jainen

>>a client who contributed two rental houses to an IRA << In my opinion, that was a prohibited transaction. IRA contributions can only be made in cash. He owes the 6% excise tax for the excess contribution for all these many years, AND the fair market value of the distribution is fully taxable as ordinary income without regard to basis. Good luck!

>> the state was the one providing housing << As imjulier says, third-party support does NOT affect qualifying child status. Why do we still have to argue this point five years after Section 152 was changed? I would treat incarceration as a temporary absence IF in fact the sentence and time served were no more than one year. Apparently in the original post it was longer than one year, so in this case I would say no. Anyway I'm not sure about the relationship. Was the child adopted? There is no "custody" as such for a foster child because parental rights continue. Or can we say he was a foster child placed in the home by an official agency when an official agency removed him instead? Was he placed back in the same home?

>>The other way<< In my opinion, there isn't any "other way." Run through the dependency support worksheet, and it says whatever it says. Remember that for purposes of determining support, housing costs are defined as fair market rent, NOT actual costs. If the father owns the house or has a favorable rental situation, it's entirely possible to provide support without the cash flow.

>>Can I just file a late extension for the 1120 corp<< No. But maybe he can elect a fiscal year, which might be a good idea anyway if his business is seasonal. On the other hand, an extension for his 1040 is definitely necessary. This close to April 15 you don't have time to sort out whether his draws were dividends or constructive wages or whatever.

>>Yes....I did<< Hmmm, that's not the sort of thing I would be telling the whole world about. But I think (well, I guess)(actually not much more than a hope) that's irrelevant. At least, you should try to keep it out of the question. It reinforces my position that this is best handled as a title problem. If you try to deal with it as a TAX problem, by for example calling Practitioners Hotline, there might be some uncomfortable repercussions. Ironically, you are probably better off if you forged the signatures. If you signed as an authorized agent, you may have to fight the 100% penalty under which you are personally liable for the payroll taxes. For that you need an EXPERIENCED tax attorney or Enrolled Agent. It can be nasty. And the lien does suggest that you might already be there. Anyway, the first thing is for the title officer to contact IRS and request release of the lien. She should explain that this is a personal residence and although the company uses the accountant's mailing address for accounting matters it does not conduct any business at that location [that's true, right?]. If that doesn't work, at least since you are not selling the house, the IRS probably won't object to the refinance and will subordinate to the new mortgage. Oh, by the way--another thing I wouldn't be saying is "We have had NO notices." Save that complicated technical objection for the skilled attorney to make later if necessary. Generally it doesn't help resolve anything.

>>So title insurance covers the property from future liens<< Don't be so arch. I'm talking about the NEXT policy. The owner is trying to refinance, and the lender needs to be in first position. In my opinion it is the title officer's job to investigate any cloud on the title before issuing the insurance. That's what you pay for, because presumably if she does a good job of it the risk of a successful claim is much smaller. If she doesn't know how to clear an erroneous IRS lien, she must not have been around this business very long. In my opinion, IRS liens are probably the single most common problem escrow companies run into these days.

>>out on a limb here... obtain the documentation surrounding the trust<< That's not a limb, Terry. That's the base. In my opinion, all decisions start with the trust documents. Generally, if no executor is named in the will, the return can be signed and filed by anyone who knows the circumstances and is acting as a personal representative in charge of the decedent's property. If the trust had no undistributed income, you can probably skip the 1041 and just report any earnings on the heir's individual return. So basically anybody can file. But claiming a refund is a bit more complicated. Follow the instructions in Pub 559.

>>title insurance officer looks into it and says there is a lien<< Yeah, well we already knew that. Now tell her to get it released because it does not relate to the owner. On second thought, if you have to tell her that, get somebody else.

>>this doesn't seem right<< In my opinion, earned income for purposes of EIC includes wages, net SE earnings, and a few special items. A net loss is not included in the definition.

>>Liberal USED to mean someone who supported individual liberty. << Funny thing--that's what Conservative USED to mean too. Now both terms describe the same people, just using whichever set of talking points is most likely to stir up our fears in a very fearful world. Because of course the more fearful we are, the more we beg Daddy to protect us.

>>contact your client... the practioners hotline... go down to your local IRS office... the Court House... << What are all you guys talking about? Denne, just let your mortgage broker take care of this through her title insurance officer. That's what you pay them for.

>>Liberal Fascism<< The thing that most amazes me about these arguments (I mean, besides the mindless repetition of slogans and talking points) is the willful blindness to the reality of our political system. Do you really believe Congress pays any attention to Earth First and the Sierra Club and the rainbow coalition of eco-freaks? In my observation, Democrats and Republicans and Independents all have the same corporate constituency. So in spite of all the political rhetoric, all they really care about is WHO has the idea, not what the idea is. Last year here in California we got the "cool car" initiative. That's a fun name for a requirement that all new cars have sun-reflecting windows, supposedly to reduce air conditioning and global warming and other buzz words. How many corporations do you suppose control that patent, and what would you guess about its campaign contributions? Of course, the auto makers started screaming about jobs or something, but nobody listens to the Great Evil (though we all keep two or three of their products on hand). So they got some other power lobbyists to make the case--let's see, the windows interfere with cell phones, which we love almost as much as our cars. And, oh yes, the cops say they won't be able to pick up signals from felons' ankle monitors! Which side goes for the most bizarre emotional appeal? Now take that corporate greed out of the street and into our kitchens, out of the state and all across the country, out of new manufacturing and covering all sales, out of one post office box and serving the holders of hundreds of construction technology patents and licenses--then blame it all on some bureaucrats--that's HR 2454. Fascism yes, liberal no. Not a liberal in sight.

>>He doesn't earn his money in hawaii<< Apparently his employer does not agree with your opinion.

>>Silly you!<< What a waste of government resources! Obviously the only long-term solution to national energy problems is voluntary compliance and the free market system. We've had a good 50 years of high public consciousness of these issues, which emphasizes the long-term nature of that solution.

>> it really doesn't matter << In my opinion, it matters very much! If kc's GUESS is right, well & good. But if it is wrong, maybe he pasted up a couple of year's worth of forms and came to see you when his last accountant told him he could not deduct the $30,000 loss within his IRA. Okay, I confess I am a suspicious cynic--but I notice you still haven't explained why he is switching tax advisors right in the face of this unusual transaction, and in your most hurried week, no less.

>> he has filed 8606's each year<< I would want to take a look at some of those. I have an uncomfortable feeling about this scenario You mean he has been making non-deductible contributions for twenty years? Including the last twelve yars when Roth accounts were available for most taxpayers? By the way, why is he changing tax advisors at this time of a questionable conversion?

>>I'm reading the Kleinrock Express Answers<< I would guess you are reading the rules for qualifying relative. If the qualifying CHILD rules apply, read the part about children of separated/divorced parents. Note that, regardless of what the divorce decree orders, you must only follow tax law in determining filing status and dependency exemptions.

>>I can't advise them to pick up with the current year and pretend the previous years didn't exist or to simply begin reporting their share of the income/loss on their own individual returns.<< Yes you can. In my opinion, based on Circular 230, you are only obligated to advise her of the need to file prior years and the potential penalties for non-compliance. That need not prevent you from helping her properly file her 2009 return. >>do I have any responsibility to report the non-filing<< No. In my opinion reporting her would be an ethical violation.

>>I would have 200K of cancelled debt to go with the 200K loss<< In my opinion, he still owes that much for the recourse loan. So either he validates his loss with $200K additional expense, or the lender givers up and sends him the C later, generating ordinary income.

>>she said she received a $250 check, too<< You can verify it one way or t'other on the IRS web site. I saved this in my Favorites list for the quick link. My link

>> they are eligible for the $250 now, correct?<< Not even close. Eligibility for the $250 was based ONLY on benefits paid in Dec 08, Jan 09, and Feb 09. Wages throughout the year qualified for the $400/$800. Unfortunately, pensions were subjected to the same withholding reduction as wages, so their refund is reduced accordingly and they don't get the credit to bring it back up.

>>We can tell him the tax part<< Here in California we run into this a lot, often with some pretty interesting variations. I can't recall any time when the tax part was the real issue. This is obvious to me in the original post, which reeks of the assumption that the relationship described in the divorce decree supercedes the tax code. But clients (and preparers who identify with their clients) hear what they want to hear. So go back to court. Insist that child support is up to date. Demand the exemption be released. And keep whining about contempt of court. It won't work. If the kid spent summer at Grandma's, that trumps everything.

>>they installed electric lines on the property she owns<< In my opinion, based on Rev. Rul. 70-510, payment for an easement which doesn't substantially affect taxpayer's beneficial use of the property reduces his cost basis. It is not a sale of anything.

>>One of my clients has a disabled person (schizophrenic on heavy meds) working for him in his woodworking shop<< WHAT??? I'm all for giving a hand, but blades and psychotics is not a pretty picture. Well, to answer your question, the Work Opportunity Credit is just about the last of the "targeted groups" legislation. Because of the Congressional pork-barrel approach to re-election, business credits nowadays tend to be geographical or technology-based (that is, favoring a specific corporation). However, clever grant writers can sometimes find support from foundations that deal with the type of disability involved.

>>were available to the beneficiary whether he actually had it in his possession or not<< It seems to me the IRS has been very consistent about this interpretation, and the courts have supported their hard-line position. My own opinion is that, whether one agrees or not, in a practical sense it is usually better to accept the 1099 as is than try to fight without any authority to cite. However, it should be very easy to get any late payment penalty waived for reasonable cause.