Lee B

Were you talking to Secretary Yellen?

Possi, thanks, I needed a good laugh

Drake has updated their software with the UCE worksheet and my understanding is kaput!

It was taxable income at the gift date reportable as W 2 Wages.

Normally at this time of tax season the IRS has less than 2 million unprocessed tax returns. Reports indicate that the IRS currently has about 7 million 2020 unprocessed tax returns, many of which were filed when tax season opened in February which are trying to claim additional Recovery Rebate Credits. Golly, Gosh and they still have 6 million 2019 unprocessed tax returns. I guess they don't know about the "rule of holes" "When you're in a hole stop digging"

Perhaps she had a guilty conscience and had a uncontrollable impulse to confess ? Sometimes clients do crazy stuff!

The use of a code "1" in box 7 does not preclude you from using any of the tax penalty exceptions. A code 1 is probably misused on tens of thousands of 1099 Rs every year!

Lets give you credit for being partially correct. The CAA extended Qualified Disaster Distributions (not related to covid 19 ) and Qualified Plan Loans for 180 days.

I think your client will qualify for the UCE. The total $ 100 k will go to line 5a and the one third will go to line 5b which flows into the MAGI used for calculating the UCE.

It's really interesting, if you analyze these instructions the calculation of MAGI excludes other income which means that lines 1 thru 8 of Part I Schedule 1 are not included, i.e., pass thru income and Schedule C, E & F income and notably Unemployment Benefits from Box 1, then that subtotal is reduced by all of the adjustments lines 10 thru 21 on PartII of Schedule ! It's a very generous calculation.

If it did, the IRS hasn't changed their guidance on the issue?

Q4. What is a coronavirus-related distribution? A4. A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRA

I can't find the worksheet, but here are the instructions: "Line 7 Unemployment Compensation You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you in 2020. Report this amount on line 7. Caution. If the amount reported in box 1 of your Form(s) 1099-G is incorrect, report on line 7 only the actual amount of unemployment compensation paid to you in 2020. Note. If your modified adjusted income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021 excludes from income up to $10,200 of unemployment compensation paid to you in 2020. For married taxpayers, you and your spouse can each exclude up to $10,200 of unemployment compensation. For example, if you were paid $20,000 of unemployment compensation and your spouse was paid $5,000, report $25,000 on line 7 and report $15,200 on line 8 as a negative amount (in parentheses). The $15,200 excluded from income is $10,200 for you and all of the $5,000 paid to your spouse. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. Use the Unemployment Compensation Exclusion Worksheet to figure your modified AGI and the amount you can exclude. If you made contributions to a governmental unemployment compensation program or to a governmental paid family leave program and you aren't itemizing deductions, reduce the amount you report on line 7 by those contributions. If you are itemizing deductions, see the instructions on Form 1099-G. Caution. Your state may issue separate Forms 1099-G for unemployment compensation received from the state and the additional $600 a week federal unemployment compensation related to coronavirus relief. Include all unemployment compensation received on line 7. If you received an overpayment of unemployment compensation in 2020 and you repaid any of it in 2020, subtract the amount you repaid from the total amount you received. Enter the result on line 7. Also enter “Repaid” and the amount you repaid on the dotted line next to line 7. If, in 2020, you repaid more than $3,000 of unemployment compensation that you included in gross income in an earlier year, see Repayments in Pub. 525 for details on how to report the payment. Tip. If you received unemployment compensation in 2020, your state may issue an electronic Form 1099-G instead of it being mailed to you. Check your state's unemployment compensation website for more information. "Unemployment Compensation Exclusion Worksheet – Schedule 1, Line 8 Enter the total of lines 1 through 7 of Form 1040 and Schedule 1, lines 1 through 7. Include the full amount of unemployment compensation you received in 2020 on Schedule 1, line 7. Use the line 8 instructions to determine the amount to include on Schedule 1, line 8 and enter here. Do not reduce this amount by the amount of unemployment compensation you may be able to exclude. Add lines 1 and 2. Enter the total of line 10b of Form 1040 and Schedule 1, lines 10 through 21. Subtract line 4 from line 3. This is your modified adjusted gross income. Is the amount on line 5 $150,000 or more? [ ]Yes. Stop You can’t exclude any of your employment compensation [ ]No. Go to line 7 Enter the amount of unemployment compensation paid to you in 2020. Don’t enter more than $10,200 If married filing jointly, enter the amount of unemployment compensation paid to your spouse in 2020. Don’t enter more than $10,200 Add lines 7 and 8 and enter the amount here. This is the amount of unemployment compensation excluded from your income. Subtract line 9 from line 2 and enter the amount on Schedule 1, line 8. If the result is less than zero, enter it in parentheses. On the dotted line next to Schedule 1, line 8, enter “UCE” and show the amount of unemployment compensation exclusion in parentheses on the dotted line. Complete the rest of Schedule 1 and Form 1040, 1040-SR, or 1040-NR."

Drake is updating their program tomorrow with a supporting worksheet to calculate the exclusion etc

That's the thing about opinions, everyone has one

"Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded." So do you have a cite for additional guidance the above quote refers to, because I haven't seen any or is this your unofficial opinion?

You really think a client would actually do something like that

It would seem to me that what you have is not a tax issue but a legal question regarding the fiduciary responsibilities of a trustee. This is why I keep my involvement with trusts to an absolute minimum. Too many trustees don't understand their attorney and as a result are reluctant to ask the attorney questions, then end up winging it and then assume we as accountants will just fix whatever. Then when you ask questions about problems etc, their eyes glaze over.

I guess my brain is to feeble to wrap my head around tax legalese. Perhaps that's why the very best tax experts are in such high demand. I always suspected that it is written this way on purpose. It's job security for the talented.

You need to look at Monday's thread about this under the COVID 19 SECTION

The latest reports suggest that the IRS has not been able to make much progress on the over 6 Million 2019 unprocessed tax returns.

According to him no one in his household was affected by covid other than his 2 children had to go to school online. So if you're 55 and voluntarily quit, you're not subject to the penalty?

New client, 55 year old male voluntarily quit his full time mid management job in October and took a $ 75,000 distribution from his 401 k to fund starting a new business. Based on his answers to my inquiries, he is not a qualifying person for a covid 19 distribution. He assumed based on a news article that he could spread the $ 75k over 3 years with no penalty. He withheld some state tax, but $ 0 federal tax. None of the 401 k money is left. Fortunately for him, his business has already turned the corner, generating enough positive cash to support his family and promises to be fairly profitable soon. Any ideas to lower the income tax and penalty hit on the $ 75 k distribution?

Unemployment benefits are not earned income so the exclusion has no effect on earned income.

Interesting approach, specifically how does that work?