Lucy, I'm so sorry you're dealing with this stressful situation. The retroactive application of tax policy changes by employers is unfortunately more common than it should be, especially with education benefits where the tax code distinctions can be complex. One thing that might help is requesting written documentation from your employer about why they're making this change and their interpretation of the tax code. Sometimes HR departments make blanket policy changes without fully understanding the nuances between Section 132(d) and Section 127. An Executive MBA program could potentially qualify under both sections depending on how directly it relates to your current job duties versus preparing you for advancement. For immediate relief on the Roth IRA overcontribution, definitely contact your custodian right away. They can help you calculate exactly how much needs to be withdrawn based on your new MAGI and handle the process properly to avoid penalties. Also consider consulting with a tax professional who specializes in education benefits - this situation is complex enough that it might be worth the investment to get personalized advice on both the employer negotiation and the tax implications. Don't give up on pushing back with your employer, especially if you can demonstrate that your program maintains/improves skills for your current role rather than qualifying you for a new position.

Lucy, what a frustrating situation! The retroactive application feels particularly unfair since you made your enrollment decision based on the tax treatment that was in place at the time. One angle you might explore is whether your employer provided any written documentation about the tax treatment when you initially enrolled. If they represented the benefit as non-taxable in writing (in enrollment materials, emails, or policy documents), you may have grounds to argue that they should honor that representation at least for your current program cohort. Also, don't overlook the possibility that some portions of your Executive MBA might still qualify under Section 132(d). The key test is whether specific courses maintain or improve skills needed in your current job versus preparing you for a different role. An Executive MBA often includes courses directly applicable to current management responsibilities - finance, operations, strategic planning, etc. You might be able to make a case that certain courses should remain under the more favorable tax treatment. For your immediate Roth IRA issue, time is critical. Contact your IRA custodian this week to start the excess contribution removal process. They'll calculate any earnings that need to be withdrawn along with the excess contribution amount. Consider documenting everything and requesting a meeting with HR to discuss the situation. Sometimes these policy changes happen without full consideration of existing participants who relied on the previous rules. The worst they can say is no, but you might find they're willing to work with you on the transition.

Pro tip: calling early morning right when they open has worked best for me to actually get through to someone

I went through this exact same situation last year. The 570/971 combo is frustrating but pretty common. In my case, it was because the IRS needed to verify my identity since I had moved and changed jobs. The letter took about 3 weeks to arrive and once I responded with the requested documents, my refund was released within 10 days. Hang in there - I know it's stressful when you're counting on that money for bills. Keep checking your mail daily and your transcript for any updates.

The most important question nobody's asked: what's your approximate income level? The answers will be very different if you're making $35k vs $135k. At lower income levels, Head of Household plus a dependent can absolutely result in zero federal tax liability.

I work in payroll for a mid-sized company and see this situation fairly often. What you're experiencing is actually a feature, not a bug! The withholding system is designed to be precise based on your individual tax situation. As Head of Household with one dependent, you get a higher standard deduction ($21,900 for 2025) plus potentially the full Child Tax Credit ($2,000). If your income falls within certain ranges, these benefits can completely offset your federal tax liability. A few things to keep in mind: 1) Make sure your W-4 accurately reflects your situation - if you moved in with a partner or your child aged out, your status might change, 2) The IRS withholding calculator is your best friend - run it quarterly if your situation is stable, and 3) Consider setting aside a small emergency fund for taxes anyway, just for peace of mind. Your coworker likely files Single with no dependents, so her withholding will look completely different even at the same salary. This is totally normal!

Has anyone had experience dealing with functional currency elections under Section 985 in connection with this issue? Wondering if making that election would simplify the filing process for future years even though it wouldn't help with the past unfiled returns.

I've dealt with this exact situation multiple times with foreign clients who had unfiled 1120F returns. The M-1 adjustment approach is definitely the way to go for these currency translation differences. One thing I'd add is to be very careful about your exchange rate sources and document them thoroughly. I always use the Federal Reserve's daily exchange rates and create a detailed memo explaining the methodology - which rates were used for which items and why. This becomes crucial if you're ever questioned during an exam. Also, since you're dealing with multiple years of unfiled returns, consider whether you need to address any potential penalties under the reasonable cause provisions. The IRS tends to be more understanding when there's a legitimate business reason for the delay and you're making a good faith effort to comply correctly.

I see a lot of detailed responses here already but wanted to add that timing matters too. If you formally dissolved your sole proprietorship and formed the LLC as a completely separate entity with new EIN, business accounts, etc., you might have a stronger case for treating it as a new business eligible for startup costs rather than just organizational costs. Did you completely close out the sole prop and start fresh, or was it more of a conversion? That distinction can matter for how the IRS views it.

That's exactly the right approach, Khalil! Since you kept the same EIN and it's a single-member LLC taxed as a disregarded entity, the IRS will definitely view this as a continuation of your existing business rather than a startup. Your $6,700 in formation costs should be treated as organizational expenses under Section 248. You can deduct $5,000 immediately and amortize the remaining $1,700 over 15 years (about $113 annually). Make sure to keep detailed records separating the LLC formation costs (legal fees, state filing fees, operating agreement drafting) from any regular business expenses you might have incurred during the transition. One tip: if you had any costs related to transferring assets from the sole prop to the LLC (like updating contracts or transferring licenses), those might be treated differently than the pure organizational costs, so keep those receipts separate as well.