jainen

>>I find this revelation hard to believe<< Which revelation -- that the IRS has a safe harbor, that I missed it, or that I admit missing it?

I missed this one! Rev. Proc. 2013-13 $5.00 per square foot. Period.

>>How do I handle this disposition of asset on S-corporation tax return<< The corporation reports (and presumably passes through) $245,000 capital gain (assuming "donor basis" means the corporation's adjusted basis). In addition to the capital gain, the shareholder reduces basis in stock (and reports ordinary gain if there isn't enough basis). The son gets a basis step-up and a new depreciation schedule, and hopefully they all get a new attorney.

I marked "other" as my reason because I work in an accounting firm and do not have a choice. Maybe I should have marked "ease of use," because it was way too hard to work on my own. I gave that up a few years ago.

>>So no basis in the website?<< How would I know? Her story keeps changing. I'm still waiting for an answer to Taxtrio's question from first thing Friday morning, "What did she spend the 22,000.00 on?"

>>back to basis calculations<< You mean basis of the specific assets she sold, right? Because only part of the business was sold? If the blog articles and art files were self-made, associated costs were likely already deducted so their basis is zero. The sales proceeds must be allocated according to FMV. OldJack's 45 years notwithstanding, a sole proprietorship doesn't have an "outside basis" like a partnership interest, or stock or similar ownership like a corporation. Those can be sold independent of the business assets. So she may very well have a taxable gain, and additional income if she doesn't repay the loan. But no bad debts on uncollected AR--without her QB nobody will believe she paid tax on income under accrual method.

>>source of the term<< Wasn't it named after the inventor, Wiley Wiggle?

>>I cringe every time I see someone post that they've responded to a CP2000 with an amended return<< What do you do when you see someone post that they've responded to a CP2000 with TWO amended returns send to different IRS offices at the same time?

>>IRS is disallowing which ever one's SS# was not on the 1098INT<< >>Do you mean home mortgage interest on Line 10 of Schedule A?<< >>Yes.<< Yeah, I figured. Another case of exposing clients to unnecessary audits, just because the preparer can't read and follow simple instructions. Like the Instructions for Schedule A line 10, which quite clearly and specifically say DON'T put your interest there if Form 1098 has somebody else's SSN. I'll link to the 2011 version, assuming that's the year under examination. http://www.irs.gov/pub/irs-prior/i1040sca--2011.pdf You know, I kind of miss Package X. I could sit back on a slow January afternoon and browse through everything--"Oh, we're doing such-and-such a bit differently this year!" But still, at least once in seven years you should read the instructions. They changed this one back in 2005. Before that, you had to read down to line 11. I guess a lot of people missed that, so now it's both places.

>>IRS is disallowing which ever one's SS# was not on the 1098INT<< Do you mean home mortgage interest on Line 10 of Schedule A?

>>Seize their cars/trucks<< That's better than just taking their license, which they merrily ignore. But all that would happen is their new ladyfriend would just buy another car in her own name. What I can't figure out is why a woman would be attracted to a man who cheats his own kids.

>>$22,000 was a loan. $15,000 was repaid<< Neither the source of funds nor the disposition of sale proceeds is at issue. Are you saying there was a cancellation of debt? It sounds like the investment went to intangibles, perhaps customer lists, domain name, or goodwill. Presumably those would have been deducted or amortized. A sole proprietorship has no basis as such, the way there might be for a partnership or corporation. Gain or loss will be found only with the adjusted basis and allocated sales price of individual assets.

>>they are entered just like U.S. Social Security<< That's what I said too, but seeing TaxMan's answer (and his profile) I think the client might reside in Ireland. Because he is an American citizen, he has to file a U.S. return on world-wide income. But the treaty says only the country of residence can tax Social Security. I guess he still needs to enter the income so he can claim the treaty benefit?

>>new avatar, Jainen<< Yeah, cool! I got one of them new smart-phoney things, so of course right away I took a picture of myself in the bathroom mirror!

>>Giving a stamp of approval to a return not preparer by oneself opens up liability issues<< It certainly does. Under Circular 230, a return preparer is "Any individual who for compensation prepares or assists with the preparation of all or substantially all of a tax return." So you can give advice about the treatment of a single item, but if you look at the entire thing you'd better be conducting a complete interview, starting with an engagement letter. Anything less would be stupid.

>>it seems to me that they have gotten really, really horrible<< It seems to me that the IRS is VERY explicit about how you should respond to a CP2000. It goes on for pages, spelling out exactly what they think was originally filed, what they think is wrong and why, what the effect of the proposed change is, and what to do if you disagree in whole or in part. If you don't follow the instructions, then don't complain that something doesn't work.

Am I overthinking this?<< Under-thinking. You have to allocate the $15000 to the individual assets. Inventory first (ordinary income). Then equipment, with recapture of depreciation/179 if applicable. I assume he already allocated the $22000 when he started. Operating losses as such don't change the basis for Schedule C, other than accumulated depreciation. You might need a quick review of Section 195 rules.

>>CA is considering taxing or assessing a fee of some type... << So what else is new?

>>there is no such line on Line 20 << I don't understand your question. Foreign Social Security benefits are generally reported on Line 16. If and only if they are covered by a tax treaty, they are entered just like U.S. Social Security, no special line needed.

>>Since Kea is not an EA or CPA, she can't rep the client in appeals.<< That just means the client must be present in an office interview. (It also means no more phone calls, but in my opinion phone calls have already caused too much damage.) Since this case is only a question of facts, documents submitted by mail should be all that's needed IF the documents are well-presented as I described. Which so far they are not. >>I've had good luck with audit recon for clients who've ignored CP notices all the way to the 'we are going to levy certain assets' point.<< Certainly if that's all you have to work with, you need to play one IRS team against another in your client's interest. At least your experience shows once again that the IRS tries very hard to be fair. But "good luck" is the right choice of words here.

>>a very nice person on the phone... did not yet have the response... documented our conversation... we should wait... contact them again<< I'm sorry to keep hammering on this. Maybe I am paranoid, but in my opinion NONE of that has any meaning whatsoever after a Notice of Deficiency has been issued. Read the notice itself, all of it, and see if what the IRS put in writing agrees with what the IRS said on the phone.

>>All they have is what is reported within their system,<< They probably don't even have all of that. Like, our XP computers can't access the new 1099 database. You have to think like a bureaucrat: I don't actually know how to take notes. Last month they sent me to three days training on The New Shorthand. I'm already a week behind transcribing and can't remember what we talked about, so even I can't decipher it. My typing is lousy, especially on this ergonomic keyboard that idiot in IT salvaged when admin got their new offices. Well, my handwriting is worse. They don't let us use "personal items" like a decent pen. Besides, my supervisor was hired on some affirmative action program and can't even read English anyway. So don't expect whatever you tell me to show up in the record. It just says, Rep called--will send docs. Docs. That's it. Nobody cares about your explanation. What they want is something to scan.

>>I hope that summary is more clear<< I do not think it is clear. Maybe it makes more sense with the documents in front of you, because for one thing, I can't tell what 1099s were issued, when, or for what tax year. For another thing, I am confused by the original 2011 return referring to an undocumented rollover, and then responding to a CP2000 with a 1040X apparently restating the same position. I can't tell when or even if an RMD was really made. Frankly, I'm still not convinced that the IRA was actually maintained as an inherited IRA rather than being distributed in full. I'm not even convinced that's what the client intended to do. So I have to say that at this point the notice of deficiency sounds correct to me, at least in terms of failing to respond to the 30-day letter. Now I suggest you write out a timeline. Each step should have a date and a complete sentence, but the sentence should have no more than five or six words. Somebody sending something and somebody receiving the same thing are two separate steps. Stack all the documents in chrono order and mark each as Exhibit A, B, C, etc., and add a reference on each step. Those documents should include everything relevant--not just the 1099s and tax returns, but your organizer or interview notes, whatever the client signed at the credit union, the IRS letters and your replies, your telephone notes with client and IRS. You don't need to copy this thread, but you should consider the trust, will, and/or beneficiary statement. Meanwhile I think you should explain to the client about petitioning Tax Court (do some quick research first!) Trust me, the court will send this down to Appeals, but it might be the only way if AUR gives you idle promises or refuses outright to talk any more. Also discuss your client's other options, including just paying the deficiency in full or installments. (Presumably you can still get the penalty waived.) After all, it's going to be due in a couple of years anyway. Even if you win in the end, fighting the IRS is a big drag on the psyche. Oh, and don't forget the state return.

>>Any comments on advantages or disadvantages?<< There are entire books on this topic. No single answer is best for every combination. You need to work it out with the client, probably including subjective elements. For your technical question of basis, property gets a step-up if it is included in the taxable estate. (That's not the same as a probate estate.) Basis step-up is not always a good thing.

>>Can a EA represent a client in that court << Tax Court has some procedure for an Enrolled Agent or CPA to be admitted to practice. It would be an interesting specialty, but hard to make a living. You would probably have to affiliate with a law firm, where you would be generally despised.