SaraEA

Good grief! Retirement plans are governed by ERISA, which is mainly the responsibility of the Dept of Labor although the IRS does police some of the requirements. I would tell this client that he needs to contact a labor attorney. Your expertise is with the tax code (Title 26, not Title 29 of the Federal Code). Treat him just like clients who ask questions about Social Security. While we can answer the easy ones, even though they have nothing to do with tax, usually it's better to refer them to SSA.

Differences in prior year estimates (that you didn't know about) may have occurred and been applied automatically to the following year.. Like you entered that the client made 10k in estimates, when she actually made $15k, and you told the IRS to apply the overpayment. More got applied than you knew about, but sometimes the IRS refunds the money rather than apply it. Clients don't always share the correspondence with you, so you have no way of knowing. We have one client who has had this happen for three years in a row. I put a note in the file that this year we want the exact dates and amounts of estimates before I enter anything. Another client has a student whose 1098T included an amount for an adjustment for the prior year. I did what I was supposed to, went back to the prior year, recalculated the education credit, and recaptured the excess credit on the current year tax return. The IRS sent him a check for the recaptured amount. The return was efiled, so there was no way a data input processor was to blame. He said he intends to cash the check, and I told him to go for it. If the IRS ever discovers their error, they better be too embarrassed to ask for the money back.

The partnership is terminated, so there is no need for a Sect 754 election. The assets transfer to the new company I believe at FMV (just like when you start a a new company). The 754 is usually used for partners who enter the partnership later in the game, e.g., the partnership owns a building that it bought for $100k that is now worth $300k. The new partner paid for that appreciation and gets to depreciate more than the others. And the election only applies to the individual partner. It does not affect the partnership's asset values or depreciation schedules. I have one family partnership that started before I was born, and as each of the originals died his or her share got a stepped up basis for the heirs who inherited that share of the entity. Every partner now has different depreciation, but not the partnership. If you don't do their tax returns you don't have to worry about it. You can calcuate it for them and enter it in box 13 I believe of their individual K-1 (code W). If you are asked to do that, you can certainly charge for the extra work (and it is a lot of extra work). Sometimes the partnership assumes the cost, but the individual partner gets an equivalent amount added to his or her distribution. But you have a brand new, single-owner company. No election possible.

Quickfinders has better comics.

"I have created one macro that checks all the proper boxes For Form 8867 (EIC)." Um, I seem to remember that the IRS doesn't want to see F8867 programmed to automatically include the "correct" responses. That's one thing they said they were looking for when they did their first rounds of preparer EITC audits. Where I work, we do very few EITC claims, and we know most of our clients. Still, we had to take the auto feature out and actually ask the questions just in case we got a surprise visit from a compliance officer. Have you seen F8867 lately? It's 3 pages long now. And I believe that beginning this filing season it has to be filed with the return. Best to ask the questions and record the responses, even if it takes a little longer and may mean a phone call to a client who dropped his/her stuff off. The IRS has tried a million things over the years to stem EITC fraud, but the error rate is still stuck around 28-30% (and a zillion dollars). Guess this is their next best effort. I don't think the fraud will end until they get EITC (and all refundable credits) out of the tax system and into the agencies that are legally permitted to ask questions first and then dole out the money. Unfortunately, the IRS isn't allowed to do that in most cases.

Pacun, as an EA you aren't subject to additional requirements like fingerprinting and testing. You are already regulated by the Office of Professional Responsibility and just have to do what you've always done for CPEs. In fact, the fee for your EA renewal has gone down to only $30 for the three-year cycle. Of course, now you have to pay for the PTIN every single year, so you won't come out ahead. But the added cost each year is maybe $40, so no justification for doubling fees when that amount is spread over many clients. Of course, the new regulations are a great excuse to give to clients you don't want anyway, especially since they won't know these don't apply to you. I have found, though, that raising fees for PITAs doesn't make them go away. At least you get paid more for the aggravation they cause.

Like any litigation, the IRS would much rather resolve this without going to court. Your client definitely needs to petition the court, just to have that option open in case a settlement can't be reached. Once a case is docketed, it usually goes to negotiation anyway. Here your client can produce receipts, etc. that won't be accepted in court because the judges don't look at "new" information, only what has already been presented (in your client's case, nothing). I'd call the number on the form your client received, honestly tell them you don't know why the taxpayer didn't respond, and ask what you can do now to avoid court. My hunch is they'll be eager to set up a meeting. Good luck.

Sorry Hahn1040, but the ability to add the sales tax paid on large purchases to the sales tax table amount was not renewed for 2010. The only folks who can still do that had to purchase a car in 2009 but not pay the taxes (or fees in some states) until January 2010. I have no idea who might actually be eligible. Where on earth can you buy a car and not pay everything before you drive it away?

Where you're going wrong is just in the way you're thinking about it, not in the math. Instead of focusing on the earnings, remember that you're deducting the QTP distribution from the qualifying education expenses. You can't use the same expenses to claim more than one education tax break (i.e., no double dipping). Your client paid $13,500 in education expenses. $13.500-$12,000 QTP distribution = $1,500 adjusted qualified education expenses (available for the American Opportunity Credit or tuition deduction). See page 55 of Pub 970. You're going to have to figure your client's taxes multiple ways to see what works best. If they claim the full amount of the QTP for education expenses, they can still get a $1500 AOC credit, or if their AGI is too high they can claim a $1500 tuition deduction. (If their state income tax starts with federal AGI, this may be the better option even if it makes their federal tax higher.) Or they give up the tax break of using the full QTP to reduce their qualifying education expenses if that works out better for them. For example, they can claim the $4000 tuition deduction and thus have $9,500 in adjusted qualified education expenses. Thus: $4000 earnings X $9500/$12,000 distribution = $3167 tax free earnings, and the rest of earnings taxable. (Might really help on the state return.) The same math applies to the AOC if they are eligible and it won't raise their state tax too much. Hope this helps focus your thinking.

Anyone have any idea when the IRS is going to start advertising to the public that they should only seek tax prep from registered tax preparers? The deal was we had to register, pay the fees, submit to background checks, etc. so the IRS could give the public some assurances that only qualified people were allowed to do tax returns. When are they going to start telling the public? People are going to keep going to the same preparers they always went to (legitimate or not) if they never hear about the new requirements.

What's going on here is that clients don't get their refunds until the bank gets the money from the IRS. If there is unpaid federal debt or child support, the client gets less than expected or nothing at all. When that happens the bank isn't out a dime because it never paid a dime. The preparer, however, will not get paid unless there's enough of a refund left to cover the fees. The debt indicator only helped the banks decide if they wanted to advance the refund to the client. It had nothing to do with FeeCollect. The paperwork the clients have to sign is required by the Patriot Act. The bank is opening a temporary account to receive the client's refund, so all those bank account requirements apply. So the debt indicator only facilitated RALS, not products like FeeCollect. In either case, though, the hard-working preparer wouldn't get paid if the IRS was keeping the refund. FeeCollect is not a guarantee of getting paid.

I don't think the issue here is what's deductible and where. It's whether this client should be paying sales tax on his purchases of supplies, even if he likes to call them repairs. He is the end user, and most states deem that the responsible party for the sales tax. Otherwise, it never gets paid. I've seen vendors trying to dupe the state out of their taxes by giving clients forms to fill out to pretend they're retailers. The only reason I can think of for vendors doing this is to gain a competitive edge because they don't charge sales tax so their total price is lower. Those schemes are bound to go up in flames when the state contacts the client looking for the sales tax they presumably collected when they presumably re-sold the merchandise. I'd warn your client that this may happen to him one day very soon.

Nope. The law eliminating much of the basis step-up was passed independently of the Bush tax cuts that reduced, then eliminated, then reinstated the estate tax come 2011. Only hope now is that Congress will reconsider if/when they ever get around to reinstating the estate tax. The longer they dally, the harder it will be to make any changes retroactive for 2010. By law they cannot pass a new tax and make it retroactive. Since there is no estate tax right now, would they be passing a new tax, or is the estate tax just on hiatus and therefore okay to reinstate retroactively? This is a constitutional issue, and the families of some very wealthy people who passed this year have the motivation and funds to take it all the way to the Supreme Court if Congress tries to impose an estate tax for those who died after Jan 1, 2010. The reduced step-up in basis is the only chance they have right now of collecting anything from those estates.

"If your spouse died during the year and you file a joint return as a surviving spouse, you are not considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit." http://www.irs.gov/pub/irs-pdf/p503.pdf

Royalties on occasional books indeed belong on Sch E. If your JOB is author (e.g., Mark Twain, Shakespeare, J. K. Rowling), they go on Sch C. The IRS has made quite clear that activities conducted on an infrequent basis aren't subject to SE.

I had one of these this season, and my research revealed that the cashed out options are indeed subject to SE tax. Normally nonqualified options go in Box 1 on the W2 (and 3 and 5). In this case the employee wasn't on the new company's payroll yet so wasn't getting a W2 from them. The new company handled it by issuing the 1099MISC.

If you did the same thing in 2009, I'd amend that return ASAP. You can indeed take up to $5k out of your flex plan for care for one child. On your income tax return, however, you're only allowed credit for a maximum of $3k. All of that was paid with pre-tax dollars, so you're not entitled to any further credit. If $3000 seems low for child care, consider that the max was set at $2400 until Congress upped it just a few years ago. Paying the expense with flex dollars is your best bet. In your case you can't take a credit on your tax return, but you don't pay federal, Social Security, Medicare, or state taxes on the amount--likely saving a whole lot more than you would have saved with the credit.

You might be on to something. Remember how the old Hope credit worked? You could take it only two times. We had to think ahead for clients who had a student enter school in the fall so only half the tuition was paid that first year. The student would technically be in their first 2 years of school for 3 years [as a freshman fall semester 1st year, spring (freshman)and fall (sophomore)the second year, and sophomore spring and junior fall of the third year]. Sometimes it was best to claim the Lifetime credit the first year to save the Hope credit for the next two years when the tuition paid would be double. As long as they were a sophomore at least one semester during that 3rd year, the IRS allowed the Hope. Your client is in her fourth academic year of study and has only taken the Hope twice, so go for it. Where this starts to get sticky is with students who take 5 and 6 years to graduate (somewhat the norm these days). Sure they're still a Senior, but in the 5-year plan. I know a guy with four kids who let them know he'd pay for 4 years of college period. Not surprisingly, all four graduated in that time.

What these do it yourselfers don't understand is that they ARE getting paid for their labor, at very advantageous tax rates, through the price they are getting for the property. I used this example for a guy in the same exact situation last week: Say you bought the place for $200k, put $100k materials and a lot of work into it, and are now selling at $800k. Your just got paid a half mil for your labor, and you don't have to pay income tax rates but favorable capital gains tax rates on that income. Can't get better than that. The guy actually wanted his S Corp that owned the property to pay his LLC for his work. That would have made the income subject to his income tax bracket and SE as well. Jainen says this is relatively common. It's a stupid move, but it makes the guy thinks he got paid for his work whereas profit on the sale doesn't trigger the same feeling. No wonder our clients need us.

The American Opportunity Credit is "Available ONLY for 4 tax years per eligible student (including any year(s) Hope credit was claimed)" IRS Pub 970. Nice try, but no cigar.

Also don't forget that the donor (or her executor)has to file a gift tax return. Used to be that someone who gave gifts shortly before death had them bounced back into his/her estate. With the advent of the unified credit, that isn't necessary because the tax due on those gifts reduces the estate tax credit. The point is kind of moot this year, as there isn't an estate tax. But there is still a gift tax, so get those returns filed. I'm hearing that the longer Congress waits to fix this mess, the harder it will be for them to change the law retroactively. I just can't believe that wealth will transfer free of taxes not because of congressional intent, but because of congressional inertia.

Someone who makes $7k a year doesn't need HOH filing status. Her standard deduction and personal exemption alone bring her taxable income to zero, so adding dependents or HOH doesn't help. She does need to claim the kids, however, for the additional child tax credit. They meet the tests for qualifying children, so go for it. It's hard for those of us who learned taxes using the old rules about support to unlearn them. Now the child can't have provided more than half of his or her own support to be a dependent. For HOH, however, the taxpayer must still provide more than half the cost of the home, and state support is not considered to come from the taxpayer. So no HOH (not needed anyway), but claim 3 dependent children for ACTC and EITC. The alternative is for the boyfriend to claim the three dependents, provided they lived with him all year. He can't be HOH or get EITC, but he can qualify for the CTC and ACTC. See which way works best.

There are a lot of issues here. First, this being a community property state, I believe half the value of the community property passes from the wife to the husband. Her estate is therefore $2.5m, which is below the taxable estate threshold unless she exceeded $1m lifetime gifts in the past. The real issue is how to minimize the surviving spouse's estate so the eventual tax bite won't be too big. You say he needs income and perhaps principal to live on now and likely more as he ages and may require expensive assistance and care. Thus the readily consumable assets should be kept out of the B trust. The more of them he consumes, the smaller his estate will be. Of course, at the moment there is no estate tax, but I can't believe Congress will allow wealth to transfer freely so I'm sure they'll pass something. What concerns me is the wording of the B trust that the surviving spouse gets all the income annually and capital gains at his discretion. Capital gains are income, no? Note that the Code allows for getting some of the income, but the wording has to be expressed as a certain percentage or fraction to be eligible for the marital deduction. Since the wife has no taxable estate, why would they even want a marital deduction? Let all her assets be included in her estate, she pays no tax, and then his estate doesn't have to include assets already "taxed" to her. Not sure on the logic of this, but it's a thought. Are you sure the wife's half of the suspended losses carry forward to the trust? I thought they were lost forever upon death. If the husband doesn't plan on selling the properties, I wouldn't worry about the suspended losses. His heirs may get stepped-up basis after the losses are factored in (and after whatever happens with the new laws on stepping up, which are such a nightmare no one believes they will stand). State law governs property interests, so these add another wrinkle. I'm glad I'm not you!

I don't think the 8453 will be changed to accept the closing statements for a very good reason. The IRS will have real people looking over the paperwork. Ever wonder what happens to all those 8453s you send in with 20 pages of stock transactions? I think they're probably still sitting there in the unopened envelopes. With all the highly publicized fraud attached to the homebuyer credits, they want to make sure that every single new claim is eligible BEFORE they send out the money. What a concept. If you have clients who filed normal amended returns who are waiting months and months for their refunds, the reason is that IRS staff have been pulled from that function to examine homebuyer returns. Once again, the poor IRS is left to clean up a mess created by Congress. EITC fraud has long been a known problem. Yet Congress thought that giving people twice as much free money, without them having to go through the trouble to borrow a few kids or change addresses, wouldn't be just a little too tempting?

The TIGTA did an audit recently and discovered a number of "first time" home buyers had claimed mortgage interest and real estate taxes within the last three years. Can't hide from your old tax returns. They strongly suggested the IRS do something about this, and you're seeing their response.