jainen

>>So with all being said, if the TP has 0 tax liability after adjustments, will he receive the 400.00 in the refund seeing that this "is" a refundable credit?<< "With ALL being said"? In my opinion--not necessarily. First of all, $400 is only a presumptive amount; you would actually use the credit calculated on Schedule M. We also have to make a presumption about what you mean by "0 tax liability" because Line 60 Total Tax comes long after Adjustments but before any payments. And even if Line 72 is an overpayment, he might not have a refund on Line 73. And even if he does, he might not RECEIVE it for any number of reasons. I mean, in my opinion. With all being said.

>>A disregarded entity is disregarded as a separate entity<< In my opinion, Maryland does not disregard an LLC as a separate entity, but requires an annual report the same as for a corporation, with a $300 filing fee.

>>I am getting another $400.00 credit<< Let me make up some numbers to demonstrate how this works. Suppose under the old tables you would have $1000 withheld, and your tax liability is $750 so you get a $250 refund. When you count the $400 credit, your tax liability goes down to $350 so now your refund would be $650. Except because the credit was already figured in the new tables, your actual withholding was only $600. That's what they mean by saying you received more money in your paycheck. So now your refund is back down to the original $250. No change on your tax return; you just got bigger paychecks. Compare that to a dependent who is not eligible for the credit. He is still going to have the bigger paycheck from the new tables okay, but he's stuck with the original $750 tax liability so now he OWES $150.

>>You bet I will have great records<< If I lose THAT bet, Bulldog, I'll deduct it on Schedule C. 'Cause I'm a professional. Jake, in my opinion the right thing to do with inconsistent treatment of a 1099 is to disclose it the way the IRS expects, on Form 8275.

>>he was clear on this one<< Sorry-I'll try to be more obscure next time. I would normally argue against the taxpayer in such a situation, but here I was indeed addressing the penalty. As I quoted, it was kc's idea to treat the expenses "as capital contributions or as shareholder loans," and that's just the sort of disclarity the IRS itself likes to call a second class of stock. Once they dodge the penalty, they can dissolve the corporation and form a new S-corp.

>>I'm the only one who is still in the line of work that I went to school for!<< Everyone I know went to school to AVOID work as much as possible.

>>Is there a way to find out if this tax court ruling could be used in all juristictions or only in the juristiction in which it was handled?<< Tax Court is not regional like District Courts. Its regular and memorandum decisions apply to everyone (unless of course the IRS does not acquiesce), but memorandum decisions are generally considered to have less authority as precedent. This is because they are used when the judge believes the issue primarily concerns the application of existing law or the determination of specific facts, rather than a new interpretation of law. In my opinion, the use of a Memorandum Decision supports the understanding that this ruling does not conflict with or change the law. Note that an important element of the court's reasoning in defining transaction as an entire gaming session is that it would be "unduly burdensome" to treat each individual wager or play as a taxable event.

>>the expenses that they paid personally could be reimbursed, or could be treated as capital contributions or as shareholder loans.<< In my opinion, this company has shareholder loans being converted to equity, constituting a second class of stock and a technical termination of S-status. File Form 1120, with late filing penalty being the lesser of $100 or 100% of tax. I don't think you can avoid the $800 minimum franchise tax, but you might get state penalties abated on the grounds that prudent business practices such as paying taxes don't apply when there is no business to be prudent about.

>>he would expect me to fax him what he needed by tomorrow morning<< In my opinion, what this guy really needs can't be faxed. Anyway, I suggest you fax him your invoice marked "Final," with a note saying the ADDITIONAL work he has requested is now available for pickup with cash payment in full. Repeat that explanation without changing if he phones or visits on any other terms.

>>You don't elect to itemize or not itemized.<< In my opinion, this attitude misses a lot of opportunity for tax planning. First of all, there is the whole concept of bunching deductions, where you choose to itemize only in alternate years. And then there's the question of recapture of certain deductions like state income tax refunds, which are tax-free if you don't itemize. If you recognize that AMT or phaseout will negate itemized deductions anyway, you may elect to treat foreign tax as a credit instead of a deduction, or trace interest to a purpose other than principal residence. There's no end to the examples. But to return to the question at hand, I'm troubled because I don't typically find myself more liberal than you, kcjenkins (of course I only mean in terms of taxation, not presidential politics). So I turned to page 6, which you cited, and found "gross income from a wagering transaction should be calculated by subtracting the bets placed to produce the winnings." In my opinion that means we are not "netting losses" as such. Just calculating gross income with a given formula. The foundation of this ruling is the definition of "transaction."

>>On line 21 you report all the winnings, and then on Sch A you report all the losses that relate to the winnings.<< Let's use the actual numbers from the ruling. As I read it, the taxpayers showed up on March 29 with $500 and won a $2000 jackpot, but then kept playing and lost $400. They got a W-2G for $2000, which is why IRS noticed, but even the IRS agreed they "should have reported $1,100 in gambling winnings rather than the $2,000." That's Line 21, the only place to report winnings. Later in the year, the gamblers tried their luck again. This time they lost $2264, which they figured should offset the entire W-2G amount so they didn't report anything at all. The court said no, "to net gains and losses throughout the year would defeat the purpose of IRC §63, under which losses of casual gamblers are allowable only as itemized deductions." So that's Schedule A, the only place to deduct losses. In my opinion this specifically prohibits us from matching those later losses in any ways that, as you say in boldface, relate to winnings. The article calls this the "methodology for determining wagering gains and losses." In my opinion that means the definition of "gain" and "loss" is not the individual spin of the slot machine wheels, even if one particular spin generates a W-2G. It's what happens over the entire session of play. Those daily gains go to Line 21, and the daily losses go to Schedule A (to the extent of Line 21, same as always).

>>assuming I cannot file Sch A. What then? << In my opinion, ANY taxpayer can file Schedule A. Then, if they don't choose to, I have observed that it is almost always because the standard deduction gives them even GREATER tax benefit. As I read the final two sentences of the original post, the court said you can only net play action within individual sessions. If that "transaction" is a gain, you report gross income on Line 21. If it is a loss, you can deduct it on Schedule A to the extent of total net gains reported on Line 21. 10SorTAX calls this "generous," and I agree. In my opinion, it means that gamblers with good records may be able to report less than the total jackpots shown on W-2Gs. That might keep them out of AMT or phaseouts and have other effects related to AGI. In my opinion the ruling does not limit Schedule A deductions at all (except of course you can't deduct the same losses you have already netted). Gamblers now have an another way to claim losses, that's all. We always knew you couldn't win a $2000 jackpot in March and not report it at all, even if you lost $3000 later in the year. That's what the taxpayers in this ruling wanted to do. The court reasonably said no, you have to go day-by-day. I guess that does catch some weekend players who win for a while on Saturday, cash in, and then come back on Sunday to lose it all. Perhaps they used to net gains and losses across the whole trip and so report nothing. In my opinion, now they are supposed to use Schedule A unless it was all one session.

>>They think they are smarter than everybody and they whine about the fee on everything.<< What's wrong with that? I'm not even an engineer. Hey, I just remembered that my kid is an engineer. Actually he's a physics engineer. He's got this job at Stanford University in the "Nanofabrication Laboratory." Moon suit stuff. He's says they are building a dark matter detector. I'm not exactly sure what that means but I think it has something to do with why the government is broke.

>>my 2009 California Tax Handbook?<< In my opinion, Spidell is the best for California tax. Their Blue Book covers franchise and sales tax and other matters. They also have awesome seminars and online research and other resources, at www.caltax.com.

>>You can request a credit card for Mickey Barney as an authorized user if the company doesn't require a social security number<< In my opinion, that would not be legal. At least in my state. In my opinion, you can not evade legal responsibility by providing inadequate identification. The individual is responsible, not the name or the number.

>>Repaying a loan will not reduce corporate income.<< Exactly. In my opinion, that is why this setup stinks. It seems to me that the owner wants to pull out cash, cash he didn't have before the business turned a profit. But he doesn't want to call it profit, he wants to go back and claim there was an undocumented loan so he can take the money tax-free. I think this is a reasonable interpretation of the facts Miatax laid out, but if it is not accurate the owner should address it directly. He calls it a loan, and apparently it "has been in the books for a while." But as far as Miatax has posted he never actually treated it as a loan, he just CALLED it a loan and now wants a tax break based on his own unsupported vocabulary. Miatax is a college professor so she knows what constitutes credible documentation. In my opinion, she's getting played. In my opinion, the very first question that we should have asked is, "Why did the taxpayer change accountants?"

>>the main card holder died<< In my opinion, the main card holder was the daughter. According to the original post the purpose of the card was "so that the daughter can use it as her own." In my opinion all parties are ultimately liable, even as a co-signer or second name, especially if they personally benefited. As I understood the opening disclaimer, the question is legal responsibility, not whether you can get away with it.

>>They will eventually be reimbursed by the different clubs/teams, etc<< In my opinion, they can't claim a loss based on expenses they expect to be reimbursed anyway. If they want pass-through, in my opinion they can file as a partnership which is the default entity for the disregarded LLC. Perhaps they could consider a timely election to file as a corporation for this year.

>>So the reason you give is that they did not realize that they had to file the 2553, or they thought that the attorney did it, or that it was automatic, etc<< In my opinion, you would of course only use one of those reasons if it were true. They haven't mentioned any of them to you yet, in fact they told you they were going to make the election with the tax return, i.e., at the end of the year. So in my opinion none of those are good reasons because none of them are true. At least (in my opinion) none of them sound like they are true. >>always intended to be an S corp and operated as if they were an S corp<< Now, THIS is one of my favorite reasons (if true), and in my opinion the IRS likes it very much too! Why, one of their procedures for late election is based entirely on this reason. In my opinion it's very easy to document too, which is probably why it's so successful. Did they pay reasonable wages? Do their corporate governance papers and board of directors minutes rave about how important S status is for the health of the company? Does their written business plan anticipate early losses that are typically more valuable as a pass-through than a carryover? Did they pay reasonable wages? Did they apply for credit with personal guarantees reflecting the S-status? Were they scrupulous about documenting shareholder eligibility and proactively avoiding anything that might look like a second class of stock? Did they specifically track basis adjustments in an ongoing manner? Did they utilize and calculate Section 179 and other separately stated items in the optimal way for the shareholders? Did they pay reasonable wages?

>>Can the explanation be that it was newly formed in 2009, with the intent to be an S Corp since it has 2 members, and intended to file election with the tax return.<< In my opinion, that is the best example of the worst reason. It suggests that their intention right from the start had always been to wait until they could see how things went before making the S-election. It also points out that the whole thing was easily controlled by a very small number of insiders actively engaged in making those very decisions about how to set it up. But that's just my opinion.

>>can I file the 1120S by the due date with the Form 2553 attached requesting S Corp status for 2009?<< In my opinion, the IRS is tolerant of late S elections. But you still must have reasonable cause, and in my opinion that is strongest if you can identify a specific outside event that prevented timely filing, rather than business operations you normally should have been able to control. In my opinion, the very worst reason is anything suggesting the decision was made later after the loss began to develop. In fact, in my opinion you should address that directly, documenting (that is, with documents) that your intention from the very beginning had always been S-corp.

>>I doubt the shareholder intended to contribute capital and intended to take his money back when the company could afford to pay it.<< I don't know why you would think that. In my opinion, he himself did not consider it to be a loan at the time, not bothering to make arrangements for interest or even any repayment. In my opinion, the sole shareholder simply invested in his own business plan and now that he's making money he doesn't want to pay taxes on it.

>>how to split it between Capital stock and other equity<< In my opinion, other equity might look a lot like a second class of stock.

>>I just recommended he take some of his money back now that the company is doing well<< Okay, you don't like my attitude, but what about the facts? In my opinion, based solely on what you have stated, the corporation's own records do not support treatment as a loan. So it is apparently capital, but the distribution, in my opinion, looks more like taxable dividends than a reduction in equity. In my opinion, that's kind of the way corporations work.

>>How can I check which one they have on file now?<< In my opinion, it's wherever you get the most junk mail. Which, by the way, I believe explains the real reason they want to register all tax preparers.