This is really good advice, thanks! The letter does mention a 90-day period to respond. Do you know if we need to use any specific forms when sending the documentation? Or just include a letter explaining everything with copies of the supporting documents?

For a notice of deficiency, he should definitely include a written letter that references the notice number (should be in the top right corner of what they sent). No specific form is needed, but make sure he includes his social, the tax year in question, and contact info. I'd organize everything super clearly - like "Regarding item 1 on the notice, here are documents A, B, C that prove..." Makes it easier for whoever reviews it. And yeah, certified mail with return receipt is absolutely essential. My cousin learned that lesson the hard way.

They actually do have increased enforcement funding from the Inflation Reduction Act, so they've been ramping up enforcement activities. They're supposed to be targeting high-income taxpayers, but seems like everyone's getting caught in the net.

So does this mean I need to go back and amend previous years' tax returns if I sold any of these funds before? Or does this only matter for future sales?

This only matters for future sales of your holdings. You don't need to amend previous tax returns for sales you've already reported. The WHFIT reporting adjustment is for your current holdings going forward. If you sold shares in previous years before your broker was providing this detailed WHFIT basis information, you reported based on the best information available at that time, which is completely acceptable. The IRS doesn't expect you to have information that wasn't provided to you.

Yes, WHFIT reporting can absolutely apply to ETFs as well as mutual funds. Many broad market ETFs are structured in a way that makes them subject to WHFIT reporting requirements. If you're not seeing it on your forms, it could be for a few reasons: either your specific ETFs didn't have reportable adjustments this year, your brokerage is reporting it differently (perhaps under a different label or section), or potentially your brokerage isn't fully compliant with the reporting requirements yet. Some brokerages implement these reporting details at different rates.

What exactly counts as an SSTB? I'm working as a 1099 consultant in healthcare tech... not direct patient care, but developing software for medical practices. Would that be considered an SSTB?

Healthcare is generally considered an SSTB, but the rules have some nuance when it comes to tech that supports healthcare. If your work is developing software that directly relates to the provision of healthcare services, it might be considered an SSTB. However, if your software is more administrative or could be used across multiple industries but happens to be used in healthcare, you might not fall under SSTB rules. The distinction matters a lot for QBI since SSTBs have stricter phase-out thresholds. I'd recommend getting a professional opinion on your specific situation since the classification can significantly impact your tax liability. The IRS has issued some guidance on this, but there are still many gray areas, especially in tech-related fields that support traditional SSTB industries.

Did the amended return trigger any issues with the IRS? I'm in a similar boat and worried about red flags if I file an amendment.

Thank you for this suggestion! I had no idea VITA existed. Do they have income limits? And will they still help even if I'm missing some of my documents?

Yes, VITA does have income limits - generally they serve people making under $60,000, but exact limits can vary by location. Since you mentioned making around $28k-$32k, you should definitely qualify. They absolutely will help if you're missing documents! That's a super common situation. The VITA volunteers can help you determine what's missing and can show you how to request wage transcripts from the IRS that will have all your W-2 information. They deal with this situation regularly and won't make you feel bad about it. Just be upfront about your situation when you make the appointment so they can schedule enough time to help you.

Not an audit exactly, but I did get CP59 notices (failure to file notices) for 2 years I missed. The IRS doesn't usually do full audits just for not filing - they send notices first. Your sister should respond ASAP though. The longer she waits, the worse it gets. If she can't pay what she owes, she should still file and then request a payment plan. The penalty for not filing is 10x higher than the penalty for not paying.

Thanks for the info about the 30-day deadline! I think I'm still within that window. How exactly do I get the tax account transcript you mentioned? Does it show specifically which documents they accepted vs. rejected?

You can get your tax account transcript by going to IRS.gov and searching for "Get Transcript Online." You'll need to create an account if you don't already have one. The verification process is pretty strict - you'll need a credit card, mortgage, or loan account number plus a mobile phone in your name. The transcript won't explicitly state which documents were accepted or rejected, but it will show the specific adjustments they made to your return. Look for codes like "420" (examination/audit), "300" (additional tax assessed), or "290" (additional tax assessed after examination). The amounts next to these codes show exactly what changed. The transcript is super helpful because it gives you the exact dollar amounts they adjusted, which helps you understand which credits or deductions were disallowed. That way, you know exactly what documentation to focus on for your reconsideration.

This is important advice! I learned this lesson the hard way too. Also make copies of EVERYTHING you send them, including your cover letter requesting reconsideration. They lose stuff all the time and you need proof of what you submitted and when.