jklcpa

Taxpayer, spouse, and adult daughter all live in home. Daughter was schizophrenic, unemployable, on SSI. Another child, a son, is married & lives elsewhere. Questions relate to the SP (the mom). 1. 1996 - TP and SP purchase the home. I actually know the starting basis, and then add whatever improvements were made through to event #2. 2. 2009 - TP dies. SP basis = SP’s ½ of #1 above + ½ of TP’s stepped up basis from his estate. This was handled poorly and not sure if county was ever notified of his estate. For many years afterward the home was still in joint name. 3. 2017 - SP physical & mental health is failing. SP transfers home ownership to daughter, was not competent to do so, but it happened. Daughter convinced the mom (SP) to do this and lawyer made the transfer with no life estate set up as far as I know. I assume this was when county took deceased TP’s name off deed due to death in 2009. That is now what county site is reporting. No gift tax returns filed as far as I know, and son/DIL were fighting this transaction and trying to get it reversed, but that never happened either. I think SP's basis that transfers to daughter would be SP’s ending basis from #2 above + any improvements made after TP’s death in 2009 through date of transfer to daughter in 2017. 4. Through part of 2020, SP continued to live in the home. SP declines further, son/DIL step in and in 2020 move SP into long-term facility in memory care section as she can’t perform any ADLs without assistance. 5. April, 2021 – adult daughter dies with the property still in her name. Daughter has no children so mom (SP) inherits house and back in her name. 6. Between April, 2021 and now, storm damage, structural with tree through roof. Insurance paid ~ $180K. Son put ~ $20K of materials for additional interior upgrades after contractor finished. No known casualty gain. Mom's last tax filing 2020 because income was under filing threshold 2021 through 23. She probably should have filed in year of insurance payout, but that didn’t happen. House is being sold. Settlement Nov, 2024. The transfer to daughter seems like a sham, but I assure you it was not. Mom was in failing health, now is 93 yrs old. Daughter was same age as me, died at age 61, and no one expected mom to outlive the daughter. Daughter died as a result of liver damage from long-term use of prescribed psychiatric medicines and poor diet; basically her liver failed, followed quickly by total organ failure. Questions – 1. Can SP skip all of the basis-related issued prior to daughter's death and use the stepped up basis at daughter’s death in 2021+ the $20K of improvements by the son? More on this below. There ARE receipts for the $20K of improvements but mom didn’t have the funds so son paid and now wants to be reimbursed at closing. Daughter-in-law now has guardianship over SP’s money. 2. Am I correct that SP doesn’t qualify for the sec 121 exclusion because she inherited house back in her name in April, 2021 but was already a permanent resident in assisted living starting in 2020, and she didn't have life estate? She wouldn’t even qualify for the exception where a nursing home resident only has to live in the home 12 months instead of 24 months. 3. I’ve never dealt with anyone having a guardianship but assume that the local court monitors the finances. I told guardian she should check with court or attorney that set this up whether or not son can be reimbursed at closing so that it isn’t a wrench in the works that holds up the closing. Thanks for reading, if you made it this far.

Here's another good one: https://www.alvarezandmarsal.com/insights/warning-employee-loans-could-have-adverse-tax-consequences#:~:text=In Technical Advice Memorandum (TAM,the loan%2C for tax purposes.

Seriously, don't guess at this or make assumptions as to how this works. This is a recruiting incentive structured as a loan where it is written off at the end of a designed period if the employee stays with the company. It's an issue that the IRS has challenged because it believes that the "loan" is taxable when given as a compensatory cash advance, and the employer would get the deduction in the year the period ends (in this case, year 3). The complication is exactly how the transaction is set up that will govern when the income is reported. There is case law on this issue also, iirc one of the more recent ones being Morgan Stanley. Here is an older article from The Tax Advisor that discusses the issue and does reference a TAM, but there is more recent case law on this too: https://www.thetaxadviser.com/issues/2011/oct/clinic-story-09.html Here's a blog type article that also describes it and includes some of the advantages and disadvantages of using these employment incentives. https://keepfinancial.com/blog/employee-forgivable-loans-can-be-unforgiving-users-beware The OP should do more research and case law to understand the issue better and not rely on simple, basic answers here as to when it becomes taxable.

When you get back then. Enjoy your vacation!

Why don't you start the topic? This one got a lot of traction.

With Drake, it doesn't allow the caps lock on during sign in, and I also find with that program that I can fit more description on the forms using initial caps only, so I've switched away from all caps.

Exactly this. All of the factors that go into choosing appropriate investments should be considered. Look at the entire portfolio and its diversity, retirement and non-retirement accounts, risk tolerance, current age, current and future savings rate, expected retirement age, expected lifestyle, health concerns, longevity. I'm sure I've missed more than a few factors, and that is why I don't give any investment advice.

My initial knee-jerk reaction to the idea of the annuity is why have a tax deferred annuity within a tax deferred account? There's also the potential to lose out on potential growth in years where the market is doing well, and possibly higher exit fees for early withdraw. I would agree with mcb for now that buying a CD isn't a bad idea, especially since many banks are offering the highest rates on the shorter term CDs, so the investor isn't locked in for very long at all.

Someone in another topic suggested this for a good strategy specifically within an IRA. Most here aren't investment advisors and are precluded from giving investment advice to our clients beyond possibly helping them determine their risk tolerance or, for example explaining how different types of investments work, but this may be an interesting discussion of these types of investments, especially having this within IRAs and other retirement accounts.

Interesting answer, not that I agree or disagree with it. For anyone interested in discussing, I'm going to start a separate topic with the idea of this type of investment in retirement plans.

As Patrick Michael described above I, too, use the "Account Transaction Summary" page created by Drake for all transactions involving the client's bank, and I always review it with the client and obtain the client signature(s) in the area at the bottom of that page. For those states that rely on the federal 8879, including my own resident state, this is the only place that contains all of the entire information in one place including the name of bank, routing and account number, the amounts scheduled direct deposit or withdrawal, and signature lines. For the withdrawal transactions, this summary page also includes the date withdrawal will occur.

So that this topic can continue with advice on solving the original problem, I've started a separate new topic for best practices of verifying and using client banking information. I did this quoting the various posters to keep them in the order they appeared, and I've hidden or edited posts within this topic to not derail it further. New topic is here

All of the above was taken from a topic where the poster had used another client's banking information for a direct withdrawal. I've edited and moved those portions of the comments to this topic for best practice for using and verifying clients' banking information.

That would potentially solve the penalty issue, and while it may not be an ethical violation to take the client's funds in payment of their tax bill like it is for preparers to negotiate deposits of refunds, I think the client that should have paid would be suspicious and would want proof that the taxes were actually paid if their payment was to the preparer and not the IRS. Plus, the preparing firm shouldn't want its funds mixed up with those of clients in any way, and there's no way for correct client to pay harmed client directly without divulging harmed client's name because that would be an ethical violation. Either way, both clients will be unhappy no matter what the solution is. Hopefully for the OP, the disgruntled client wasn't angry enough to contact IRS with a complaint of preparer error, and if they did, that the agency would see this as an innocent mistake, but we don't know that because we are supposed to be safeguarding information like this.

Has the incorrect client with money withdrawn contacted their bank? That is a start, because that bank should have refused if the name IRS was using didn't match the account information. Next, below is a link to an IRS page for payment options, and at the bottom is a section for cancellations, errors & questions, and that section contains a phone number that may have someone to provide additional guidance. I do know that with errors such as this that involve direct deposits of refunds, the IRS clearly states that it takes no responsibility for incorrect information supplied to the agency by taxpayer or preparer. https://www.irs.gov/payments/pay-taxes-by-electronic-funds-withdrawal At a minimum, your firm should pay or share in any late payment penalties and the amount charged for the invalid returned payment (like the returned/bounced check fee).

My comments are in color. I haven't had one either, but from what I understand, for what it's worth:

Thank you!

I am still waiting on one client that hasn't given me anything directly. What I do have is what I got from the year end W-2 runs from his company's payroll processor and the 1099s directly from his broker for just a few of his many investment accounts. I've had all of that since Feb or March and that part was input long ago. All of the missing stuff, he handles himself! I'm really tired of beating my head against a wall every time I try to get some data. I can't even work on it.

True, I assumed Catherine was aware of that. The reason I mentioned it is because it still has to be reported, and the taxpayer already received a letter from the state looking for the transaction. So if a loss, then the entire sale(not installment reporting) would be on the 2021 Form 8949 showing total sales price, basis, and using code "L" for the disallowed loss from other than wash sales.

Oh boy, my first thoughts are these - First, you have to figure out the basis to know whether you're dealing with a gain or loss since the sale price is so low. If a loss then you would report the entire in 2021, the year of the sale. If a gain, was this family cottage ever rented with depreciation taken? Then you'll have the recapture in 2021 and (possibly) no income again until in 2024, but with it being a sale to related parties you need to know if the brothers have already disposed of it before she got all of her money. If they have already disposed of it, then this client must recognize what they realized as if she received it herself. You can check out the IRS Pub that deals with installment sales for more on this. Also, if the transaction results in a gain, then you definitely have to use installment sale reporting which is the default method of reporting. The opportunity to elect out of installment reporting is gone because that election has to be done on a timely filed tax return, including extensions, for the year of the sale. Will this woman ever receive the money from the brother that is technically in default, or will his non-payment ultimately result in the terms of the installment sale being redefined? With installment reporting, it sounds like you are looking at 6252 and Sch D for 2021 to document the transaction on the return with no payments in that year, and then in 2024. If it was ever rented and depreciated, then you possibly have recapture income for 2021 and add 4797 into the mix. If no installment reporting because it's a loss, then only 2021.

I'm not sure why you are mad, and not to be wise, but it is a business income deduction. In general, it is a deduction based on business income, REIT dividends and qualifying income from PTPs. Do you have any other business income or sec 199A dividend income that would qualify, or did the PTP have any qualifying income or from a REIT?

My method is much like that of kathyc2 except that all payments are deposited into the bank including the cash. I hardly ever get cash anyway and very few pay by credit or debit, even from the younger ones, and since I've known a large percentage of the clients for my entire working career and some since childhood being in a small town, I'd venture a guess that they don't feel the need for the "insurance".

"Your sister" Knowing this poster's history of mostly posing hypothetical questions, I suspect that this is another one. In this context, "sister" could be replaced by any other name, especially with the title asking how we would advise clients on their options and tax consequences.

Read this topic through to the end, including the linked article.

Have you seen this? https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/military-and-clergy-rules-for-the-earned-income-tax-credit#ClergyMemberOrMinister If you decide that the income should be included in the calcs, maybe you are missing a checkbox somewhere.