jainen

>>She even asked if the $2 of postage it cost to send her hair donation was deductible!<< Since transaction costs are added to basis of capital assets being sold, I think it is reasonable to ask one's tax preparer whether the same rule applies for donations. What did you answer?

>>Husband-Wife partnerships can elect qualified joint venture and still file Sch C instead of 1065.<< Actually TWO Schedule Cs, and that might work except, as I read the original post, the broker does not meet any of the seven requirements for material participation.

>>Wife has real estate brokerage license. Husband does the actual selling<< Sounds like a partnership with guaranteed payments.

>>gets reimbursed for miles at a much lower rate.<< I'm not clear, in this and the original post, if the reimbursement is at a lower rate or simply for fewer miles. You can ONLY use Form 2106 for mileage that is approved by the employer.

>>they say this is commuting mileage even though he is not going to his "assigned" place of work each day<< Yes, it sounds like commute to me too. Longer than average, but within the range of normal and common. He regularly works at a fixed location main office, even though it is shared space and not daily. Presumably his territory is mostly regular, fixed locations. Review Pub 463 for the difference between travel and transportation, reasons his principal residence is not his tax home, and related issues.

>>since the Bank Trust department is the custodian, and since the Trust department does not have a Federal ID number (only the Bank has the federal ID number), then they had to use her own social number for the Payor.<< I would document that conversation and otherwise accept it at face value. But it really sounds like nonsense to me.

>>how this can be deducted on his taxes?<< Line 6 of Schedule A.

>>self-directed IRA<< Sounds like she is only using the bank as a depository, not custodian. Call the bank to verify whether it is actually an IRA. Then print page 8 of Pub 590 and call your client. Wait until 5:00 because you'll probably need a break after explaining the implications of reading those stupid investment journals. By the way, did you ask her why she isn't going back to her previous accountant?

>>want to make sure this is impossible<< Nothing in your post prevents it. Do the dependency worksheet in Pub 501.

>>her late husband owned cattle that he kept on someone else's property.<< Hmmm, THAT'S an interesting twist on an old, old story!

>><they are extending the filing deadline< That date is set by Congress, not IRS. Instead, the IRS has announced that the delay of forms constitutes reasonable cause for late payment, as long as a good faith estimate is paid with a timely extension request.

>>Eventually, they rented it<< I would take a close look at dates and other details. The credit uses the same definition of "principal residence" as Section 121, which is no real definition at all. Under Section 121, renting while you are trying to sell is not "unqualified use." I believe when there are two homes the principal one is where they spent the most time during the tax year. You might not have to stretch those definitions much to reach 36 months. It might not hold up on audit, but it might not need to and anyway Circular 230 doesn't let you consider that . So you only have to convince one out of three of us (although I've noticed a lack of sympathy in the forum lately). Even paying it back isn't so bad--it just means they got a two or three year loan at zero interest.

>>he pays for every thing<< Although they live apart, they have obviously not ended the relationship. Under California community property law she still must report half of his income. But tell her not to worry--just call the school financial aid office in the morning. They can't verify the tax return with IRS until August anyway, so it isn't that big a deal.

>>If she called on 4/20 with the same question she'd be blaming you << Really? 'Round here everyone's pretty mellow on 420!

>>one of the dumbest client moves I've heard<< I will stand up for this client! We don't know the actual reasons, but there are many good ones. First, margin interest is pretty cheap compared to unsecured debt like a credit card. It is also fast and easy. Not every borrower qualifies for a good mortgage; not every property qualifies for a good mortgage. With real estate currently at the bottom of the market, opportunity cost can far exceed the margin cost. That may be hard to quantify, but buying a primary residence is always very subjective. Missing a tax deduction fits in nicely with such analysis. In my opinion, tax consequences should always be a lesser priority.

>>when pastries get stale he gives them credit<< I'm not an accountant and I don't remember the right way. But I'm pretty sure the answers so far are wrong. I am absolutely sure COGS can not include inventory withdrawn for personal use or charitable contributions. That adjustment must be made on Line 36 of Schedule C. (Rules are very different for corporations.) In the original post the merchandise has already been removed from inventory and billed to the customer, maybe even paid for. I think the refund or credit goes to Line 2 of Schedule C. It might be different if this inventory-based business uses the accrual method. Ask a real accountant.

>>I fully believe him, once I sent him to get bank printout which he brought.<< If you want to do some heavy lifting, that's fine. I wouldn't base the relationship on a bank statement, though. Many years ago IRS published an audit guide for taxI drivers. http://www.taxi-library.org/irsaudit.htm#Cashflow. It can help you determine some key issues, such as employment status and gross income. Naturally it had a suspicious tone, but I think it was spot on observing that "Most taxi operators pay their taxi expenditures and personal living expenditures in cash prior to depositing their monies." Okay, in fairness the modern version changed "pay" to "may pay." http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Cash-Intensive-Businesses-Audit-Techniques-Guide---Chapter-17

>>courts ordered a fiduciary to take over his health and financial affairs.<< "Financial affairs" are only deductible for the production of taxable income. Personal matters like housing and transportation would generally not be covered. So again I think the costs need to be allocated. By the way, I assume we are talking about Form 1041--none of this would go on the individual return.

>>meets all requirements to exclude all of the gain<< One can't actually know this without doing the calculations. Even if it seems obvious, I write it out. (Tax Tools is a good start but I usually put more details in the margins.). It might not be so obvious later on, or the taxpayer might even be giving incorrect information. I think the IRS instructions are stupid but I follow them--don't report on Schedule D.unless required.

>>Any suggestions?<< I suggest you file an extension and decline the rest of the engagement. Too many parts of this story don't add up.

>>because he is ILL<< The question is not WHY he needs the expense, but WHAT the expense is. For example, in TC Summary Opinion 2004-74 a disabled taxpayer had transportation expense because he couldn't drive himself. The court said it was not deductible because the transportation was not for the treatment of a medical condition. In the original post, protecting assets is important but doesn't do anything for the disability itself. My comparison to legal expenses was only to suggest a way of allocating the bill for costs if some do treat a medical condition.

>>a correct way to handle this that won't lead to an IRS letter<< If your standard for "correct" is avoiding an IRS inquiry, report the total income in 2012. In 2013, deduct or credit the repayment in accordance with page 88 of Pub 17. (Don't worry about the clients--since they moved out of state, they won't come back to you anyway.)

>>The couple received a 1099<< That's weird. Was it business property for the buyers? Well, I'm in a sympathetic mood today and I don't think it's fair to tax them on money they KNOW they weren't able to keep. They were under contract so it was like a rent-to-own arrangement. Call it a deposit pending sale, and exclude the amount later refunded. Of course, warn the taxpayers there is a good chance of getting an IRS letter but you can handle it. After all, it was a one-time thing for which the net income is the same either way, so it is not tax-motivated to show the numbers as a single transaction. If an auditor wants to argue, say you would rather characterize it as additional sales proceeds, totally excluded under Section 121. Keep talking jive like that until the auditor gives up.

>>courts ordered a fiduciary to take over his health and financial affairs<< I don't see how paying someone to handle financial affairs is a medical expense in the same way personal care would be. If you can get an ITEMIZED bill, as required for legal expenses, some costs might be allocated to medical decisions and some might be investment decisions for taxable income.

>>placed by Indian tribal council<< Sounds good to me. It's been nine years since the law was changed to require an "authorized placement agency," but the IRS hasn't got around to updating the regs yet. Therefore your interpretation is as good as anyone else.