Thank you for mentioning this! I had no idea this was a thing. I'll definitely ask our CPA about the Voluntary Disclosure Program. Is there anything specific we need to do to qualify for this?

You're already taking the right first step by working with a CPA to file all the past returns. The key requirements are that you're coming forward voluntarily (before the IRS contacts you about the unfiled returns) and that you're filing accurate returns for all missing years. Make sure your CPA specifically requests penalty abatement using Form 843. They should cite "reasonable cause" and explain the circumstances that led to the unfiled returns. Having professional help with this process is crucial because the specific language and approach matter a lot in how the IRS responds.

That's not entirely accurate. The IRS doesn't immediately put liens on property, especially if you're voluntarily coming forward. They typically only place liens after multiple notices and lack of response or cooperation.

Wouldn't Schedule D be more appropriate for things like stocks or real estate? I've never heard of using it for selling used personal items. Seems like overkill compared to just using Schedule 1.

You're right that Schedule D is most commonly used for investments, but it can actually be used for any capital asset - which technically includes personal property. It's definitely more detailed than the Schedule 1 approach, and probably overkill for most situations. The Schedule 1 method that others mentioned is simpler and works perfectly fine for most people selling personal items at a loss. I just wanted to offer another technically correct option, especially for people who want to be extremely thorough in documenting everything. Either approach is valid - it just depends on how detailed you want to be.

I had this happen! Don't panic - it's just a verification notice. I sent back a simple letter explaining these were personal household items sold at a loss on eBay, included a list of what I sold with estimated original purchase prices, and that was it. Never heard anything else from them after that.

Thank you for this clear advice! I've been stressing about this for weeks. Do you know if there's any downside to just waiting for them to process the corrected refund? I'm worried about penalties or something if I don't respond fast enough.

There's no downside to waiting for them to process the corrected refund, but there is a time limit for responding to their notice - usually 30 days from the date on the letter. So you should definitely call them before that deadline passes. As long as you respond within the timeframe specified on the notice, you won't face any penalties for this type of correction.

Is the transcript different from the "Where's My Refund" tool? I've been checking that for weeks with no updates about my amended return.

In TurboTax, you should be able to search for "1099-C" in the search bar at the top. It'll take you to the income section where you can enter the form. After entering the basic 1099-C info, it should ask if you qualify for any exclusions. Select "insolvency" and it will walk you through the worksheet. If you're using the desktop version, it's under Federal > Income > Less Common Income > Cancellation of Debt. Make sure you're in the full interview mode, not the quick mode, or it might skip some options.

That's a really good point I hadn't thought about. My mom is on Medicare with the extra help subsidy for her prescriptions. Do you know if canceled debt that's excluded due to insolvency still affects the MAGI calculation for Medicare subsidies?

For Medicare subsidies, if you properly exclude the canceled debt from income using the insolvency exception (Form 982), then it shouldn't affect the MAGI calculation for Medicare's Extra Help or Medicare Savings Programs. The key is making sure you complete Form 982 correctly to exclude it from your gross income in the first place. However, if only part of the debt is excluded due to partial insolvency, the remaining taxable portion could potentially impact your MAGI. I'd recommend contacting your local SHIP (State Health Insurance Assistance Program) - they provide free counseling on Medicare issues and can give you specific guidance for your mom's situation.

Thank you so much for all this helpful info! Quick question - if I file and get a refund this year, will that affect my parents' ability to claim me as a dependent on their taxes?

You filing your own tax return won't affect your parents' ability to claim you as a dependent at all! These are completely separate issues. Your parents' ability to claim you depends on whether you meet the dependency tests (like if they provide more than half your support, if you're a full-time student under 24, etc.), not whether you file your own return. So go ahead and file to get that refund - it won't impact your parents' taxes in any way.

Absolutely do NOT pay H&R Block for a simple return! I used to work there - they charge like $150+ for returns that literally take 15 minutes to file. If you only made $8k and have a W-2, use the IRS Free File options or even the free version of TurboTax/FreeTaxUSA. Save your money!

Thanks for the advice! That's what I was worried about. I just heard the free versions try to trick you into upgrading halfway through. I'll check out the IRS Free File program that people mentioned.