Mr. Pencil

Sure it's a problem--it's always a problem when taxpayers don't follow the instructions. That's why we have year-round employment! But it's not a bad problem, more like a nuisance. Actually, what he does makes a lot of sense and overall is probably less of a nuisance than the right way. That's why it's not particularly unusual. So make the necessary adjustments on his return and smoothly tell your client to call you immediately if he ever gets a letter from IRS. You'll probably be able to handle it with a single phone call and fax (to the secret line that only professionals can use) showing that the wages were in fact reported under a different EIN. (Don't forget to charge him a hundred bucks extra for making the adjustment and preparing the phone call, you smooth talker you.)

As Jack from Ohio points out, this complicated legislation has many important tax aspects this year . For one thing, any practitioner planning to send a letter to clients should review the new final regs on disclosure and use of tax return information. Although the shared responsibility provision affects returns starting next year, the open enrollment period ends before April 15 so I see that as part of this year's interview rather than a separate planning engagement. There are other important issues that affect the 2013 returns we are doing. The Schedule A threshold for medical bills is 10% now, which might lower AMT. Changes to FSA plans, such as contribution amounts and expenditures, have current tax implications. If a client receives a rebate for Medical Loss Ratio it might be taxable if premiums had been deducted on Form 1040 or Schedule A. But you can explain that a $250 donut hole payment is not taxable. Your high income client may be subject to the additional Medicare tax or the net investment income tax. W-2s have a new entry for employer health plans. Adoption credit is changed. All sorts of things.

Close enough. I'd treat it as an arms-length sale without any bargain or gift element. Minimal sales costs, I presume? No genuine appraisal? Less attractive as a separate parcel, not to mention requiring release of a 3rd party lien and at least tacit agreement of beneficiaries. You can't expect top dollar in a situation like this.

A 1099 should include the fair market value of anything provided, as well as cash payments. For insurance, use any reasonable method such as additional cost. I wouldn't be inclined to allocate a basic policy, because even if it covers work by subs it would only protect the general contractor. The sub would still be separately liable. What experience are you talking about in this matter?

I have the same concern as KC--it might look like compensation. First, who is your client--the trust, the trustee, or one or more of the beneficiaries? If more than one client, what are you doing about the inherent conflict of interest? You MUST study the actual trust document. Who is the trustee? Does it allow unequal distributions to beneficiaries? Does "continued to operate farm according to trust document" mean an employee relationship? There's a lot of things to get straight before you deal with specific transactions.

Sorry, the answer is no all the way down. He can't exchange into improvements on property he already owns. Newly constructed property must fit into the same 45 and 180 day limits. He can not use exchange proceeds to reimburse himself for work he has already paid for (although he might be able to arrange something similar through a facilitator).

I thank them for calling. I explain that my office handles the complete range of federal and state tax work, so the fee depends on the complexity of the return and the forms required. I say that some clients have told me our fee for a simple return is lower than the national chain, but we do not compete on price. I tell them we are a year-round office. I ask them for an appointment without charge to see whether we are a good fit, and promise a guaranteed maximum fee at that time based on the prior year return.

Best wishes to you! It looks like the rest of us are setting up for a hard push with more expense and greater focus.

Good point! We can't just look up "chapter and verse from the IRC." Corporate taxation is complicated! We also have to research court cases, and Revenue Procedures and Private Letter Rulings and everything. It takes a long time so it costs a lot to do. (Client pays in advance.) Then what do we come up with? Either just what the instructions said anyway, or, if we want to go against the instructions, we have to attach a big old DISCLOSURE to the return telling the IRS they're full of beans. Or else get a PLR ourself, which costs up to $11,000 user fee just to ask. So here's a compromise. You have to look at last year's return for any new client. If something seems wrong , you are required to explain potential penalty & interest. But you are not required to amend it, or even check it against source documents. Then you can do the current year based simply on the client's unaudited P&L, whatever he might put on it.

Okay--26 USC Chapter 1 Subchapter S. But I don't like to get into the actual code except maybe for an audit. For filing purposes, the instructions for the form he files under penalty of perjury should be enough. If he wants to know the actual law he needs to hire an actual lawyer. If he "wants a pro to make sure he treats the losses properly," that's what you are doing. Unless of course he makes you look at those prior years.

See the Instructions for Form 1120S. Page 25, under Shareholder's Pro Rata Share Items, says, "Items of income, gain, loss, deduction, or credit are allocated to a shareholder on a daily basis, according to the number of shares of stock held by the shareholder on each day of the corporation's tax year." In other words, it's a pass-through entity. Those losses may have been suspended on the shareholder level, but they were not accumulated by the corporation. If he insists that the losses were not distributed to the other shareholder because they couldn't be used, tell him you want to see the prior year returns. Be sure to warn him that when you see those losses weren't on the K-1's, he will have to amend his personal returns for all the prior years and pay back the losses he deducted. Because if losses weren't distributed to one shareholder, losses couldn't be distributed to the other shareholder. That's what one class of stock means. By the way, did you ask why he is changing his tax preparer this year?

What's a humble opinion? I don't even know what that means!

Gratuitous wit!

There is an adversarial position in this. If the IRS accepts the transfer as either a gift or a property settlement, they may disallow the basis increase to the ex-spouse. That isn't an issue for the tax preparer. We do not have to support our position at this point, nor even believe it to be correct! It just has to be a reasonable position with at least a one in three chance of being upheld.

That's one of the reasons I'd want to see the actual decree. If alimony stopped because of this transfer, there might be a tax effect. Otherwise, "incident to divorce" means ONLY one year, unless it is actually in the divorce decree.

I can't get my clients to talk about tips. They always say there's nothing to talk about!

I think your client needs to file a gift tax return because he transferred his ownership interest for less than FMV. Divorce rules don't apply since it was more than one year later and not pursuant to the decree. That is rebuttable so I'd want to read the actual decree and get more information, like the value at time of divorce and what other payments/transfers were or were not made.

Presumably those losses have already been passed through to the other shareholders, with whatever tax effect each had. If losses were NOT distributed proportionately, the S-status was automatically terminated for having more than one class of stock.

Thanks anyway, but I've already got one! http://www.pencils.com/blog/march-30-pencil-day/

Your didn't notice my reference. Somebody took this to Tax Court. I'm not sure what the issue was---the taxpayer, not the IRS, claimed the comps were taxable income. And he won.

Any reasonable method, such as square footage or FMV. No deductions if you walk up the driveway yourself, use it for storage, or other personal use.

No. If she used the rooms personally there would be no deduction at all. It would be different if the rooms were a separate cottage on the property. But this is a dwelling unit used as a home, so those rules apply. She can only deduct a loss from interest and taxes (because those are deductible in any case). Deductions for utilities and household expenses can not exceed income.

According to TC Memo 1996-108, complimentary drinks are includible in taxable gains because they are only received as a result of the gambling activity. I don't know what to say about fighting with that other drunkard!

Sorry, no. The tax code is not very generous in this situation. First of all, you are right that you can only deduct expenses allocated to EXCLUSIVE tenant use. Kitchen privileges don't count. Then, you must follow the rules for a "dwelling unit used as a home." See Worksheet 5-1 in Pub 527. Basically you can deduct a share of mortgage interest (acquisition only) and taxes on Schedule E, along with business costs like a use permit or advertising. If that generates a loss, it's probably not for profit anyway. The rental share of other operating expenses like utilities and repairs is only deductible to the extent of remaining income.

Don't get too excited about this. Even attorneys have no privilege of confidentiality in tax preparation, because a tax return is intended for disclosure (to the IRS). Advice and planning are fine, but whatever actually goes into or is left out of the tax return is fair game for any divorce or bankruptcy court, not to mention the district attorney. Of course, they have to get a subpoena, but ultimately a tax preparer can't promise that workpapers are protected.