jklcpa

4 hours ago, BulldogTom said:

@jklcpa  Assuming the father lives for 1 year, do you think the transaction survives scrutiny by the IRS if the OP is carried out as planned by the taxpayer?

Tom
Longview, TX

I don't know for sure that it wouldn't be challenged, but I would not advise the client to do this.  As Marilyn said, I wouldn't want to touch this.

29 minutes ago, Catherine said:

This is very true. But I have also seen divorces where there was a specific buy-out clause put in the agreement, as well as money that changed hands in accordance with that clause. I forget why it was done that way, though, as it was some years ago. That does not seem to be the case here.

It may be written as a "buy-out" but is still merely a dividing of marital assets where the dividing of cash is either not exactly equal and is used to balance out the other asset values being unequal, or it is for some other reasoning so that both parties will agree to settle. 

I don't think that tracing would come into play.  The code is clear on what the inherited basis of this rental would be under this client's scenario.  There is nothing to be gained by this transaction. It would cost the client money in terms of transfer taxes and legal fees to gift to the father, and then more in legal and probate fees to settle the estate for the solely owned rental to pass back to the son...all to end up with the virtually the same basis as before.

The code section this falls under is IRC sec 1014(e). It requires that the donee survive for at least one year after the transfer and limits tax-free transfers to a terminally ill person and the step-up.  IRS also ruled that this applies to property in a joint revocable trust funded with assets that were held by the grantors as tenants by the entireties.

Some history:
2001 - EGTRRA repealed sec 1014, and a carryover basis position was implemented under IRC sec 1022.  This applied to decedents passing after December 31, 2009.  Sec 1022 treated basis of property received from a decedent as if a gift with basis equal to the lesser of the decedent’s adjusted basis of the fair market value as of the date of death.

2010 - TRA reinstated the estate tax and fair market value basis at death provisions, and repealed the IRC Section 1022 carryover basis for decedents passing after 2009. 

Quote

From pub 559:

The basis of certain appreciated property the estate receives from the decedent will be the decedent's adjusted basis in the property immediately before death. This applies if the property was acquired by the decedent as a gift during the 1-year period before death, the property's FMV on the date of the gift was greater than the donor's adjusted basis, and the proceeds of the sale of the property are distributed to the donor (or the donor's spouse).

"Appreciated property" is defined as “any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis.”

22 hours ago, kathyc2 said:

It's rounded to nearest $50. 

 

Of course, it seems so obvious now.  

Thanks for explaining, Kathy. 

11 minutes ago, Catherine said:

My first thought is that she gets 100% of the gain with only $250k exclusion and no step-up for "his" portion of the house.

^^  This!  Your client's basis is now the basis she and former spouse had as a joint couple, and there is no step-up. She is now selling as sole owner so the exclusion is only the $250K, assuming she meets the requirements for the full exclusion she is allowed.

1 hour ago, BrewOne said:

must be tied to inflation and the way the numbers are rounded off.

How can that be though?  The amounts for 2024 are exactly double at $4,150/$8,300, so applying the same inflation percentage should result in the amount for 2025 family being exactly double that of single coverage if what you say is true. Something else must be factored in because the amounts for 2023 weren't exactly double either.  The 2023 amounts were $3,850/$7,750.

So it will be $11 until the third party contract is renegotiated in 2026 at which time the PTIN fee will probably be revised again. 

https://www.thetaxadviser.com/news/2024/may/regulations-finalize-ptin-fees-for-tax-return-preparers.html#:~:text=The IRS arrived at the,training%2C supplies%2C and overhead.

7 hours ago, Randall said:

Another twist on this.  Adult.  Gross proceeds over the limit but no taxable income.  Code C reported so should a return be filed?  And it's a new client, there was no extension filed.  So it will be late.  No tax due.  But Gross proceeds $250,000.  Basis same, matured CD inside a brokerage account.

In determining gross income for the filing requirement, gains but not losses are used in that determination.  It is not the proceeds, but the gain that is taken into consideration.  That being said, even when the basis is reported to IRS and no gain exists, the AUR will be using the sale side only and this new client may receive a CP2000 in about 18 months.

You should explain the filing requirement to the client, and personally I'd advise this client to file a return to avoid the notice.  Even without an extension, there shouldn't be any penalties assessed since no tax is due and the client doesn't actually have a filing requirement.  If penalties are assessed, those should be easily explained and abatement requested. Filing also establishes the statute of limitations date in the event that you are missing some piece of income from this new the client.

What about a state filing requirement?

@BrewOne, I'm curious about how often you find issues by going through this exercise?  I have only one client where I feel this may be useful but have never done anything like this and haven't personally known any preparer that does. Maybe this is will be year I get this client a POA.

13 minutes ago, Christian said:

Please advise where you got that $ 4,700 income limit from

It's in the 1040 instructions, pub 501, the interactive tax assistant on the IRS site, tax research books such as The Tax Book, Master Tax Guide, should easily be found using a search engine such as google, etc ....

3 minutes ago, Lee B said:

That might make sense, except that some regular users probably check the site without logging in just to see if there is anything new that might be interesting.

The site does have the option to stay logged in, and stays that way until the user clears browsing history unless leaving cookies intact.  I'm logged in almost all the time.

The site also has the ability for a user to log in anonymously too and stay that way.

1 hour ago, Lion EA said:

What is substantial control? For example, husband owns 80%, wife 20%, adult son 0% but VP of marketing, and high school daughter 0% but VP of finance. Both H & W are the producers of the local TV shows as well as being the on-air talent. Does only husband report? Or, some combination of 2, 3, or all 4? Would it matter if the responsibilities stayed the same, but the "kids" didn't have VP titles? Is there a difference between the kid that's over 18 and the kid that under 18? I guess I have to go read the details at the website!

Thanx, Lynn, for your post. That's what I'll send my clients, with the website in large font, bolded, and highlighted.

That's covered on the FinCEN site's BOI page of FAQs. See section D.

https://www.fincen.gov/boi-faqs#D_5

29 minutes ago, Catherine said:

As long as they are in a Workspace thread with both people, you set up the two signers. It goes to #1, automatically to #2, then back to you once signed.

I wasn't asking if the preparer must send two emails. Based on what Margaret said here:

3 hours ago, Margaret CPA in OH said:

When the first signer is finished, an email is sent to the next one. 

...what I meant was, for example, must each party signing the 8879 have his or her own separate email address.

Does a form requring 2 signatures need to have two separate emails?

6 hours ago, mcbreck said:

I would call Sigma.

I am wondering that as well.

Also, do you have access to the Drake forum?

Any time is ok with me for the conversion business-wise, but I may have withdrawal during the downtime.

As always, thank you for taking care of us so well, Eric. 

37 minutes ago, Lee B said:

Given the context, I assume Jim means signing back into Drake?

Which hasn't happened to me.

Oh right, he meant after the program updates.  I had that happen once mid-season but hasn't happened since then.

I'm more tired than I realized.

1 hour ago, Jim Oh Bkkr said:

I had that happen once.  I just figured I had inadvertently clicked something. 

Also, I have had to re-sign in after updating about 10% of the time this year!

What program are you having to sign into again?

1 hour ago, mcbreck said:

Just in the past few days I've noticed I can no longer load Drake / Sync while connected to my VPN. Anyone else notice this? Maybe it's just my VPN.

Yes, it has been like that almost since the beginning of this season for me. When the program would open, I had no alerts or notifications in that bottom left corner of the manager screen, and I wasn't able to get program updates.  I didn't realize this at first because I was only waiting for state approval of a certain form.

Also, MS Edge browser window would open on top of the program every time, and I couldn't make the support person or her supervisor understand this. I have never used Edge, and the supervisor's suggestion was for me to try changing to Edge as my default browser, or try Chrome.  I could NOT make either of them understand at all that something with my computer's environment was blocking communication from the program to Drake's server, that it was not a browser issue.  Finally after about 6 calls the supervisor sent a message to a higher level support person.  Very frustrating!

We worked on it and thought it was solved with me changing settings in my AV, but the problem reappeared again in late Feb. I ended up changing to a different AV software completely but had only disabled the original one. That worked until I rebooted the computer and a portion related to the original AV's VPN was still enabled, and THAT was the issue.

I haven't had anything from Drake yet. Tax Book's offer came in the mail today.

14 hours ago, NECPA in NEBRASKA said:

A Morkey is part Maltese and part Yorkie. He does have some poodle in him according to his DNA test. He does not shed and he is the faster than greased lightning.

He's a cute little fluffball.  

Yes, please see the instructions to preparing 1099-C and "Who Must File" and the large bold heading under that labeled "Exceptions".

It seems that the form's issuance depends on the type of bankruptcy and whether the debt was for business or investment, or if it was for personal use. 

27 minutes ago, Slippery Pencil said:

Sure he can.  I know plenty of kids who graduated w/ an Associates Degree from the local community college the same time they graduated HS.

Thanks. That's good to know, and so it would be up to Christian to find out the specifics for this student.

Christian, you may be correct.

With the AOC, the student must be a degree candidate, and he can't be a candidate for a degree without graduating from HS. Most colleges and universities will not even enroll the student in the degree program without first completing the secondary education.

The LLC, on the other hand, can be taken by an eligible student taking course(s) that are part of a degree program, but it does not require that the student be a degree candidate.