Here's a useful tip I learned when dealing with Roth conversions: you should always get a statement from your 401k plan administrator before doing a mega backdoor Roth that clearly shows your after-tax contributions separate from earnings. Makes this whole process so much easier. If anyone's wondering, the reason the 1099-R shows "taxable amount not determined" is because the IRA custodian has no way of knowing your basis in the original 401k. They're essentially telling the IRS "we don't know what portion of this was already taxed.

Anybody else think it's ridiculous that we have to jump through all these hoops just to correctly report something the IRS and financial institutions should be tracking properly? If I'm missing a field or form, I get penalized, but they can just stamp "taxable amount not determined" and make it our problem 🙄

One approach I've used with stubborn clients is to put everything in writing. Send an email clearly stating that you've advised them of their legal obligation to file, including citations to specific IRS publications, and that they're choosing to ignore professional advice. Make it clear you won't be associated with the decision not to file. This does two things: 1) Sometimes seeing it in formal writing makes it "real" for them, and 2) It protects you if they ever try to claim you advised them not to file.

My previous accountant didn't file my self-employment taxes for the first year of my business because of this exact myth. Fast forward 3 years, and I got hit with a CP2000 notice, penalties, and interest that totaled almost $12,000. The IRS knew about my income because my clients had filed 1099s. Tell your client that the IRS's computer systems automatically match 1099s with tax returns, and discrepancies get flagged. If her customers or payment processors are issuing 1099s (which they legally must do for payments over $600), the IRS WILL know about her income.

Don't forget to check if your mom qualifies for the "primary residence" exclusion too. My father had mortgage debt cancelled and it turned out he qualified for an exclusion because it was on his primary residence. Completely different form than the insolvency one. Also, if any of those credit card debts were used for business purposes, there might be other exclusions that apply. The rules around 1099-C are really complex - definitely not something I'd try to DIY especially for an elderly parent.

Something important nobody's mentioned yet - if your mom normally doesn't file taxes because she's only on Social Security, you need to check if this 1099-C income will push her over the filing threshold. For 2023 taxes (filing in 2024), the threshold for a single filer over 65 is $14,700. So if her Social Security is her only income, and it's not taxable, you'd need to compare that $6,700 in cancelled debt to the $14,700 threshold. If it's under, she might not even need to file a return. But definitely double-check this with a tax professional, because there are different rules depending on her exact filing status and other factors. The last thing you want is an unexpected notice from the IRS later.

Something else to consider that nobody's mentioned - if you have investments in your home country, filing as a resident alien might subject you to complicated PFIC (Passive Foreign Investment Company) rules if you own foreign mutual funds. The tax and reporting requirements are BRUTAL - we're talking potential tax rates up to 50%+ and super complex form 8621 filings. I had to restructure my entire investment portfolio after learning about this. Just something to be aware of if you have investment accounts back home.

There's also the substantial presence test to consider. If you're claiming the closer connection exception, make sure you're actually eligible for it. You have to be in the US less than 183 days in the current year AND maintain a tax home in a foreign country AND have a closer connection to that foreign country. I thought I qualified last year but miscounted my days (didn't realize day of entry AND exit both count as US days) and ended up having to amend my return which was a huge headache.

I work in real estate and deal with tax liens regularly. One option nobody's mentioned is asking your title company if they can facilitate a partial release through escrow. Many title companies have relationships with the IRS and can handle this as part of closing. Essentially, they'll work with the IRS to agree that a specific amount of the proceeds will go directly to satisfy the tax debt, and the remainder can go to you. This is sometimes easier than trying to get the discharge yourself, as the title company does this routinely. Ask your realtor to connect you with their preferred title company and specifically ask if they have experience with IRS lien releases. Not all do, but the larger companies usually have a specialist.

One thing to watch out for - make sure you're addressing BOTH your federal and state tax liens. People often focus on the IRS lien and forget that the state lien needs separate handling. Each state has different procedures for releasing their liens. I learned this the hard way when my closing was delayed because we'd handled the federal lien but overlooked the state lien process. In my case (California), the state actually required full payment before they'd release anything, while the IRS was more flexible. You might need to contact your state tax agency directly to find out their specific requirements for releasing a lien for a property sale.