Mr. Pencil

bumping this to the top to see if any others have any idea on how this should be treated. Thanks for your advice.

You already got the answer from Lion. If the old loan was paid off, unamortized closing costs can be deducted UNLESS the refinance was with the same lender. In either case, new closing costs can be amortized as an intangible asset (assuming the refinance had a business purpose).

The employer (University) incorrectly issued her a 1099 MISC in the amount of 700.00 for the internet service in her home. I advised the client this should have been included in her W-2 wages

I agree, and the IRS has made it dead simple to fix this common problem. No need for weird stuff like getting a corrected 1099 or doing Schedule C or a Line 21 offset or disregarding it until the CP2000 comes. Just file Form 8919 and move on.

Are you saying that Sec 6041 requires that the deduction not be taken if the information return is not filed?.

No, of course not. Like Michaelmars says, that's up to the IRS. But we were talking about Margaret's situation, in which it WAS the IRS deciding. I think her auditor had a solid legal basis.

There is no legal basis for denying the deduction in the absence of a 1099.

IRC Section 6041 requires payments to be reported on an information return. The taxpayer can not simply ignore the law and report the payments in a different way.

This client was told by attorney and bank agreed not to issue a 1099-C

The only practical way to respond to a client who has 3rd party tax advice is to ask them if they trust me enough to continue the engagement--their choice. In the original post, whatever the bank "agreed" to could not have been good faith negotiations. It was not reasonable for the borrower to rely on a promise that the bank would violate its tax filing requirements.

I wanted to get someone else's opinion on this.

You can get the IRS opinion in Pub 537. For the seller, "you must reduce the stated selling price of the property and increase your interest income by this unstated interest." For the buyer, it's a basis adjustment. The same pub explains that the sale of a business must be allocated among the individual assets, which may not be eligible for installment treatment.

You get the picture.

Yeah, I get the picture. It ain't pretty. Sometimes I feel like saying they can't deduct anything because they don't have a profit motive and aren't operating in a business-like manner!

A contractor who is either illegal or will only work under-the-table surely does not carry workers comp insurance. Does the sole proprietor? He could lose his home. Even if the claim is a scam, he has no defense. Or he could get a nasty hit from Unemployment Insurance, again, he has no defense. But for janitorial service, workers comp is the big risk.

I just wasn't sure Presidents' Day is a LEGAL HOLIDAY

Good point. There actually aren't ANY "legal holidays" as such. It's strictly a state thing--each can choose whether to adopt federal holidays. Anyway, President's Day was never a federal holiday to begin with, and still isn't. Now, Washington's Birthday is a federal holiday on the 3rd Monday of February. I suggest you try to get your form in by this Friday.

No statute of limitations?

Yeah, it's ten years in my state. And that just means they can't sue to recover, but the debt is still owed. What you need to do is read the bankruptcy order. Just because he filed BK doesn't mean this particular debt was discharged. On the other hand, debt collectors are not particularly credible, so it's worth checking out.

I am not surprised.

I can't figure out what this thread is about--could someone summarize it, please? Thanks.

Pencil

Is it due TUESDAY 18 February?

According to the Instructions for Form 990, "If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. A business day is any day that is not a Saturday, Sunday, or legal holiday."

I was just looking on the IRS.gov website to source the info.

The exception is reported on Line 2 of Form 5329. See the Instructions for Form 5329.

Would the child then be subject to the Kiddie tax?

Kiddie tax is based on age and income and maybe some other things, but not dependency status.

Does the fact that the new property value was less than the old property value completely disqualifies this transaction as 1031 exchange

No. This flexibility is what makes 1031 such a great tool. You can either downsize or increase your investment as much as you desire. You can combine or split investments. You can take up to six months to decide if you even want an exchange, and longer to decide you don't want one.

Basis is pretty straightforward when there is no new investment. The $30K adjusted basis just rolls over into the new property, and the SAME depreciation continues as previously scheduled for the remaining life. (That assumes both properties are depreciable over the same life. You may have to make adjustments for the percentage of land value, whether it's residential or not, etc.)

I now notice that when entering numbers on certain forms (8949) I receive an error message that does not allow entering of cents.

I've noticed that IRS transcripts usually round everything down, simply dropping the cents. So sometimes I do it that way, too.

The form contained the sons Social Security Number.

Social Security Disability Insurance is counted as support provided by the recipient, like any other pension. It doesn't matter that it is claimed on the parent's work history. It might mean the child is not a tax dependent.

Thanks. Some state it, some don't. Just good to have certainty.

I've seen some that state they are NOT tax deductible! But certainty is elusive because many are misleading--donations to AARP Foundation are tax deductible, while donations to AARP itself are non-deductible political contributions, You can check Pub 78 for qualified organizations, although you won't always find one that is a local affiliate of a national organization.

after the partners review, they instructed me to change it to wages so he would qualify for EIC,

And that is why we all have to file Form 8867 for preparer due diligence now.

I can't find any info on how treatment may change if it was personal property *converted* to business property.

Your exact scenario is an example on page 10 of Pub 551. Basically, take the loss as adjusted from 700K.

I would suggest documenting the 700K, because it seems to be based on what it was not worth in 2009, and Realtors have a bias towards higher values. At least verify that some measure of local property values has continued to fall another 25% since then.

Do I put the difference on "other income" or do I have to show this through schedule D as a sale?

Maybe both. There are a number of variables to look at. The IRS has a good book available, Pub 4681. It isn't real easy reading because there are lots of words that look ordinary but have specialized meaning, so pay attention to definitions and explanations. Also search this forum for "1099C" and you'll find examples of the rules applied in various scenarios.

The rule is very clear and absolute, so it's a clear violation of Cir 230.

In the original post, there was never any suggestion that the firm cashed a refund check. It just sounds like the common fee collect bank product offered by ATX and everyone else. The client may not have understood it correctly, but that's exactly my point--her story is not necessarily correct.

From Pub 587

Thank you. Finally we get something real in this thread.

I agree that we can't know what she gave the preparer, but the rule on the check is absolutely clear "A practitioner who prepares tax returns may not endorse or otherwise negotiate any check issued to a client by the government in respect of a Federal tax liability."

Again, we only know one side of the story and it doesn't take much imagination to think she's got it wrong. For more than 20 years tax preparers have been charging high fees to receive and reissue refunds in various ways. Apparently the rule has some loopholes.

If the business use of the home is the principal place of business for the side business you are okay. It will still qualify if you use it exclusively and regularly for administrative or management activies and you have no other location where you would conduct substantial administrative or management activities of this side business.

Here is my challenge. Give me ONE single reference--any code or reg section, any IRS ruling or pub or notice, any court decision, any tax guide like CCH or even a rumor rag like Kiplinger--ANY published tax adviser who agrees that one taxpayer can have two principal places of business.

Which would be a circular 230 violation for a CPA/JD.

Yes, but I don't think we should respond with professional malpractice ourselves. We are only allowed to use client information for tax prep, and that does not include ratting out the competition. Even more, I think it would be unethical on a personal level. Except for hearsay, we do not know and can not know how the return was prepared. The lady has an interesting story, but who can say why she is telling it? Even if it's true, being dishonest is not the same as being stupid so I wouldn't be surprised if the preparer can back up his work with an unaudited organizer or worksheets he claims were provided by the client.