@qbteachmt You mentioned that: The release of escrow is not a taxable event, when that value was already reported as taxable compensation. That's why I describe it as part of Banking, not W2 or 1099-B. But TP informed me that the $30,000 that was set aside as an escrow from the merger consideration to be received in the future and $37,000 that were made into the escrow fund based on milestones that were achieved were never reported and taxes in 2017, 2018, 2019 and 2020 returns. None of these two amounts were reported on W-2 or f1099-B and taxed in 2017, 2018, 2019 and 2020. Therefore, it seems to me that $30,000 and $37,000 (totalling $67,000 as per f1099-B) should be reportable in 2021 return. What I am not sure is whether the $67,000 should be taxes as ordinary income wages or short-term capital gain (to treat $67,000 as part of the 2017 transaction) or long-term capital gain (to treat $67,000 as part of investment in 2021 with a basis of zero). Any comments? Thank you!

@qbteachmt Thanks again for your valuable comments and your speculations may be proven to be right (see below). Just received further clarifications from TP as follows: The gross proceeds on 2021 f1099-B was $67,000 and TP had received such amount minus bank charge of $10 in 2021. For our discussion below, I will disregard $10. The $67,000 gross proceeds can be broken down into 2 components as follows: 1. In October, 2017, $30,000 was set aside as an escrow from the merger consideration to be received in the future (2021). He $30,000 was not set aside from the stock sale proceeds reported in 2017 tax return. 2. Between 2019 and 2021, 3 deposits ($12,000 in 2019, $12,000 in 2021 and $13,000 in 2021) were made into the escrow fund based on milestones that were achieved. The total deposits of these milestones were $37,000. The 2021 originally filed f1040 included the $67,000 as part of wages. Shortly after TP e-filed, he received the 2021 f1099-B containing $67,000 as its gross proceeds. I am seeking your comment as well as advice as to whether the 2021 f1040-X is correct as follows: a) 2021 f1040-X will include Sch D/f8949 with gross proceeds of $67,000 and a basis of zero resulting a $67,000 long-term capital gain. ($30,000 as a long-term capital gain Box E Sch D (being the escrow fund) and a long-term capital gain of $37,000 Box E Sch D (being the milestones deposits). b) 2021 f1040 will be amended to reduce wages from $67,000 to zero. Your thoughts on this? Again, many thanks in advance for your advice.

@qbteachmt Thanks for your comments! According to TP, he did not pay for anything to receive the proceeds as stated on 2021 form 1099-B. The proceeds were not on 2021 W-2 as this is an overseas job/foreign employer. But TP said this is NSOs as he got the option agreement. Therefore, the full amount of proceeds to be reported in 2021 return as part of wages and Sch D and f8949 with gross proceeds and cost figures are the same. It seems that the date of exercise and date of sale occurred on the same day in 2021. TP also said that this 2021 proceeds were not in 2017 wages/income. It is strange because TP did not have enough fact/paper trail. Your thoughts on this?

@qbteachmt Thanks for your valuable comments and insights and the two tax articles. TP has indicated that it was nonstatutory stock options (NSOs). We will prepare form 1040-X and amend form 1040 by including the missing Schedule D and form 8949 with the gross proceeds and the cost/basis have the same value and the transaction is to be reported with Box B checked (Short-term transactions reported on Form(s) 1099-B showing basis wasn't reported to the IRS).  The total tax remains the same. Appreciate it if you have further advice on this and thank you so much for your valuable time!

@qbteachmt The transaction reported on f1099-B was an Indemnity Escrow Final Release in December 2021 as part of the closing of an acquisition of TP’s employer back in 2017. The escrow final release in December, 2021 was not on a W-2 as TP’s employment was in overseas. However, TP included the escrow release as part of his wages. TP had reported the original proceeds from the acquisition as a Short-Term Capital Gain on the Schedule D / Form 8949 since TP had received a Form 1099-B for that in 2017. The amended return will be including the escrow release in Schedule D/f 8949 with a zero basis (short-term capital gain) and excluding the escrow release from part of the total wages as originally reported. The tax should remain the same. Your thoughts on this? Thank you.

How to instruct PTO the following: List the parents as dependents on page 1 of form 1040 but TP is not eligible for credits for other dependents. Need to list parents as dependents in order to claim dependent care expenses credits form 2441. Thanks for your time and guidance on this.

Parents still qualify as dependents even they have income over $4,300 combined or file a joint return (non claiming refund return) under the Dependent care expenses (form 2441) and medical expenses (Schedule A).  These two exceptions are not available for credits for other dependents.  Is my understanding from your comments correct?