jainen

>>the S-corp debits the debt owed to the shareholder<< Thank you for making this clear. I was sure the suggestions about inventory reduction were off-base, but I didn't know the right way. As for the sales tax, there shouldn't be any doubt that since the items were transferred to an end user (that is, an individual not in the business of selling to others), normal sales tax must be reported and paid. It seems to me this scenario has a lot of dangers for a practitioner. I wouldn't get involved without a clear engagement letter, specifying who the client is and limiting the job to the bookkeeping, tax prep, or whatever service is being offered. In particular, I would not recommend any accounting or tax position based only on a shareholder's statements without studying the full documentation of the loan history and inventory tracking. Most disturbing of all is the desire to make an end run around paying for insurance, right when the company is most at risk for it all hitting the fan.

>>I think we all can guess what she did.<< My guess is she brought her husband down to amend the return, just like she said. Except that she found a new preparer, one who didn't start squawking about lies and fraud when the question was simply how to file correctly.

>>Not fair, JB. If you consider the market in 08, she started at a terrible time.<< In my opinion, it is ALWAYS fair to consider the hobby loss rules. The fact that she started at a time when profit was particularly unlikely favors JB's concerns, because a true profit motive means conducting the activity in a business-like manner, which would normally include a market survey and sensible projections. Furthermore, the nature of real estate sales is often taken in the form of great personal pleasure--socializing, entertaining, travel, study, and (if you'll pardon the expression) plain old gossip. I also disagree that "it's not that unusual for the first couple of years to be slim." My impression is that many Realtors begin by applying a natural aptitude informally, then get a license and come to a broker with several listings already in hand. Okay, give her the benefit of the doubt the first year. Obvious deductions like MLS fees, advertising, and basic office supplies shouldn't be hard to accept. But things like the home office, mileage, cell phone, and meals require better records than a newbie is likely to have, so I would limit those to what can be reasonably supported in terms of business purpose as well as amount.

>>If the equipment has been fully depreciated or §179'ed, then no deduction.<< Basis would be restored by any recapture when it was taken out of service. In my experience, this kind of housecleaning is often done without the substantiation required for charitable donations.

>>he needs to see a lawyer<< Like other states, California law has at will employment. That means an employer can hire you or not, for whatever reason or no reason. There is an exception for protected classes, but how easy is it to prove that was the reason? Unless he has the exceedingly rare contract for liquidated damages, the only lawyer who will see him is the one he gives a $5000 retainer to. May I suggest he give that money to charity instead--at least that way he will get some satisfaction. He obviously doesn't meet the job history requirement for moving expenses. Maybe you can call some of them job search, but that's pushing things so you should only consider it if the deduction is very important and he has excellent records.

>>Never had to deal with this before.<< I tried moving further away from the Canadian border, but it turns out that's not the only border. I'm pretty sure he gets the foreign tax credit, but you have to fill out all the lines of Form 1116 (instead of the shortcut method like for 1099-DIV). And it always seems necessary to re-read the convoluted instructions because many of the most important words have a different meaning than in the rest of the tax code. I either remember or imagine that a long time ago I read that Canadian pensions, including Social Security, are treated very much the same as our American counterparts on the tax return. It may have been in the tax treaty. That is one reference I read with little understanding a long time ago and never looked at again.

>>the state can't sever the ties with the mother<< Severing the parental relationship is NOT a factor in foster care; it would result in a guardianship instead. It doesn't matter what "the paperwork" calls it. The important thing is the relationship and how it is treated under the tax code. These children were placed by child welfare officials, which is the definition of qualified foster care under Section 152. As such they are treated just like natural children. Their main home was with the taxpayer for more than six months, so they are dependents through the qualified child rules.

>>Is there any exception that could be used on the 5329 to avoid the additional 10%?<< There isn't much to work with. The additional 10% is considered a tax, not a penalty that can be abated for reasonable cause. Basically there are only the exceptions listed on Form 5329 such as the 60-day rollover. But there is a provision to waive the tax in the related matter of failure to take an RMD, considering a reasonable error and steps to correct it. That just takes an explanation attached to the 5329, but you can also use a PLR to ask for an extension of the 60 day limit, typically for a third-party error. Hope is totally dependent on the Commissioner's grace; so make it a real tear-jerker. Focus on the elements that were beyond the taxpayer's control, and the specific actions being taken to correct the problem and prevent its recurrence. Bank errors are pretty strong, as are presidentially declared disasters. (That's when the president tells us something else is bad, not when the president himself is a disaster.)

>>She took her stuff and probably went back to her old preparer.<< I warned you that the issue was her leaving the old preparer, NOT the condo fees.

>>the estate has to sell the house and sells to the sister. no equity in the house<< It looks to me like the sister bought the property for the balance of the loans. Since that was more than the appraised FMV at date of death, the estate must recognize a taxable gain. As for the $7500 credit, the code simply says "the property is not acquired from a person related to the person acquiring such property." I believe the prohibited relationships are as listed in Section 267, so if she is not a beneficiary then she can claim the credit.

>>Am I missing something here? << Yes--you are missing the reason she isn't going back to that accountant!

>>it was pretty cut-and-dried<< Interesting phrase. I think it originated with apothecaries who sold dried herbs as well as fresh. The savvy shopper, of course, would want to turn the bunch over to see if the other side was as well-prepared, and that is what you should do with this case. You haven't heard the response yet. Maybe the store already has a ruling for a different employee. Maybe it has a work contract, real or forged. Maybe it just has some mysterious power over your client. Maybe it's just lots of luck in an unfair world.

>>probably paying illegal aliens that are not going to file any claims<< Well, at least one has already engaged a tax professional who is asking around. And even if all the workers want to keep a low profile, the apartment OWNER might be interested in one or two ancillary issues.

>>she'll win hands-down<< Don't jump to conclusions. You can expect the employer to fight it big time, and they may have something you don't know about. Also, winning on the much stricter state level won't by itself get her SE tax back, because the IRS makes a separate determination under its own criteria.

>>it's 8919 starting in 2007, but I need the one for 2006<< Before they produced Form 8919, the IRS instructions were to use Form 4137, crossing out the word "tips" and substituting "wages." It was awkward at best, and seems even more so with an amended return. If you decide to file this way, use the instructions for 8919 as a guideline to make a strong claim. File an SS-8, and prepare to defend the position with time sheets, job descriptions, and other normal records of an employee and co-workers. Most employee classification is done on the state level, so consider filing a complaint with the labor board instead.

>>it just make me wonder if the real estate co. is reporting the fees for tax preparation? << That is indeed a mysterious thing that we could never figure out. Well, since it's not your client just turn in what was requested without any additional commentary. Maybe the CPA plans to blame THAT guy.

>>Should I let the IRS auditor pick this up or should I tell him that the shareholder did pay to get his return done<< Is your audit strategy to blame whatever on the tax preparer? That is a weak position at best, typically only used to abate penalties, and only applies if it was reasonable to rely on the advice. Since your client signed right above that "self-prepared" designation, you are going to look pretty foolish. And next time the client is in trouble, you will have taught him to blame the tax preparer. That would be yourself now, right? By the way, why are you working with both the corporation and the individual shareholder at the same time? Depending on what the auditor is looking for, you could easily paint yourself into a very tight corner.

>>I don't see a corresponding box on the actual Schedule E << Normally this is done through the entries for vacation home rules. For a duplex, divide it manually with a note or schedule for the file. Other methods are controversial and require you to notify the client that the position is not well-supported by regulations. For example, you must make an irrevocable election to treat a home loan as not qualified, and there is no statutory authority for applying the election to just a PART of the debt.

>>it's definitely has to go through the Schedule C<< If there are no expenses (typical for office work) many tax preparers would show the income on Line 21--it still has to be added to Schedule SE, though. My software has this option, but the IRS says they would rather see it on the C-EZ. I used to answer the way JohnH did, that filing Form 8919 (previously a modified Form 4137 had the same purpose) would risk getting fired. Now the taxing agencies (especially the states) are so efficiently ruthless at reclassifying workers that I must advise clients to warn their employers of the mistake, and correct it for the new year. They probably run through a lot of clerical workers with such an informal and low-pay arrangement. All it takes is one happy scammer to file for unemployment benefits or claim sexual harassment or an ADA violation or any of a dozen other retaliations. Believe me, there's a whole industry devoted to that very thing. And as for sending someone to use power equipment and chemicals without Workers Comp and disability coverage... are they NUTS?

>>this casualty loss area is very vague<< There is some flexibility, but I wouldn't call it vague. The ice did not damage the shingles. They were in the same condition after the storm as before--old, worn out, and leaky. He can add the 13K to basis if the new roof constituted an upgrade in design or materials. Also, filing for any potential insurance coverage would be required for purposes of the deduction. I know none of this is news to you--you are really asking for a good way to explain it to your client. See the definition of progressive deterioration in Pub 547 at http://www.irs.gov/pub/irs-pdf/p547.pdf. By the way, it isn't news to your client either.

>>you tell me we have 6 more weeks of this horrible winter<< Six more weeks, is it? Maybe that will be enough time for my roses to stop blooming so I can trim 'em back a bit.

>>I have been reading up on it and it seems that both should be able to do it<< Please cite your references, so we can better understand what you are proposing.

>>I personally think that national politicians should be held to a HIGHER standard, not a lower one, than the ordinary folks<< Unfortunately, people with higher standards refuse to work in such an environment. The public trough attracts a certain kind of pig.

>>feel terrible for all people who take the credit this year and have to pay it back, if a new bill goes through and purchases in 2009 would be exempt from payback<< I'm not sure if you are worrying about someone who could have delayed the purchase into 2009, avoiding payback (if such a law were to be passed). Most people buy when the right house and the right time come together. As I said, the tax issue should take a back seat to the other questions in buying a home. Why waste psychic energy on laws passed later that don't effect what has already actually happened? If you are wondering about someone who buys in 2009 and elects to treat it as purchased in 2008 for purposes of taking the credit, that's an interesting question. Congress is trying to get the stimulus bill to the President by mid-February, so maybe we should advise anyone to wait until we see the specific wording. They aren't likely to get outbid on the desired property in two weeks, although an interest rate lock might be prudent.

>>how we advise our clients, pro or con<< Tell your clients what the current law is. Explain that a change has been proposed in a bill now before Congress, but that all taxation issues are very controversial so it's impossible to say what the final law will include. As always, the decision to buy a new home should rest on non-tax issues. If it only makes sense with the tax credit, then it doesn't make sense at all. If it makes sense even without the tax benefit, go for it. On this particular issue, the House version (which has already passed) and the Senate version are quite similar. One current difference is that the Senate would extend the time to buy through August instead of June. Neither version waives the payback for homes bought in 2008.