Does this mean you still have to pay taxes during that waiting period? Our animal rescue just applied for 501(c)(3) status but we're not sure how to handle income and expenses while waiting.

Generally, if your 501(c)(3) application is ultimately approved, the tax-exempt status is retroactive to your date of incorporation, provided that was within 27 months of your application. So technically, you might not owe taxes even during the waiting period. However, you still need to file the appropriate information returns (usually Form 990 series) during this time. It's also smart to set aside funds just in case your application is denied and you do end up owing taxes on income received during this period. For your animal rescue, I'd recommend tracking all income and expenses very carefully, following non-profit accounting practices from the start, and being transparent with donors about your pending status.

This is actually an important distinction that others haven't mentioned! Are we talking about personal tax returns or the organization's filing? I've been assuming the organization's taxes, but now I'm confused.

Thank you for sharing your experience! That's really reassuring. Did you use any specific tax software to file your amended return or did you work with a professional? I'm trying to figure out the best way to handle this correctly.

I used TurboTax to prepare the amended return since that's what I'd used for my original filing. It walks you through the process pretty well. I just entered the additional income and it recalculated everything. For peace of mind, I did have a tax preparer review it before submitting just to make sure I did it right. It was worth the small fee to have a professional double-check my work. If your situation is fairly straightforward (just missing income), you can probably handle it yourself, but having someone review it isn't a bad idea.

This isn't great advice. While it's true the IRS prefers to collect rather than prosecute, deliberately not reporting income is tax evasion. Your cousin was lucky. The IRS can and does pursue criminal charges in some cases, especially when they can prove intent.

I'm not too worried about estate taxes since my total assets are well under the exemption limit. Are there any other advantages to gifting some stock now versus keeping everything for the step-up basis approach?

If your estate is below the exemption threshold, then maximizing the step-up basis becomes your primary objective, making your original plan more advantageous. One alternative worth considering is gifting stocks that have minimal gains or even losses, since those wouldn't benefit much from step-up basis anyway. This allows you to maintain ownership of your highly appreciated assets for the step-up benefit while still giving your grandchildren some investment exposure during your lifetime. It can also be a good educational opportunity to teach them about investing if they're old enough.

The Roth conversion idea is solid but completely separate from the step-up basis question. Step-up applies to taxable accounts, not IRAs. Roth conversions are about income tax, not capital gains. Both strategies can work together in a comprehensive plan though.

If there's no amount to report do I still need to include this form when filing my taxes? Or can I just ignore it?

You technically don't need to report a form with zero income on it. The IRS doesn't require you to report income that rounds to $0. Your accountant's advice to not worry about it is correct from a filing perspective. However, I still recommend contacting your bank to fix the classification issue for future years. Otherwise, you might keep getting the wrong form, and if you do earn reportable interest in the future, it could create confusion or even compliance issues with both the bank and the IRS.

It's actually required by law in many states. Landlords have to keep security deposits in interest-bearing accounts separate from their personal funds. In some states, they even have to pay you the interest earned on your deposit annually or when you move out.

Is there any way to check this information online instead of calling? I have hearing problems and phone calls are really difficult for me.

Unfortunately, there's no fully online method to check for all potential offsets. The IRS online account will show if you owe the IRS specifically, but won't show other agency debts that might cause offsets. You might try using the chat feature with the IRS if available, though it has limited functionality. Another option is to authorize a friend or family member to call on your behalf using Form 8821, or work with a tax professional who can make these calls for you.

For hardship consideration, they typically look at whether offsetting your refund would prevent you from meeting basic living expenses. This includes rent/mortgage, utilities, food, medicine, etc. You'd need to submit financial documentation showing your income and expenses to prove the hardship is real. The standards vary by agency - student loan hardships might be evaluated differently than child support offsets. Contact whichever agency holds your debt directly and specifically ask about their hardship procedures for tax refund offsets.

Thanks so much for the detailed info. I'm going to call that Treasury offset number tomorrow and see what I'm dealing with first. If there is an offset, I'll definitely look into the hardship options!