Ringers

WOW!!! Three of this board's heaviest hitters responding to my questions. As was often said on Wayne's World, "I'm not worthy!!!" All of the information and suggestions were excellent. First of all, with regard to negative AAA, my understanding now is that it CAN be negative, but can not be made negative or reduced below 0 by distributions, which would then be treated as capital gains to the shareholder--is that correct? All clients have copies of their returns which they have provided but 4562 forms just have depreciation from prior year assets or are simply not included. New assets are sometimes listed on the return as "new acquisitions" rather than increasing fixed assets. Even when the fixed assets rise from 2017 to 2018 on Sch L, they are not listed on the 4562 forms. The clients have bank reconciliations that they do and some receipts for recent fixed assets, but little else. The original accountant had both 1120-S corps set up with no compensation paid to shareholders but with other C corps. used to pay shareholders and other employees and then "lease" them back to S corp for an inflated price. Individuals own the vehicles used by the S corp (both Dental practices) and are being depreciated on the individual 1040 returns at 95% and 100% business use with no mileage figures give. Both shareholders say that the vehicles are used mostly for commuting and just occasionally for lab work. One client has at least part of the dental practice on QB and I am getting that as well as whatever information they can get me in terms of fixed assets. One of the dental clients, however, asked me "what is a balance sheet." Abby, the $110000 loan is a loan TO the shareholder which he has no idea how it got there! I Have given all of the taxpayers a detailed spreadsheet citing all of the missing items for each entity and asking for their help in reconstructing all of the inaccurate or incorrect items. Between two clients, we are talking about 2 1120-S, 2 1120-C employee leasing corporations, 1 1065 LLC owning one of the office buildings, and the 2 1040 returns (one with 2 schedule C's), all prepared by the same accountant whose wife, thus far, has not been able to find ANY written records. I am not trying to belittle the prior accountant. We have known each other a long time socially and both went to the same school in IN (the one with the leprechaun mascot). He is a CPA with a JD as an international tax attorney, but as I said it has been a struggle for him to prepare these clients' returns for the past 3 or 4 years due to declining health. The clients' responses to my queries have been "I trusted him to prepare my returns for the last 20 years." Unfortunately, they did not keep the records they supplied him and neither did he. I truly appreciate your combined help in this situation. Respectfully, Ringers

Assuming that the books of the 1120-S corporation are being kept on a TAX (rather than accounting) basis, and the corporation has ALWAYS been an S corp, are the following statements true: 1. If the corp has shown an overall profit since the date of incorporation and there are no "timing" differences between the books and the return, then the AAA account will equal Retained Earnings and Retained Earnings will have a positive balance. 2. If the corporation has shown an overall loss since the date of incorporation, the AAA account will be $0 and the Retained Earnings account will be negative (representing the accumulated loss from inception). 3. When profits bring the Retained Earnings account above $0 again, the the AAA account will again equal the Retained Earnings. Again, these three questions assume that the Corporation has always been an S corporation, that the books are done on a tax rather than accounting basis, and there are no timing differences, such I as depreciation methods, in play at any time. I "inherited" five large accounts from an accountant friend who is having memory issues, has lost all computer copies and has no backups of all prior year returns, has no paper files or trial balances or fixed asset and depreciation statements. I know his tax return balance sheets are plugged, but for all of the S corps (with all the above assumptions holding true for all of them) the retained earnings account is in general $300000 over the AAA account. I think I will have to do a "reset" of the ending 2018 tax return balance sheet to get a new "opening" balance sheet for tax year 2019. He also has loans to officers in excess of $100000 about which the officers have no idea. He is bordering on dementia and his wife swears there are no documents anywhere in the house. For depreciation going forward I was thinking of taking the balance sheet Fixed Assets minus Accum. Deperciation and depreciating that amount over a nominal period of 7 years Straight Line, since the corporation officers do not have asset lists either because "John always took care of those things." I know Jack would say "Run Forest Run" but someone has to help these clients get out of this mess. Most of them have been with him for 20 years or more. Any suggestions? Thanks in advance!!!!

I saw an article from Kiplinger written by a CPA who filed his 2019 return in February. Based on his 2018 family income, he would have received a stimulus payment of $2900. Based on his 2019 income he would not be eligible for any stimulus. By filing early, he lost his stimulus payment of $2900 which, he claims, would not have been subject to repayment. How will IRS be able to justify penalizing someone for filing early!! If the current method stands, I do not expect any client in the future to allow me to efile their returns before April 15th of any tax year unless they are getting a refund!

A client just asked me if he can still designate a QCD from his RMD later this year. As of right now, there is no longer a "Required" Minimum Distribution, so my feeling is that there can be no Qualified Charitable Distribution for the balance of 2020. It would seem that if someone took their 2020 RMD prior to the CARES Act, then they could have had a valid QCD, but not any longer without the IRS making a specific exception. What do you all think? I told my client what I thought but told him to watch the news and read the papers for possible future IRS clarification. I seem to be using that phrase a lot lately.

Thank you to all who responded!! I just got back from 2 weeks in Alaska and have just now revisited the board. Ringers

Clients of mine have finally sold their home and purchased a boat as principal residence. For 2019 they will be at least part year IL residents, but what will their state of residence be after they move to the boat? I am assuming that they will NOT have a permanent mooring anywhere but simply sail from location to location emcompassing many states. Will residency be determined by PO Box, Drivers' Licenses, voters' registration, or number of days docked in each state? Boat qualifies as domicile with three bedrooms, two heads, and an extensive galley.

Thank you, Tom. That is exactly the information I was lookingt for!

One of my clients (an individual and resident of FL) is selling a CA condominium she purchased in 2011 as an investment. The sale price will be $282400 and the profit will be $55283. In preparing the CA 593-E, the withholding based on the sale price is $9404 while the withholding on the profit is $6571. In my reading of the instructions, I can not find if it says you can elect the smaller of these two amounts as the amount of withholding to be paid to CA, but I assume that that is the case. Is this the correct interpretation and is the OPTIONAL withholding payment actually mandatory?

I said TCC number, but I meant my 10 digit pin. Sorry!!

My TCC number is my SS# followed by the digit "1." Try that if the phone number does not work.

I just talked with an IL auditor today regarding this issue. She said that this is the first year they are comparing via computer the amount listed on the return with the amount posted by the county treasurer under the PIN number listed, because the Dept of Rev suspected widesread fraud in this area. She admitted that real estate tax prepayments and additional real estate paid at closing on the sale of a house will all cause the return to be computer flagged and a deficiency letter sent. Just about every IL client that sold their IL personal residence during 2018 has received a letter asking for payment verification which requires sending in the tax bills and the pertinent page from the closing statement.

Jostamike, You are correct--the certificate number that you enter for the Invest in Kids program is 10 digits. I use ProSeries and it takes the 10 digit number. If ATX only allows 9 digits, they haveprogrammed the form incorrectly. I am an Illinois preparer and haqve done a number of these credits including my own.

I prepared certification forms for my clients to sign who have CTC, ACTC, ODC, or OATC on their tax returens. I do not have enough HOH or EITC clients to worry about standardized forms. I have my clients read through the IRS garbage and then sign the certification, which I keep in my file as proof that I tried to be an IRS agent for a few minutes qand grill my clients. Most of the clients comment about the IRS language, especially about the definition of "dependent" for many of the credits. It gives them a new perspective of what we have to put up with year after year with more and more clarifications and exceptions to prior definitions. One client even said "Is the IRS nuts or what?" I just smiled . Anyhow, I have attached the forms I produced in case others would like to adopt them or modify them for their use. CTC, , ODC CERTIFICATION.pdf AOTC TAX CREDIT CERTIFICATION.pdf

Here is a QBID calculator the gave us last week at the Univ of IL taxschool. It seems pretty good. https://taxschool.illinois.edu/qbi.html

A client of mine with a Dental Practice S-Corp informed me today that he is meeting with a large firm next Wednesday at dinner at which time they are going to present an offer to buy his practice. He wants me to give him a concise list of what will happen depending on how the sale is structured (e.g. stock sale vs. asset sale). Does anyone know of a short current summary of the different tax ramifications of each type of sale? He bought the practice 30 years ago for $25K and will sell for $1.2M. All of his assets are fully depreciated..

Hi again, Drake experts! I don't like to be bothering you, but I value your opinion highly as I make the transition from ProSeries to Drake for 2018. I have converted all of my 2016 clients to Drake and I am now in the process of re-preparing each of my 2017 returns in Drake and then comparing the outcome to what 2017 ProSeries wound up with. It has been a great learning tool and I can already feel myself getting up to speed with Drake and even writing a few macros! A few days ago I was re-preparing a return for a client that had educational expenses for one of his dependents and also a 1099-Q from a Bright Start program. In ProSeries, there was an input screen for the 1099-Q which followed the format of the 1099-Q itself and also an input screen for the 1098 T information and a grid which let you enter other types of payments made for the student, both to and outside the institution. On the same screen was a checkbox to maximize the credit or deduction choice and also a table which listed why any particular credit could not be taken (income phaseout level, 4 years post secondary already taken, etc.). You also had the option of choosing the credit you wanted if you did not want to optimze it through the program. Everytime you changed income, the 8283 "optimize" box would come up to again go through the optimization. Also, the taxable portion of the 1099-Q, if any, was calculated and transferred to the 1040 and 5329, if applicable, without further input. The program also kept track of how many years the AOTC credit had been used for each dependent. In Drake, I had to answer the quesitons on the 8283, manually input the number of years for AOTC, put in "other" educational expenses, and then select which credit or deduction I wanted to use. Then, for the 1099-Q, I had to re-enter the expenses on the 5329 form to determine if any of the distribution was taxable. The re-entering of the expenses seemed to go against the "one-time entry" policy of Drake and the whole process seemed rather cumbersome, unlike what I had experienced with Drake in all of the prior returns. What am I missing? I just know there has to be a good explanation

Thanks Catherine. I prepare about 60% of my returns during the clients' appointment, and I don't want to appear to be fumbling around with the program while they are here. It doesn't inspire confidence, if you know what I mean

Thanks, Catherine! How long did it take you to get comfortable with Drake after ATX--2 weeks, 1 month, etc?

After 30 years of using ProSeries along with ATX until 2012 and then ProSeries alone through tax yar 2017, I am finally ready to make the switch to Drake. I have attended their seminars for the last two years and loaded up and played with the Demo, but have always gone back to ProSeries because of the deep discount they gave me on the most expensive package which brought it down to about $300 more than Drake from a list price of $6200. In 2018 the long waits on the phone and lack of instant chat and the overall ATTITUDE of the company (ProSeriesn not Drake) has really turned me off. I have downloaded the 2017 Demo, converted my 2016 files to 2017, and I am now reworking the 2017 returns in Drake and comparing them to the 2017 ProSeries returns. So far I am having pretty good success in learning the input screens, and I LOVE the macros and the amount of program control that I have. The only item I don't like so far is that I cannot see the depreciation on a schedule C or E without leaving the input screen and going into the View mode and then back again to the input screen to continue. Is there a reason that Drake does not put the calculated values for Depreciation or Auto expense or 1099-MISC values on the C and E input screens? Also, do any of you "old timers" have any tricks that helped you convert from form based to input screen entry? So far I have done about a dozen or so 2017 returns in Drake to compare them to the Pro Series returns that I filed for 2017 and I hope to do another 150 or so during the off season, but I am open to any suggestions. Thanks in advance!

Illinois will give you a credit for taxes paid to another state of either the amount paid to the other state or the amount of tax Illinois would have charged on that income, whichever is less. Prepare a return for each state in which income is earned, but be aware that if the income is below the filing threshhold in any state and the state charges no tax, IL will not credit any amount and will tax that income at IL rates if the person is an IL resident or part year resident. If the wages all show on the W-2 as IL wages, then no other state return needs to be filed for those wages as they are all considered to have been earned in Illinois. Hope this helps. It is not exactly fair, but it is what it is.

This year I'm sure we all have done at least one MLP 1065 K-1 from places like Energy Transfer Partners, Blackstone, etc. where the Schedle K-1 is marked "DO NOT USE-SEE SUPPLEMENTAL SCHEDULE" which makes the single K-1 become 4 or 5 K-1's, each with 85 line items. When it gets down to the codes v, t, x, and z, some of these K-1's have 6 lines with different descriptions labeled V1, V2,V3,...V6, etc. Has anyone come across a good index to all of these line items stating where they end up on the tax returns and if some of the codes are just pertinent to corporate filers, IRA custodians, etc? I would like not to have to enter any items that do not apply to the return at hand but also know what impact each of these obscure items has on the individual return without googling each descriptor. The general instructions on the back of the K-1 forms are too generic to be of much use. etp.pdf

I am telling clients affected by the extenders that the Congress is responsible (hard to use the words "Congress" and "responsible" in the same sentence) for the VERY late passage of the extenders. As a result, the IRS has to revamp many of its forms to re-allow the deductions and credits to apply. Then, after IRS is done, the software companies have to reprogram their software to align with the revised IRS forms. I tell them that it is anyone's guess as to when the software will be updated to allow the credits and deductions that many of them have. I cannot at this time tell them for certain that the software will be ready before April 17th. So I give them a choice: 1. File your returns now based on the tax regs as of december 31, 2017, get your refunds, and then I will amend your Federal return for a flat fee of $50 to obtain your additional refund. I also, of course, tell them the approximate amount of their additional refund due before they make their decision. 2. Wait until the softward is able to process the e3xtended credits and deductions before filing with the option of filing extensions on or before April 17th. So far I have had all 3 affected clients take option #1, which is what I expected. No one wants to wait for their money because Congress had " other things to do" besides address the extenders before Dec. 31. Rant over!!

I agree with Yardley, FDNY, and Abby--definitely commuting.

If the mother's estate left the account to your client upon her death with an informal understanding that it was to be used to provide care for the client's brother, then the basis would be mothers DOD. If, howeveer, the fund was left to the client's brother for his care (or even in trust for the care of your client's brother), then I believe your client has another step up in basis as of his brother's DOD. With regard to tax bracket change, since the sale would result in LTCG, the gain would be taxed at capital gain rates, at lease on the Federal side. Depending on the state of residency, the amount of gain could affect the State tax bracket. Just my thoughts on the matter.

ILLMAS: Anyone can use the SA, even a W-2 employee if he received a large bonus during the first half of the year, or he may have sold stocks for a gain during the first half of the year. Any aberration that would have had h8im receive more income in the period 1/1 through 6/30 than in 7/1 through year end would make filing the SA beneficial. LION: If you had more income after 7/31, the SA form would tax that at the higher rate. Income prior to July 1 would be taxed at the old rate of 3.75%; income after June 30 would be taxed at the new rate of 4.95%. Not using the SA form taxes all income at the blended rate of 4.3549%