused about Form 4562 - there's a worksheet in the instructions called the "Maximum Deduction Worksheet" that walks you through this calculation step by step. Saved me a ton of headaches. Also, remember that for 2024/2025, there's a $1,220,000 limit on section 179 property, and the deduction starts phasing out when you place more than $3,050,000 of section 179 property in service. Just FYI in case anyone has much larger purchases.

The order of operations is crucial here, and I think there's been some great clarification in this thread. Just to summarize for Rita's specific situation: Your business income for section 179 purposes is calculated as: $27,000 (gross income) - $10,500 (other business expenses, with meals at 50%) = approximately $16,500-17,000 depending on how much of that $10,500 was meals. Since your desired section 179 deduction of $18,500 exceeds this business income threshold, you can only deduct up to your business income amount this year. The excess carries forward to next year as a section 179 carryover (not a credit). One thing to double-check: make sure all your "other expenses" are legitimate business deductions. Sometimes reclassifying certain items or splitting purchases between section 179 and regular deductions can optimize your total tax benefit. The IRS is pretty strict about the business income limitation - it's designed to prevent section 179 from creating losses that offset other income.