Webwork - 12:32 pm on Apr 6, 2012 (gmt 0)
You need to hire/pay a CPA who regularly works with businesses. Tax issues, like legal issues, can be complex. No surprise. Taxes are based upon laws, regs, judicial interpretations and a lot of shoddy legislation. There's the tax code, tax regulations that interpret/apply the code, revenue rulings that interpret the code and regs where there's uncertainty, and private letter rulings that are binding only to the direct party but possibly informative as to others.
You're in the gray zone. I can spot several issues, ones you probably aren't even aware of. A well researched and reasoned opinion from a CPA may save you - and your father/parents - later grief.
Spend the money AND get guidance about how to handle this in the future. The folks at the big tax return processing companies aren't your resource for addressing this as the issues are above the pay grade for the level of training/education of most of their processors.