Lee B

SMLLC, a disregarded entity, engaged in a combination of real property investment and commercial rentals, who regularly borrows unsecured funds from 2 individuals for both operating and investment purposes. His main source of income is employment/part owner of a Structural Engineering Firm. Since his real estate activity doesn't rise to a trade or business level, my tentative conclusion is that he is not required to issue 1099 INTs ?

Just got off the phone with a honest person with Drake Accounting Support. The speed of the software is a real problem throughout the program for both users and Drake staff. Drake Accounting 2019 has the same speed issues. Drake Accounting is very aware of the the problem, but there is no fix that will happen right away. As long as you stick with smaller clients, it will be OK but slow. Do not attempt to use with clients that are bigger, it will be an exercise in significant frustration! At least they stepped up and owned the problem !

At this rate in a few years Form 8867 and the supporting worksheets will take more time and consume more paper than the actual tax return -:( Also the potential penalty for a single return is up to $ 2,080 ! I am going refuse to do several returns this year ! Copied from the Journal of Accountancy: "The IRS expanded Form 8867, Paid Preparer’s Due Diligence Checklist, for 2018 individual income tax returns to include questions for both head-of-household filing status and the credit for other dependents. For 2017 tax returns this form needed to be included by the preparer on any Form 1040, U.S. Individual Income Tax Return, that claimed the earned income tax credit, the American opportunity tax credit, and/or the child tax credit. Form 8867 consists of a series of questions verifying the paid preparer’s due diligence in requesting information from clients regarding a series of credits and deductions that have been subject to substantial tax fraud. This form transfers the burden of responsibility from the taxpayer to the paid preparer. The new question for head-of-household status is, “Have you determined that the taxpayer was unmarried or considered unmarried on the last day of the tax year and provided more than half of the cost of keeping up a home for the year for a qualifying person?” The other dependent credit is new for 2018. It provides a credit of up to $500 for dependents who are not qualifying children for purposes of the child tax credit. The due-diligence questions for the other tax credit are the same as for the child tax credit or the American opportunity tax credit. The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, expands the penalties for failure to prepare the due-diligence checklist. Under prior law the penalty was imposed on each failure and could expose a practitioner to a potential $1,560 penalty on each return (see Rev. Proc. 2017-58). Under the TCJA, the penalty is increased to a maximum of $2,080 on a single tax return for returns and refund claims filed in 2018 ($2,120 for 2019). Section VI of Form 8867 provides preparer requirements for attestation needed to sign the form. These include: Interviewing the taxpayer, asking adequate questions, and documenting the taxpayer’s responses on the return or in their notes; Completing Form 8867 truthfully and accurately; Submitting Form 8867; and Keeping the following five records for three years after the due date of the form: Copy of Form 8867; Worksheets used in completing the form; Copies of any documents provided by the taxpayer used to prepare the form; Records of how this information and the worksheets were obtained; and Records of additional questions the preparer may have asked to determine eligibility to claim the credits and/or head-of-household filing status. The retained records must be kept for three years from the latest of the following dates: The due date of the tax return (not including extensions); The date the return was filed (if the signing tax return preparer electronically filed the return); The date the return was presented to the taxpayer for signature (if the signing tax return preparer did not electronically file the return); The date the practitioner submitted to the signing tax return preparer the part of the return for which the practitioner was responsible (if the practitioner is a nonsigning tax return preparer). Careful consideration and due diligence for these new requirements is essential, as the burden of responsibility is again shifted from the taxpayer to the paid prepare

1099s are not on the MeF system. They are still on the older FIRE system, so you can expect to wait from 7 to 10 days or longer, due to the shutdown ?

Your scenario is still a bit vague. How exactly is the ownership of the property titled ?

As I have added some larger clients, certain functions like saving, backing up, loading print files etc. have become painfully slow. Called Drake Accounting support, several times. They had me exclude all Drake Accounting files from the scrutiny of my security programs. No improvement. I checked my task manager and the Drake Accounting Program is using huge amounts of RAM during these functions. Really disappointing, I was tentatively planning to move some of my write up/payroll processing clients over to Drake Accounting during 2019. Drake Accounting support had no solutions for my problems. Never thought I would say that.

I saw a different article about this subject several weeks ago.

Why do you think wages or depreciable assets do not apply to your scenario ?

The proposed regs have knocked out all of my rental clients except one whose qualification is questionable since he is always juggling multiple business issues and the probability of him maintaining a contemporaneous activity log is pretty low. For those of you with clients who might qualify, here is a step by step in depth analysis : https://www.forbes.com/sites/anthonynitti/2019/01/19/irs-publishes-final-guidance-on-the-20-pass-through-deduction-putting-it-all-together/?ss=taxes#55344e92d9f0

As a famous person once said about opinions, "Everyone has one"

You have an interesting attitude ? After all they are people too, no different than you and me.

Here is a link to the actual notice: https://www.irs.gov/pub/irs-drop/n-19-07.pdf One section says that residential and commercial rentals cannot be commingled in the same entity and qualify. If true, this will knock out one my larger clients out because while I am reasonably confident that they could meet the 250 hours for all rentals combined, its doubtful that they will be able to meet 250 hours if commercial and residential rentals have to segregated.

Supposedly, it was released 2 hours ago. If you want to sign up www.360law.com has a copy available. I will wait a few more hours until it's publicly available.

I remember watching the press conference at the capitol several weeks before Christmas 2017, listening to the congressional representatives talking about tax simplification, saying that most people would be able to file on a postcard, which they were waving around in front of the TV cameras. What you see is not always what you get. Situation Normal !

"The IRS issued Notice 2019-11 on Wednesday, providing a waiver of the addition to tax under section 6654 of the tax code for the underpayment of estimated income tax for certain individuals who would otherwise be required to make tax year 2018 estimated income tax payments on or before Jan. 15, 2019. The waiver, though, is limited to individuals whose total withholding and estimated tax payments equal or exceed 85 percent of the tax shown on the return for the 2018 taxable year."

It turns out only 809 of the recalled employees will be paid, those whose duties are being funded by user fees.

"Under an updated contingency plan covering the upcoming filing season, the IRS will recall 57% of its workforce to handle tax season duties, the agency reported Tuesday. Temporary funding for the IRS for fiscal year 2019 expired at midnight on Dec. 21. Since then, the IRS has been operating under a contingency plan that furloughed 88% of its workforce, and only 9,946 were considered “excepted/exempt” and allowed to continue working. Under the new plan, 46,052 IRS employees will be considered “excepted/exempt” and will return to work. The new plan will allow the IRS to process paper and electronic returns and issue refunds to taxpayers. The IRS had previously announced that tax season will start on Jan. 28 and that it would be issuing refunds during the government shutdown. The IRS will also be opening its call sites and responding to taxpayer questions. All IRS audit and examination functions and nonautomated collections will continue to be put on hold during the shutdown."

I see no dividing line here between owning 2 rentals or owning 20 rentals. The owner of two rentals can make a clear argument that they are involved continuously and regularly and that their primary purpose for engaging in the activity is income or profit. Where it starts getting murky is when a property manager takes care of everything. Even then the argument can be made that the property manager was acting as the owner's agent.

You use the phrases "continuous and regular activity" and "number of properties" ? Can you provide a cite for that because I am not aware that these are requirements in order to qualify. If they were, how do investments in REITs and PTPs qualify ?

That is exactly what I have always done for my clients for many years now . -:)

Here is a post by on a blog called "The Farm CPA" that sheds more light on the issue: The Farm CPA By: Paul Neiffer Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions. Rentals - Is it QBI or Not? Nov 14, 2018 I would say that most of the emails and calls that I am getting right now on Section 199A is whether rents will be Qualified Business Income (QBI) or not. This blog post will provide my QBI conclusion on various types of rentals that farmers and farm landlords will typically have. However, I would like to start out with some of the case history directly related to farming and rents and see why this is so hard to know for sure based on the current proposed regulations. First, let's review the history of CRP rents. CRP contracts call for payments from the government in return for the landlord taking the ground out of production typically for 10 years. In return, the landlord will usually plant native grasses and other plants and "maintain" the property for the term of the contract. The maintenance in most cases is minimal. For several years, the IRS viewed these payments as not being trade or business payments subject to self-employment (SE) tax. However, starting about 15 years ago, the IRS started to assert these payments were related to a trade or business and subject to SE tax. Finally, in the Morehouse case, the Tax Court ruled that CRP landlords were in the trade or business of being an environmental friendly farm business and thus, subject to SE tax. Finally, this case was overturned by the Circuit Court and ruled that the CRP is in fact rents and not a trade or business. The IRS still views these payments as being trade or business income (even though they lost in court). Second, we have a long case history starting with the Mizell case dealing with whether rents received from related parties are in fact trade or business income subject to SE tax or are in fact rents not subject to SE tax. In one of the latest cases, the Martin ruling indicated that as long as the rents are at FMV and call for no involvement by the landlord, then the rents are not subject to SE tax. It is the active involvement by the landlord that causes "rents" to rise to the level of a trade or business, not simply any sharing of income or expenses. The bottom line of all of this case history is that landlords have to have some level of involvement in the "farm activities" to rise to a trade or business. Simply collecting cash or even a share of crops without any involvement likely does not rise to the level of a trade or business. And finally, even if we have that involvement, it is likely that the IRS will assert that the landlord at that point owes SE tax on the rents and will likely fully offset any tax advantage of the 199A deduction for lower income taxpayers. Here is my current verdicts on whether rents are QBI: Rents received by landlords that are part of a common group - QBI Rents received by landlords who may be related parties, but do not meet the requirement to be a common group. For example, Son is the farmer and Sister is the landlord. We don't know if Son and Sister are related parties even if mom and dad are alive and even if they are alive, are they required to have ownership in the farm operation and the land entity. - May Be QBI Cash rents received by landlords individually who may be owners in the farm operation, but do not meet the common group definition and have no involvement in farm operations as landlords (i.e. no SE tax on rents) - Not QBI Same as previous example, but landlord has active involvement in decisions, etc. and is paying SE tax on the rents - QBI Cash rents received by landlords renting ground to unrelated third parties and have no involvement - Not QBI Cash rents received by landlords renting ground to unrelated third parties, having involvement and likely paying SE tax - QBI Crop share landlords simply receiving a share of crop and only paying real estate taxes, crop insurance and interest and no involvement - Not QBI Crop share landlords paying share of chemicals, fertilizer and have some involvement, but not rising to the level of SE tax - Likely QBI All of these current conclusions are based on the current propose regulations. The final regulations will likely provide additional clarity on all of these types of rents and there may be material changes to all or some of these conclusions. We will keep you posted.

Here you go: https://www.taxreformlaw.com/wp-content/uploads/2018/12/General-Explanation-Of-Public-Law-115-97.pdf This is the link to the so called TCJA Blue Book, 457 pages long, published by the Joint Committee on Taxation.

This exact topic came up in the all day seminar sponsored by the OSCPA that I attended on Tuesday where we spent al least 3 hours on 199 A. The coauthor and presenter was Chris Hesse, a National Tax Partner for Clifton Allen Larson. He is the past chair of the AICPA Ag Conference, author and presenter of the Farm Tax Update and Chairman elect of the AICPA Tax Executive Committee. I recite all this background because these are his answers, so if you want to argue or disagree your fight is with him not me. Mr. Hesse's answer was, the farmer landlord needs to have some involvement that at least rises above the farm equivalent of a Triple-Net Lease. In his opinion, there is absolutely no requirement for the income to be subject to SE Tax. He at least needs to be paying the property taxes and have some additional involvement, perhaps buying fertilizer, maintenance of buildings, erosion control etc. You may find more answers at their website claconnect.com since their headquarters is in Minnesota and they specialize in Ag Tax issues.

According this article in the Journal of Accountancy, Statutory Employees may be able to claim QBI: https://www.journalofaccountancy.com/issues/2019/jan/qbi-deduction-for-statutory-employees.html How many more things will pop up like this during this tax season?

I would still check with your state because most states, including my state of Oregon have mandated the efiling of all W -2s and 1099s, meaning that they will not accept any paper filed W -2s or 1099s.