One angle nobody's mentioned - what about treating this as an installment sale of stock to the corporation? Could argue the shareholder effectively sold back a portion of their stock representing the sold location, with payments over time. Section 302(b)(2) might apply if it's "substantially disproportionate.

I've been following this discussion and wanted to add a practical perspective from someone who's handled several similar cases. The partial liquidation route under 302(b)(4) is definitely your strongest argument, but you'll need to be very strategic about the documentation. Here's what I'd recommend focusing on: First, gather any evidence showing the business decision to contract operations was made for legitimate business reasons, not just to distribute cash to the shareholder. Look for emails, text messages, or any communications from 2021-2022 discussing market conditions, profitability of each location, or strategic planning around downsizing. Second, consider having the corporation formally adopt a resolution now acknowledging that the 2022 sale was part of a business contraction plan, even though it wasn't documented at the time. While retroactive documentation isn't ideal, courts have sometimes accepted it when supported by contemporaneous evidence of intent. Third, make sure you can demonstrate that this represented a "genuine contraction" of the business under the regulations. Going from 2 locations to 1 is a 50% reduction in physical operations, which should meet the threshold. The monthly payment structure actually helps your case - it shows this wasn't just a cash grab but a structured business transaction. Document that the buyer is paying market rates and terms typical for franchise sales in your area. One warning though: if the IRS challenges this, they'll look closely at whether the shareholder had any plans to expand again or acquire new locations. Make sure your client can demonstrate this was a permanent contraction, not temporary.

Don't forget to keep VERY detailed records of everything - what was stolen, original purchase prices with receipts if you have them, how much insurance paid, and then all receipts for replacement items. The IRS loves to scrutinize insurance payments, especially larger ones.

Just wanted to add another perspective here - I run a small restaurant and dealt with a similar break-in situation about 6 months ago. One thing that really helped me was creating a spreadsheet right after the insurance settlement that tracked three columns: 1) Original cost of stolen items, 2) Depreciation I had already taken on those items, and 3) Insurance reimbursement received. This made it super easy for my accountant to calculate whether I had any gains or losses to report. In my case, most of the stolen equipment was pretty old, so the insurance payments actually exceeded my adjusted basis on some items. We ended up using the involuntary conversion rules to defer the gain by purchasing replacement equipment within the required timeframe. Also, don't overlook that your $1,500 deductible is definitely a deductible business expense - that should help offset some of the tax impact if you do end up with any taxable gains from the insurance settlement.

I reported a similar situation exactly 14 months ago. Here's what worked for me: 1. I documented 47 specific instances of suspicious activity over 6 months 2. I noted precise dates, times (9 of which were on weekends when the register was conveniently "broken") 3. I estimated amounts based on average customer spending ($75-125 per transaction) 4. I provided 3 witness statements (not required but strengthened my case) The IRS never confirmed they received my Form 3949-A, but approximately 8 months later, the business was closed for 3 weeks and reopened with new POS systems and proper receipts. So something definitely happened.

Just to add another perspective - I submitted Form 3949-A about 18 months ago for a restaurant that was clearly underreporting cash sales. A few key things I learned: 1. The IRS prefers specific patterns over isolated incidents. Your weekly observations of $2,500-3,000 over 3 years is exactly what they're looking for. 2. Don't overthink the documentation. The form is designed for concerned citizens, not forensic accountants. Your observations, dates, and estimates are sufficient. 3. Submit online through the IRS website if possible - it's faster than mail and you get an immediate confirmation number. 4. Keep a copy of everything for your records, but don't expect any follow-up communication. The business I reported eventually started using proper POS systems about 10 months later, though I'll never know if my report was the catalyst. The important thing is you're doing your civic duty by reporting suspected tax evasion. The IRS has the resources to investigate properly once they have reasonable suspicion.

Another important thing to know about passive losses - if you do qualify as a real estate professional, the entire game changes. You need to meet two requirements: 1. More than half of your total working hours must be in real estate activities 2. You must spend at least 750 hours annually in real estate businesses If you meet these, your rental losses are no longer passive and can offset your other income without limitations. My spouse became a property manager and qualified, which allowed us to deduct all our rental losses immediately. Huge tax savings!

Has anyone tried grouping their properties as a single activity to meet the material participation requirements? I've heard this can help with the passive loss limitations.

Having gone through an IRS audit that included donation verification, I'll add my experience. The IRS was primarily interested in ensuring I actually made the donations and that the values were reasonable. Having photos of the donated items was EXTREMELY helpful during my audit. The agent specifically commented that most people don't document that well. The detailed spreadsheet with brand names and descriptions also impressed them. For the acquisition dates of clothing, they accepted general statements like "accumulated over past 5-7 years through normal retail purchases." If you're already doing this level of documentation, crossing the $500 threshold really doesn't add meaningful audit risk. Split the donations if it makes you feel better, but you're already doing more documentation than most taxpayers!

As someone who's been itemizing for years and dealing with similar donation situations, I think you're being very smart about documentation but maybe overthinking the $500 threshold a bit. The extra requirements for donations over $500 really aren't that burdensome if you're already keeping detailed records like you are. Since you're photographing items, using ItsDeductible for valuations, and maintaining a spreadsheet, you're already doing 90% of what's required for Form 8283 Section A. The main additional items you'd need are: how you acquired each item (for clothing, "purchased at retail" is fine), when you acquired it (general timeframes like "2019-2022" work), and your cost basis (what you originally paid - you can estimate reasonably). That said, there's absolutely nothing wrong with splitting donations between tax years for tax planning purposes. It's completely legitimate and might give you peace of mind. Just don't feel like you HAVE to do it - your current documentation approach puts you in a really good position either way. One tip: if you do go over $500, consider being slightly conservative with your valuations. ItsDeductible can sometimes be generous, and it's better to be defensible than aggressive.