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Maybe now he will find the motivation to dig through his records, miraculously find that long-lost promissory note, and show it to his next tax preparer.

File 1040X and 982

This cute little pup isn't content with swimming on by while the surfers have all the fun. He swims right up to a couple of guys in the water and tries to join in.

You may have been able to hide income in the 60s, 70s, and 80s but not in 2014. First step in any audit is providing the IRS ALL bank account statements. If the total amount of all deposits is greater than the income claimed on the tax return, then the audit will be LONG and sticky. You can run, but in 2014, you can't hide.

Just: You are new here. Something troubling you about the folks you work for? Looking for validation? You can get it here. I told one of my landscaping clients that *none* of my income is reported the IRS. NONE. I could say that I made whatever I wanted. The checks come to me, made out to Rich, CPA, or Rich CPA LLC, or just Rich. So I could deposit them anywhere and to any account I wanted. I DON'T. I report all of it. And my O&N expenses. If I get audited, and the IRS finds out I am up to something fishy, then they can do things that destroy my business, and I am not interested in having that happen. So, if someone is looking for short term gain by not reporting all their accounting revenues, in the long run, you will be caught up in it also. Rich

Sara mentioned Sch D only because her example related to how an unreported stock sale would trigger the CP2000. I agree that you should file the 1040X to document the discharged debt.

No. Gift to his son. I love all the people who think they know, then when the feces hits the rotator oscillator, they want us to break the rules. He made a bad business choice. He made even a bigger bad choice for no documentation. Now it is a gift to his son.

Unless you file, the IRS doesn't know it's the taxpayer's primary residence and qualifies for the exclusion. Kind of like when someone sells $100k stock at a loss. The IRS computers assume it's all income unless a Sch D shows otherwise.

Joan, it wasn't held in a trust prior to death, was it? That may change my answer, but I believe if the property was titled in the individual name, then you would use the stepped up basis and depreciation starts over in the estate, covered by IRC 1014(a), I think. If the deceased was the sole owner, any depreciation taken by the estate before death is ignored at the time of disposition, so if the estate continues to rent and depreciate, the basis at disposition would be the FMV at DOD (or the alternate valuation date) less any depreciation taken by the estate. It is more complicated if the property was not solely owned because the other owner(s) continue on with their original basis and depreciation, and they may or may not be the person or entity that inherits the property. Community property states also complicate a situation where property is co-owned. Below is some narrative and an example that may help: Depreciable Assets Depreciation is one of the “events” that affects basis; when a taxpayer has recovered part of his or her investment through a depreciation deduction, the basis must be reduced by the amount of the deduction. However, if you inherit property that the decedent had been depreciating (because he or she had used it in a business or rental activity), the inherited basis of the property may or may not be affected by the prior depreciation that was claimed. If the decedent was the sole owner of the property and died prior to 2010, the inherited basis is the full fair market value at the date of death (or the alternate valuation date, if applicable) – that is, no adjustment is required for the depreciation allowed while the decedent was alive. The inherited basis from decedents dying in 2010 is determined by a more complicated set of rules (see CAUTION 2010 earlier in this article). If the property continues to be used for business or rental purposes, depreciation starts anew based upon the inherited basis. As explained above under “Beneficiary Tax Basis,” when the decedent had jointly owned the property with another individual, the post-death basis is made up of two parts; the surviving tenant’s part of the original basis plus the value of the portion of the property included in the decedent’s estate. For depreciated property, the combined new basis is also reduced by the depreciation that had been allowed to the surviving tenant; the decedent’s previously claimed depreciation is ignored. For example, Mother and Son invested $60,000 each for a rental property that they owned as joint tenants with the right of survivorship. Up to the date of Mother’s death, depreciation of $20,000 had been claimed. The fair market value at Mother’s date of death was $200,000. The inherited basis of the property is $150,000 ((50% x $120,000) (50% x $200,000) - (50% x $20,000)). If the beneficiary and the decedent jointly owned the property, and the beneficiary continues to use the property for business or rental purposes after the co-owner’s death, the beneficiary continues depreciating his or her adjusted basis under the same method used in previous years. Depreciation on the part of the basis inherited from the decedent starts anew as of the date of death using the modified accelerated recovery system (MACRS). A surviving spouse who inherits community property from his or her deceased spouse that was used for business or rental purposes does not reduce the inherited basis by any portion of the depreciation attributable to the period prior to the spouse’s death. The entire new basis (less any land portion if the property is real estate) is depreciable. Below is a link to Reg 1.1250(3)( b ) that also talks of basis, gain calcs, and how the additional depreciation that is normally used in computing depreciation recapture prior to death is adjusted to zero immediately after death. The deprec recapture would only come into play if the property was acquired by the transferee prior to death, and then the gain would be considered IRD and would be subject to recapture. Anyway, the section I referenced starts at the top of the right-hand column on page 2, and continues on with an example on page 3: http://www.gpo.gov/fdsys/pkg/CFR-2012-title26-vol11/pdf/CFR-2012-title26-vol11-sec1-1250-3.pdf

i WOULD FILE IT, OTHERWISE IN ANOTHER YEAR OR TWO HE'LL BE GETTING A CP2000.