Do you remember if you had to pay the $50 penalty for each year that Form 8606 wasn't filed? I've read conflicting things online - some say the penalty is automatically applied, others say the IRS often waives it if you voluntarily file the missing forms.

I didn't end up paying any penalties at all. I included a brief letter explaining that I hadn't been aware of the filing requirement but was now submitting the forms to properly track my basis. I believe the $50 penalty is technically on the books, but in practice, the IRS seems to be reasonable about waiving it when people proactively fix the issue. I think they care more about getting people compliant than collecting the relatively small penalty. Just make sure your calculations are accurate and consistent across all years.

Does anyone know if you can e-file prior year 8606 forms or do they have to be mailed in? I hate dealing with paper forms.

That's really good advice - I didn't even think about potential blowback. Did you experience retaliation at your job after reporting? I've already saved some evidence on my personal drive and took screenshots of the conversations with my boss, but I should probably be more systematic about it.

I did face some subtle retaliation. Nothing they could get in legal trouble for, but I was suddenly excluded from meetings, my ideas were dismissed, and I was passed over for a promotion that I was previously told was coming my way. Beyond what you're already doing, I'd recommend keeping a detailed journal with dates, times, and descriptions of all conversations about the embezzlement. Include who was present and what was discussed. If you have verbal conversations, follow up with an email summarizing what was discussed ("Just to confirm our conversation today about..."). This creates a paper trail. Also, familiarize yourself with whistleblower protection laws in your state, as they vary significantly. The federal protections mainly apply to government employees or contractors, not necessarily private business employees.

Do you know approximately what percentage they usually give as a reward? Like is it 10% of what they recover or something like that?

You're glossing over important context here. The economy and investment landscape in the 1970s was completely different than today. Many more middle-class people are invested in the market now through 401ks and IRAs. Plus, what starts as a tax on the wealthy often trickles down to impact everyone eventually.

You're right that the investment landscape has changed since the 1970s, but you're missing a critical point: retirement accounts like 401ks and IRAs aren't subject to capital gains taxes at all. They're either tax-deferred (traditional) or tax-free for qualified withdrawals (Roth). These proposed changes would have zero effect on most middle-class retirement savings. As for the "trickle down" tax concern, capital gains tax rates have historically been quite stable for middle income brackets. The 15% rate that most middle-class investors pay has remained consistent for decades across both Republican and Democratic administrations. The changes nearly always happen at the top brackets, not the middle ones.

The capital gains tax rate has varied significantly throughout history. Under Reagan, the Tax Reform Act of 1986 actually raised the maximum capital gains rate to 28% (up from 20%). Under Clinton, it was lowered to 20% in 1997. George W. Bush reduced it to 15% in 2003. Under Obama, it went up to 20% for high earners, plus the 3.8% Net Investment Income Tax was added as part of the Affordable Care Act, bringing the effective rate to 23.8% for high-income individuals. The highest capital gains rate was actually around 35% in the late 1970s before Reagan's first round of tax cuts. The 44.6% rate would indeed be the highest since the tax was created, though it would only apply to those making over $1 million annually.

Thanks for that historical breakdown! Really helpful to see how the rates have changed over different administrations. So if I understand correctly, we've basically been in the 15-28% range for most modern history, with some additional taxes added more recently that brought it to around 23.8% for high earners. The proposed 44.6% would be a significant jump from where we've been for the last several decades, even if it only affects millionaires. I'm curious to see if Congress will actually pass something this high or if they'll negotiate it down.

Does it matter that she refused to participate in the tax court case though? Seems unfair if she gets half when she thought it was a waste of time and wouldn't help.

While it seems unfair, her refusal to participate in the tax court case typically wouldn't eliminate her right to part of the refund. Courts generally look at the source of the funds used to pay the original tax bill (joint savings in your case) rather than who pursued getting it back. Think of it this way - if you had a joint debt that she paid from joint funds, and later you discovered an error and got a refund, the nature of the original payment (joint funds for a joint liability) usually determines how courts view the refund. Your efforts to secure the refund might entitle you to compensation for your time and costs, but the underlying refund typically remains jointly owned if it came from a joint return paid with joint funds.

What kind of penalty did they give you? Was it just interest or something more?

Have you ever been audited though? I'm worried that ignoring anything on the K1 could trigger something later. Just because you haven't had an issue yet doesn't mean the IRS won't come back years later.

No, I've never been audited for this issue. You're not really "ignoring" anything on the K-1 though - you're using all the information that's relevant to your individual tax situation. The K3 just provides additional detail for certain foreign transactions that most domestic investors don't need to report. The IRS generally focuses audit resources on areas where significant tax might be underreported. For most domestic investors in MLPs, waiting for a K3 that won't change your tax liability isn't likely to be a high audit priority. I've been filing this way for over 7 years with multiple MLPs and haven't received so much as a notice.

TurboTax is super annoying with MLP K-1s. I had the same warning last year and called their support. They confirmed that if you're a US-only investor with no foreign tax credit claims, you can override that warning and proceed with filing. There's actually a checkbox somewhere in the foreign income section where you can indicate you have no foreign filing requirements.