jainen

>>I don't do corps<< If he forms an LLC, he will probably continue to file the tax return as a sole proprietor. If he forms a corporation, he will get a K-1, a 1099-DIV, and/or a W-2 which you can handle in the normal way. Undoubtedly you can do his individual return for significantly less than he would be charged by the accountant doing the corporate return. Besides, the corporate return will probably be very simple and you can figure it out.

>>the amount in questions was deducted as a contribution<< The IRS considers this a tax scam designed to claim a charitable contribution for not getting as high a sale price as you wanted. Prepare your client to lose this one. http://www.irs.gov/charities/article/0,,id=156682,00.html

>>I would have stopped before the sentence "All paperwork was finally put together".<< I would have continued slightly beyond that, but still kept it extremely brief. You have an excellent reasonable cause if you don't clutter it up with too many other excuses. The dates are important because they prove that a) the taxpayer couldn't file on time because of death, - the estate could not gather information or file until approved, c) there was only a short time in getting professional assistance, and (d) the return was filed and payment was made as soon as possible. All penalties should be abated, but the IRS can not waive interest.

>>home nursing care is deductible same as if in hospital<< Generally so, but you can't assume that a "skilled nursing visit" was entirely medical. In a hospital, personal care services such as feeding, bathing, and dressing are considered deductible medical expenses. In a private home they are not.

>>it's such a populist issue<< Not what I call populist. Most people I know don't want a tax subsidy for dodging their honest debts. It's bad enough that property owners can already take a deduction for debt based on their equity while debt based only on wages is not so favored. This new proposal is not a benefit for anyone caught in insolvency by economic problems, who aren't taxed anyway. This one is for wealthy people who simply choose to not repay their government-guaranteed loans.

>>http://www.govtrack.us/congress/bill.xpd?bill=h110-1876<< Something wrong with that link. It says that's a tax cut the DEMOCRATS are proposing.

>>Is it possible that the hokey pokey REALLY IS what it's all about?<< No, I don't think so. You also have to turn yourself around.

>>validating my refusal over the years to get involved with 990's<< I'm with you on that. How 'bout you add that 4K to the year it was received and don't report a loss on the grounds that restitution is expected. Then ignore the current payments because it is the same revenue already included in the prior year.

In his weekly radio address, the president expressed support to end the taxation of canceled mortgage debt. Apparently this provision is already pending in Congress.

>>Where on the 990 should this payment be recorded?<< How was the loss reported?

>>I did call him back and tell him that he needed to tell the broker that it was not investment property for the last two years anyway<< That's exactly what a tax preparer shouldn't say. You don't know what the lender's definition is. Even for purposes of the annual tax return that you prepare, there is little difference between investment and personal-use real estate. Therefore it would be perfectly appropriate to serve your client's interests by writing that he declares ownership expenses such as property taxes on Schedule A, the form normally used to report investment property. Some of your language suggests that you don't approve of his financial choices. Apparently this has interferred with your professional relationship, so you might ask him to find another advisor.

>>Nobody likes insurance companies, so laying the blame at their feet is a good move.... Responsibility is not paying off in America today.<< Isn't this a tad inconsistent? If you have some objection to the letter, why not take responsibility for it and express your opinion directly instead of hiding behind your insurance company? It doesn't bother me to write a lender letter, but I can only say what I know. What I know is only what the client has claimed for a non-audited tax return. The fact that he files Schedule E no more means he actually owns rental property than filing Schedule C means he is actually self-employed. I would simply state that for the years in question the taxpayer has listed the subject property on Schedule E, the form normally used to report rental income.

>>I think I may be beginning to see the light on this...<< I started the same way as you, using different math but the same assumptions. It was when I noticed that Quickfinder took the business percentage first, before any other calculation, that I turned to Pub 946. I don't usually rely on the pubs but I was hoping they had an example. They didn't but they did have an ordered list that showed what they wanted. It does make sense. Here's an asset with an un-adjusted basis of $23100 for 2005. Basis reductions (but not below zero) include Section 179 and depreciation allowed or allowable. That's all there is; there ain't no more.

>>stick the numbers in their program and let me know what result you get<< Unless you have a good understanding of what algorithms your particular software uses, you can't just "stick the numbers in." For one thing, bonus depreciation was mandatory (30% before May), unless there was a formal opt-out election attached to the 2003 return. The software may not know whether it was or should have been taken. It also may not know whether the vehicle is subject to depreciation limits The way Double Declining Balance works is the prior deductions are subtracted from the deductible basis each year. You will get a different answer depending on whether you apply the 90% to the adjusted basis and then take twice the straight line amount, or apply it to the deduction amount derived from the MACRS table percentage. As far as I know, NO software uses the tables. You and I both started the depreciation schedule from $10800. But according to Pub 946, you must apply the 90% business-use percentage BEFORE taking Section 179, so the depreciable basis for 2003 was actually only $7800. In that IRS interpretation, you have indeed already deducted more than 55% of the original basis, and there is nothing more available for 2005 when the business usage dropped.

>>it is calculating .55x42,000 =21,000 then looking at the SEC 179 of $30,000<< That doesn't sound right. Did you proforma from one year to the next? But I don't see much basis for 2005 anyway, assuming double declining balance (regular MACRS) half year convention purchased after 5/5/03. First there was $30,000 Sec. 179, leaving $12000 basis. 90% of that is $10800. Half went to bonus depreciation, leaving $5400. 20% of that in the first year was a $1080 deduction. In the second year, subtracting the $5400 and the $1080 from the original $12000 leaves $5520, and 90% of that is $4968. The second year of DDB is 40%, or $1987 deduction for 2004. That leaves an unrecovered basis of $3533, and 55% of that is only $1943.

>>assuming some rationality may return to lender's practices<< I can't imagine where you got that idea, unless you are being sarcastic. Anyway, the rational approach would be to require equity, not insurance. If a borrower has nothing to lose, they are more likely to walk away from a property and let the finance companies sort it out. The lender might be satisfied to just slap on the insurance, but from the point of view of the insurance companies PMI doesn't make so much sense if home values are expected to fall. Look for PMI to be much more restricted as to proving income and debt ratios, and of course the appraisal.

>>Can only assume PMI is deductible same as mortgage points (acquisition vs. re-fi/home equity)<< You won't find PMI on a refinance. It's only for buying a principal residence with less than 20% down payment--not so much of that going on this year, methinks. I suppose some buyers will sneak into a rental that way too, but it isn't deductible on Schedule E. Unlike points which are paid all at once up front, PMI is a surcharge to the monthly payment until the policy is canceled.

>>I would charge by the hour or fraction of an hour if that is all it takes.<< The problem is that you gave them a finished return that barely made it past the IRS mailroom. The client doesn't want to hear any excuses, especially the "it's sombody else's fault" kind. H&R Block dominates the industry by the simple basic guarantee that if you have a problem with the IRS, they'll take care of it -- for free. Surely you can provide better service at a lower price than some big corporation?

>>not well enough to do anything<< I don't think the IRS has a lot of leeway on this issue, as a matter of having the same rules apply to everybody. Their reasoning will be that she was in fact able to handle basic financial obligations. For example, she managed to cover her rent, keep the doctors satisfied, renew her driver's license, and so on.

>>how do you charge for fixing problems that were created by the IRS...<< It is difficult to charge extra for the fact that your work product failed IRS input, regardless of the reason. This is undoubtedly the biggest argument in favor of e-filing, and the main reason tax preparers in California were so compliant when e-file became mandatory.

>>Does he convert the two vehicles that he has been using the standard rate at that time to actual<< He can't claim actual expenses and standard mileage for the same vehicle in the same year. If he is required to use actual, he has to use actual.

>>Is Charlie eligible to use the standard mileage rate to determine the deduction for two trucks and actual expenses for determining the deduction for the other two trucks?<< Answer is yes. He does not have to treat all vehicles the same. If he claims cents-per-mile in the first year of service for a particular vehicle, he can use actual or standard for that vehicle in future years regardless of what he uses for the other three vehicles. However, if he has five or more vehicles that he uses simultaneously in a single activity, it is considered a fleet and he can only use actual expenses for each of the vehicles, even if he previously used standard in a year he had less than five.

>>Is this veiled threat to go to Court of Claims to obvious?<< Do you think the IRS believes your EIC client will go to Court of Claims? Does he even know what that is? Does the IRS guy even know? If there are "other avenues of review available" don't mention them now. Focus. By proposed result I meant that the correct tax should be such-and-such, which is already agreed, but the taxpayer is eligible for $X amount of E.I.C. Focus. >>the taxpayer relied on his preparer and the reputation of the national company that prepared his return, not understanding that the preparer was unable to practice before the IRS during the examination<< That's okay. About 20 words too many, but okay. >>taxpayer contends<< I know, this is the fashion for effective business writing these days, but I think it's dumb. First of all, you ARE the taxpayer so get out of third person and make it embarrassingly intimate. Secondly, you don't have to explain that you are explaining, just explain what there is to explain. Remember, the goal is not only a certain number of pages (one), but also a certain color (white).

>>"Only the little people pay taxes!"<< Yeah, yeah, I know. Now that it has become public policy, it's not so funny any more. I'll try a traditional joke. ************** At a business seminar the state tax commissioner asked the audience what sort of taxation they thought was fairest. After a short silence, someone in the back raised his hand and said, "The poll tax." "But," the commissioner objected, "the poll tax was repealed years ago." "Right," declared the man. "That's what I like best about it!"

>>taking a trip out to the winery to look in person<< They're hard to miss. I think Mondavi calls theirs a double magnum; jeroboam is a European term. Actually it's kind of rare. At six bottles' worth, it's not a popular size. >>when someone says something 2X, I ought to listen<< On the other hand, when I have to say something 2X, I ought to reconsider. So now I think it would be appropriate to submit a package. The cover letter is still only one page, stating the reason for audit reconsideration--because of weak advice the taxpayer was intimidated into accepting an examination result that was patently erroneous and inconsistent. A father claiming EIC for his natural child who lived with him, was primarily supported by him, and wasn't claimed by anyone else. Also include a proposed result. (In tax jargon they say "abatement," but I avoid that term because in the noble sport of falconry it connotes flapping your wings frantically.) The second page is an index-description of attachments. The attachments include the audit report and the tax return as well as the supporting evidentiary documents which the taxpayer did not previously have an opportunity to submit.