Leaderboard

Having rental real estate property in a corporation is not generally a very good idea. The first step I would take is to review the whole incorporation process, the purchase of the property, the issuance of the mortgage etc etc to see whether it meets all the requirements for being a corporation. If it doesn't, consider your options. If it does, then deal with it as best you can.

Thanks for filling in the details Judy. Don't know why I thought to ask the "related party" question. Maybe it derives from the habit of listening to what isn't being said...?

So the owner of the S corp is also the owner of the facility, is that correct? Under code sec 267, only the rent actually paid is deductible. Even if the entity liable for the rent payment is using the accrual basis of accounting, because it is paid to a related party, the deduction is limited to the amount that is included in the income of the cash-basis recipient/owner. Including the unpaid rent back in income in 2013 is not the proper handling because it sounds like it should never have been deducted in the first place. If the books are accrual, then this would be a timing adjustment for expenses on the books/not deducted on this return. Likewise, it is possible to have the reverse when an accrual-basis company pays back rents due, and in that case the rent deduction on the return will be higher than the accrual based GAAP financial statements. As to your other question about separating out the rent payable from the trade a/p, yes, I would definitely do that. Especially in the case of rents payable to a related party where many months of rent go unpaid, it is important to track this separately from a/p and other accrued expenses. As for the other trade a/p, I don't know that I'd be so quick to write that off. Those should have been legitimate costs of producing the product that are payable to outside vendors that still have a claim against the assets of the company as unsecured creditors.

Also...certain grad students don't have FICA withheld....so it's not a 100% test....but "an indication". In any event, I discussed this with an IRS agent a few years ago. According to this agent, when they return home they have to "fill out something...which I forget the name"....and if their papers aren't in order (1040-NRs not filed) they aren't allowed to leave. However, I never got a referral for an emergency 1040-NR so the person could leave the country. But...from my experience I can tell you one thing that I have seen happen: Indians on J-1s are tax exempt if their stay is under 2 years. However, if they decide to stay longer (one day past 2 years!) they have to pay back the exempted tax. I've very often amended the returns, so, all is good and legal. However, many "just take the chance and leave it". Sometimes the IRS catches it; more often not. And they all tell me..."My friend didn't..etc...etc" I know one husband/wife team. Wife got caught and had to pay back. Husband, no, they never questioned him. I have a current client from Greece. She came here on a J-1 to work at Standford (the university should have known better) and her contract said that she was exempt from Federal tax for 5 years. Unfortunately Stanford was wrong. (And this was a legal document that had gone thru Standford's legal dept.) The treaty with Greece (which is crystal clear) says if you extend your stay past 3 years you need to pay back all the tax. The husband was never questioned. Not only that, the husband said that he had loads of Greek friends on J-1s at Stanford, all of them not paying tax for 5 years. The wife questioned the IRS...and why the "audited her". The auditor said that they picked up on her because she put down her visa change (to H1- on her (self-prepared) 1040-NR. I told the husband Stanford should at least pick up the penalties & interest...but he didn't want to get into that because they wanted good references for jobs. So...to answer the original question....from personal experience, lots of non-resident aliens file 1040s and get away with it. Lots of non-resident aliens stay longer than their "treaty exempt" period and get away with it. Lots of non-resident aliens are mis-advised by their institutions and get away with it (although they don't know that they're doing anything wrong). And people wonder why I "question the knowledge of those in authority".

Sounds like the client might want to file form 966 for liquidation and pay no more payroll.

Minimum requirements for the job is another reason to disallow the MBA deduction. As I said before, the deductibility of an MBA is very much a facts and circumstances issue. I don't see where you have reviewed the relevant case law closely and stated where your client's fact pattern fits with the winning cases vs. the losing cases. In fact, you haven't even mentioned any of the cases, which leads me to believe you haven't read any. Why is your client still talking with the auditor? And what do the tuition/1098-Ts/transcripts show? Please stop mentioning the wage & income transcript; the only place a scholarship will show is on the 1098-T. And yes, I've had a response within 5 days. I had one within 5 hours on a case with which I was working very closely with the auditor. Actually, it was more like an hour.

>>complete lack of "empathy and understanding of human emotions".... Oh....And when did I say anything about this man's ethnicity? You assumed he was either selling oranges on the roadside or part of the drug cartel back in his "developing country". << Whoa! Insulting other members on here that are trying to help you will get you nowhere fast. Empathy and understanding human emotion won't help you prove your case. And you were the one to bring ethnicity into this when you said that the client is from Columbia here on an F-1. Then you mentioned maybe being Columbian had something to do with the extra scrutiny but you aren't sure because you did a Mexican's return with the exact same scenario but haven't had the issues with that one yet. So you were the one that brought ethnicity into the discussion. And on another point, no one suggested or even implied that this person was working "in the fields". You seem to be looking to be offended when I don't see where anyone here has been offensive, and everyone here including jainen, MAS and JoanMcQ have tried to steer you in the proper direction to prove your case about the MBA being used to maintain or improve job skills for his current employment. I don't see that their questions raised in this regard are offensive at all and are right to the point that you must prove to win this case. You've received excellent advice so far. If all you want is for us to say that you have a bad auditor, well maybe you do, but you are having to work with her. You've given us the facts piecemeal and have been adding to it as you go along, and we also don't know what your client said directly to the auditor that may have led to some of her conclusions. If you want us to say that it's impossible for the auditor to have received a large package of documentation and to have responded to it within 5 days, we can't say that that is inconceivable either. I doubt that it took 5 days for the auditor to read 19 pages and consider them. Concerning the scholarship, was all of it used for tuition, books, fees and supplies? Was any of it used for room and board? Was your client involved in any teaching or other activities related to receiving this scholarship that could be taxable as compensation? Have you reviewed the actual charges from the school to see everything that this scholarship covered?

You can print off a transmission receipt from the fax. I'd think that would be just as good as postal receipts. But it would be a good idea to call IRS in about 2-3 weeks to be sure it's being processed. I'm doing that now with a response to a CP2000 I faxed in back in late May. I called on June 7 and again on June 13. RS still doesn't show it as being in process, but they are logging my calls in the client's file. They told me that after we reach to 30-day mark, if it still isn't in the system they'd have me re-fax it. In any event, the most important thing to do is NOT fax and then mail a hard copy - that can cause lots of headaches.