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Thanks to Eric for the latest round of improvements to our beloved forum! I like the new "like" button with choices. Sometimes we do want to express something other than simply liking, and now we can! I must say, though, that when I came back from an early afternoon appointment and it all looked different, my first thought was to wonder what had gone wrong with my computer while I was away...

I had a security patch to apply, and rather than just do the patch I went (somewhat hastily, I admit) with an upgrade to the latest version of the forum software without realizing that it was a medium sized upgrade to 4.2 instead of a small incremental update to 4.1.x. Then the whole forum broke for about 45 minutes while I scrambled around like an idiot fixing issues that cropped up. Sorry about that! I do remember the last time I did a major update there were some complaints about the low-contrast between certain visual elements in the new design. Many(all?) of my customizations are still in place to fix those issues, but if anyone has any trouble with this new design, please speak up and I'll do what I can to tweak it.

Kicked me completely off the leaderboard with this update. Tom Newark, CA (soon to be Modesto, CA)

I remember after the movie came out, the publishers of Mad magazine put out a paperback book titled "It's a World, World, World, World, Mad"

I prefer "small boulders" myself.

Last summer we got at least a half-dozen of these letters, all for clients who had 529 distributions (some made too much to even get an ed credit). You can't double dip--expenses used for the education credit must be deducted from the "qualifying ed expenses" used to account for the 529 distribution. Of course, the 529 allows expenses for room and board that can't be used for the credit, so hopefully the remaining amount of the distribution can be accounted for with those. You need to show that the qualifying expenses used for the credit were paid, and that the distribution from the 529 was used for other qualifying expenses. One of my clients took out exactly the amount of education expenses from the 529, to the penny. Deducting the $4k used for the credit resulted in an excess distribution. Fortunately no penalty applied because the $4k was used for the credit.

My first reaction was to the initials in colored circles that are used as avatars for those members without a picture. My current earworm is Jimmy Durante saying the money is "...under a big W" in the movie It's a Mad, Mad, Mad, Mad World.

You can also take the 529 plan money as taxable income - sometimes paying the income tax and then getting the credit works out enough better to make it worthwhile. If that was done, you'll also have to show the taxable income on Line 21 from the 529 plan distribution.

I had a client who got that letter last year. She did not have any 529 plan. By the time I got the letter she had one day to respond, so I had her call to get an extension so she could pull her records and the IRS Agent pulled up her account to and could see no reason for the letter and told her everything was fine. Never heard anything else since. So it's worth a try to call and ask?

I wouldn't file with no income. IRS computer matching will turn up zeros so no tax will be due and no letter will arrive. State rules may be different. You might want to file a 706 to elect portability if there is a spouse and it looks like he or she will exceed the exemption amount.

You seem to have an "implied" life estate. Mom lived there, paid all the bills, and didn't pay the daughter rent. I did extensive research on this before but won't be back in the office until Tuesday and can send you the details then if not too late. The conclusion was clear: this house belongs in Mom's estate, and daughter gets step-up basis. Peruse Section 2036(a). A quick internet search turned up this, which gives you some court cases: https://elderlaw.info/2011/01/01/life-estate-can-be-retained-for-estate-tax-purposes-under-internal-revenue-code-section-2036-without-being-reserved-in-deed/ Brother gets half of sister's basis (stepped up). Let me know if you want my brief.

How were the 529's set up? There are different options on who can receive the disbursements from the plan. I believe they can be set up so that the distributions can go to: Account Owner Beneficiary Directly to the School In some instances, the owner can pay the school and other expenses and then reimburse themselves. In any event, a letter from the school (assuming they are willing to provide this), cancelled checks and 529 statements should all help in proving the payment was made. Good luck and please keep us posted on how this goes.

I am not from PA and don't know how the real estate laws work there, so take this with a grain (or a truckload) of salt. But I am wondering if this could be considered a life estate situation since Mom retained all of the incidences of ownership (paid the taxes, repairs, etc) and continued to live in the house. If it is considered a life estate situation, they may be eligible for the stepped up basis on mom's death.

If I was guessing I would say all the assets had been fully depreciated in prior years right or wrong but fully deducted. If I did his taxes it would only be current and forward from current information. Let the past be the past.

I think you would need to prepare the 3115 because this spans so many years. If the depreciation that was missed was for the first year in service and caught before the second year is filed, it is possible to simply file an amended return for the first year to start the depreciation and carry on from there, however, once 2 years have passed without taking the depreciation, it is my understanding that that establishes the method (lack of) as an impermissible method and requires the form 3115 to correct that. Plus, there is the potential for missed elections during those prior years, or again the lack of elections, that you'll have to consider. As far as not having the balance sheet, M-1 or M-2, are you sure that the net assets after the accumulated depreciation deductions would still be over one million? Are the revenues over $250K that would require those schedules regardless of asset value? A few other thoughts come to mind on this too: First is that you will also have to calculate and show the AMT depreciation also so that the IRS will know that the effects of any AMT have been taken into account. Second, I'd be very careful with any amendments since you said that your predecessor was in big trouble to the point of his computers being seized. When you prepare an amended return, you are signing with the jurat stating that to the best of your knowledge and belief, that the return is true, correct and accurate. This is the reason that many preparers will not amend a return that was not originally prepared by them. Third, without having all of the returns affected by the lack of depreciation, are you sure that there weren't, or aren't going to be PALs in any of those prior years at the individual level? Fourth, with this being a partnership, unless this is a joint venture with a spouse, are you also handling the other partner(s) returns too, and do you have those returns? This could be very messy and at the very least time consuming, so make sure you really want to be involved in this. I'd make sure to have a solid engagement letter and consider getting a retainer up front.

Well, that makes it a little easier anyway. I mentioned the AMT because you didn't say how long ago the assets were put in service. It's anecdotal, I know, but it's been my experience that if no mention of AMT or its calculations are shown on an amended return, the IRS will put processing on hold until the AMT calculations are provided, whether it applies to the return or not. I had this with amended returns for an individual's NOL carryback on a 1045, and I had included a statement that there were no adjustments in any years for AMT depreciation or other AMT adjustments, and that the AMT could not have any impact based on the level of income of the original and amended, but the IRS didn't reason any of that out. The IRS wanted the 1045 schedules all recomputed on the AMT basis as proof before it would finish its processing. If I were doing this, I'd make sure that the amended K-1s have -0- printed in the AMT adjustments/preferences box, and include the form 6251 on the individual amended returns too, even if that form comes down to -0- adjustment, but that's me. You may choose to do otherwise and hope that you get agents that don't question the returns, but at this point I'd think you and your client would want to leave as little open to interpretation or questions as possible.

temporary phone numbers are free. You can go online and get them for anywhere in the country you want to appear to be calling from. I have one from a cell phone app that allows me to make unlimited, darn near free international phone calls using wifi. The wife and I went and lived in Ireland for a month, we'd do about 2 hours of work before dinner and I could make phone calls to clients with it - appeared I was coming from a local number. No clients realized I was gone.

I would think that its a no brainer for many reasons. I would also have him try and get it to be a non-single member even if his wife gets 1% just to keep it off of his 1040. Even with Trump ending Operation Choke Point, gun stores still have a stigma to many people and I can envision a bank turning down the guy for a personal loan because of the schedule C on it. Of course I am in NY where guns is a 4 letter word. I would also have the LLC name being very innocent with a dba for the publics use. I had a relative who owned a medical marijuana dispensary and couldn't refi his personal residence. He changed the name and did as above and then he had no problem getting approved.

There is an LLC entity you can form that I believe is called a step LLC. Each LLC is it's own LLC and has liability protection from the other LLC's but all LLC's are under one umbrella (maybe it is just one LLC but however you do the "step" part separates the liabilities.) Since it is the same umbrella you could file only one Schedule C. I know you can do this with a Delaware LLC. I think you can now do this with a Missouri LLC. You might be able to do it in other states.

7% of the people that get these calls respond and send money. It is very lucrative.

Roberts, do read them. When a new scam is unearthed, I get messages from IRS, my professional associations, and sometimes the software provider and state, so it does seem like overload. However it serves to drive the point home and keep you alert to the latest tricks. Last week I read one (not sure if from IRS) that scared the .... out of me. Crooks are dropping into accounting/tax offices and leaving thumb drives behind, sometimes on the floor, near the door, a desk or counter. Our clients drop off these drives all the time, and if the recept is busy at the moment it might not get put with the appropriate file. If you were to find a stray one, what is the first thing you'd do? And guess what? Your computer and likely server get loaded with malware. My boss, who is kind of like you getting sick of the warnings, immediately decided that we will get a supply of little Ziploc baggies and label every thumb drive that comes in the door. Anything not identified will get loaded into an old server that isn't connected to anything. Some old scams continue. Just today I had yet another message on my home phone that the IRS is suing me. There was no number on the caller id, and the recorded voice left an unintelligible call back number, but the answering machine memory showed a number that filled in the blanks of what "she" said. I have never before reported these calls to the FTC because the scammers keep changing their numbers, but this time I think I will. I don't think it is the same crooks calling my number repeatedly. I think they are selling their phone lists and those are getting sold again and again. How many people will believe 15 calls stating "this is your final notice before we file a lawsuit against you"? Final should be final. I guess it doesn't cost them anything but the price of the temporary phone number, and if only one person out of a million falls for it they get some cash.

Thank you to the OP for posting. While I cannot add to what the others have responded, I appreciate the reminder we are not alone with these types of things - that sometimes saying no and suggesting seeking someone who specializes in the issue (without giving a specific referral) is the best course.

Is there depreciation expense on page 1? It could be that the assets are being depreciated - but just not showing up on the Schedule L. Just a thought. And the other thought, I agree with others, although I would be inclined to take on the project, it would not be without a very sizable retainer.

One crucial question before your final decision to take this client: do you have a nice big desk with a goodly and comfy space underneath it? Big enough to hide in for a while, with your jumbo-sized bag of Skittles (or snack of choice), when it gets overwhelming? If not, refuse the engagement!

You really have to wait for the IRS to make changes before you can file current returns, because those changes will affect at least capital and partner's basis. Or, if you can't wait for the IRS changes, file knowing you will have to amend. And for years the IRS changes, you could respond and add depreciation and any other changes you know need to be made, so you wouldn't want to do a 3115 to include all the depreciation. It's a mess!

Over the years, I have fired more than one client when I became convinced that the information I was getting could not be trusted. I am NOT saying these clients were crooks! Some of them were in over their heads but refused help; others just overwhelmed. Also computer crashes with no backups, shaky paper records, and no time/unwilling to take time to re-create. We've all seen multiple reasons. (And the ones you just don't trust - the ones where you count the toner cartridges when they leave.) You are putting your professional reputation at risk, and taking a chance on nasty preparer penalties. If you decide to take it on, get a BIG retainer, start from scratch with original records, and work your way forwards. You might also work with a tax attorney from the start (getting them to hire you to do returns gives *you* privilege as well as protects you; your work will be submitted under the attorney's aegis). If the prior preparer's machines were seized, starting with an attorney might be a good move even if all the records are pristine. If they went after the preparer, they are going to scrutinize the returns he prepared.

So the client has no accounting software? In other words, no books? Send 'em packing. Not worth the trouble.

No way I'd take this on. I'd send to a tax attorney specialist.

This one. Right here. Nailed it. I don't know how I'd ever be confident that I could arrive at a correct return. I would assume other things were missed besides depreciation, and I'm thinking they helped the taxpayer, not the IRS. I don't think they seize computers because your clients overpaid their taxes. I think I'd have to start from scratch. And if the taxpayer can only come up with two tax returns, well, scratch seems unlikely.