RitaB

so her mom can get the rebate. At first I thought she was joking.

Also, if you have a pair of clients, like mine today, who lost $23,000 running their partnership (a hunting lodge), made $4300 "on the side" doing odd jobs, and they are mad at you cause they didn't get "that there unearned income credit."

In Oct 2004, Mom and Dad "in consideration of $1, grant to Child A, Child B, and Child C a one-third interest each as tenants in common, reserving unto ourselves a Life Estate in said premises for and during the term of our natural lives."

Dad passed away in 2006.

In 2007, Child A decided that Mom, Child B, and Child C should sell him their interest in house. Say what?!

Settlement statement lists four sellers as Mom, Child A, Child B, and Child C. Buyer is Child A.

Child B is my client. What is her basis? 1/4 of parents' adjusted basis? (If a gift, definitely sold at a gain.)

What just happened here!?

return.

So back to the topic at hand -am I the only one finding inconsistencies in the program? Each year I run across something. I remember last year there was a depreciation schedule that would not roll forward come thick or thin. With Tech Supports help I finally got it to work but we had to jump through many hoops and I probably spent about 5 hours on the issue - I could have easily reentered the list by then.

Carolyn

As a matter of fact, just today I was looking at a depreciation summary and it had the accumulated depreciation as $148. I knew that was wrong, looked back at 2003, 2004, 2005 returns, added the accumulated depreciation and entered it. Reprinted. Don't know why it was incorrect on 2006; it was correct on the 2005 return. It makes me wonder how many things I didn't catch. I really don't have time to check accumuated depreciation. That one just jumped out at me. Kinda frustrating.

Sounds like this might have been a 'land contract' sort of deal, where the 'buyer' just made payments on contract until such point that an actual deed was transfered, perhaps at a specified number of payments. This is often done where the buyer is not credit-worthy enough to get normal financing until he has enough 'down' to satisfy the lenders. Until the closing, if he defaults, the payments made are treated as rent, usually, and that is the end of it. No need to foreclose, etc.

It that is the case, you could treat the payments as rent in 06, or you could set up an installment sale in 06, which would be my choice since you know that the deal did go through. On the 07 return, you can note the sale on Sch D, if you wish, zeroing it out and referencing the installment sale.

Thanks, KC, I agree with your suggestion. I hope you and your family are well; I've been praying for you!

Seller received payments from buyer of real estate beginning in April 2006. Closing statement was prepared in Sept 2007 and the payments received prior to closing (including some in 2006) were deducted on the settlement statement as "payments on contract." I believe I should report as installment sale, year of sale 2006. Is that correct, and if so, how will I deal with the 2007 1099-S on the 2007 return?

Thanks for the info, John. This is something I will definitely look into - good post!

Yes. Only one mouse. This is the short answer to your question.

In reality you can have as many mice as you want connected to your computer, but you only one cursor.

Thanks, Pacun. So you can only move around in one screen at a time, but you'd have two or more screens visually available at the same time. Makes sense, and I can see how it would be really nice, not having to minimize and maximize screens so much.

This is very interesting to me., and something I had not considered before now. When you have multiple monitors, do you still have just one mouse?

I'm sure that the "banker" is using a logic chain for the tax treatment that would hold up in any barbershop in the land!

I think you're right, but it seems that these folks are having no problem getting it past the IRS, since these two guys think they've always paid capital gains tax on their spec house profits in the past.

(Course, you know how clients sometimes don't know what happened.)

I wonder if the "banker" is charging the daughter more than the correct tax would be...

I am curious to see what they tell me next time they come in!

I do not consider them bandits when they use the tax laws legally.

Daune/CA

I do not consider them bandits, either, and I did not mean to imply that. I consider them "highly successful in a given enterprise." I'm just jealous that their business income is tax free, and mine is not. It's more of a comment on the legal tax shelter, not the builders. The builders are smart cookies, I agree. Wish I could find something similar for me!

jainen -

Here's what I said: "I don't like it very much when I see them making out like bandits and not paying taxes."

How's this: I don't like it very much when I see them making out like bandits and not paying taxes.

Making out like a bandit means "to be highly successful in a given enterprise." Heck, I make out like a bandit (not in the Oldsmobile sense) sometimes, too. But, I always have to pay taxes on the gain. I just meant I didn't like it much when people get to avoid paying taxes on business income.

So do you have an opinion about what the daughter is doing to avoid taxes on the spec house?

Several years ago, I had a client that was in construction. He would build a "spec house" and then live in it to build the next one, being sure it was for enough time to qualify as his personal residence, and then postpone the gain into the new residence, when it was built. This finally became very advantageous for him when the new laws became effective with larger exclusion. He has since retired from construction and is living in a duplex that he built and rents out the other side.

Just a thought that this maybe what they have in mind.

Well, they haven't lived in this spec house (I don't know about the daughter), but I do see a lot of builders moving every two years. I don't like it very much when I see them making out like bandits and not paying taxes, but the Section 121 exclusion was pretty cool when we sold our house! B)

But since this was not the typical 'my buddy did such-and-such...' but a daughter, I was giving it just a bit more reliability that, in fact, something was done on the daughter's return that was not correct treatment.

Yes, and I have a feeling that preparers before me have reported spec houses for my clients on Sch D instead of Sch C (they have just become an LLC, and were sole proprietors in the states they moved here from). These guys really don't seem like scoundrels to me. I just think their returns have been prepared incorrectly in the past. They seem to be willing to do things correctly, they just don't know what's right, and maybe they have been misled in the past. In fact, we have a local CPA that used to report spec houses on Sch D all the time, maybe still does.

Maybe I can find some good articles, along with IRS publications, that will help reinforce what I'm telling them. Thanks for your help!

Two members (both treated as general partners) in an LLC called "X & Y Construction, LLC" are aggravating me to death about a spec house they are selling. Apparently, they are gonna make a butt load of money when it sells and don't want to pay any taxes (naturally). First of all, for some reason they thought since it was a spec house (not a custom home under contract to a specific buyer from the start) the profit would not be subject to ordinary income tax and SE tax. But, hey, that's their business; they've done it for years, just in another state. Now, they're back today telling me that one of their daughters, also in construction (that's it, that's all she does), said her banker was able to "roll over (big rolling hand motion) all her profits from the sale of a spec house and shelter all that gain."

I gotta tell you, I have no idea what the banker is doing. But I did ask my client how the banker knows what's going on with the daughter's tax return. Is the daughter calling spec houses, (that she builds in her ongoing trade), investment property and doing a 1031 exchange to defer the capital gain? That can't be justified, can it, since this is not a one time wild hair to build a spec house? These people earn their living conducting a construction business, for Pete's sake. Is something going on here that I'm not seeing?

I know I need more information, but I'm going to start by asking this, until I receive the rest of the info. I met someone at a party and he wants me to do his return for 2006. he said his company received a 1099 Misc for some work he did, but he said the 1099 Misc shouldn't have been assigned to his company, it should be for him personally, for some reason that i cannot remember, at the moment, there is no way he can get them to issue a new 1099 Misc in his name, so he wants to know how to move this 1099 misc from his company's name to his so he can put it on his personal return.

I guess his "company" has had no business or expenses for a couple of years and he's just getting rid of it. It's a computer consultant business.

Does what he's asking make sense? Does anyone know what he should do?

He should be sending me his stuff soon and i'll more info then.

Daisy

I have had a client with an LLC (I really hate those) who received a 1099 with his SSN which really belonged to the LLC (not single member so 1065 is filed.) Anyway, I entered the amount as gross receipts on a Sch C on his personal return, and then wrote a brief explanation on the first line of "other expense" and deducted the amount. The explanation said that the amount was properly reported on 1065 for FEIN # so-and-so.

I realize that you have the reverse here, 1099 issued to business but belongs on personal return, but maybe something along this line will work for you. It would actually be easier for you than to get the payer to issue another 1099 anyway, apparently. He should be filing the business entity with zeros anyway till he does a final return. Hope this helps. It did work for my guy.

I think I found the best answer in a Proposed Regulation §1.1402(a)-2. Yes it's proposed, but it's all we got right now. It lays out three tests - the 500 hour requirement, personal liability, and the ability to contract on behalf of the partnership.

An individual is treated as a limited partner under this paragraph

(h)(2) unless the individual--

(i) Has personal liability (as defined in Section

301.7701-3((2)(ii) of this chapter for the debts of or claims

against the partnership by reason of being a partner;

(ii) Has authority (under the law of the jurisdiction in which the

partnership is formed) to contract on behalf of the partnership; or

(iii) Participates in the partnership's trade or business for more

than 500 hours during the partnership's taxable year.

----------------------------

If at least one of the three tests is met (doesn't have to be all three), the member is not limited. My five meet none of the three tests. (The business started 11/08/06). I'm good! Thanks!

(Edit: I have no idea why that smiley thing showed up in the quote of your post; I didn't do it.)

Both the GPs and the share of ordinary income from the LLC are subject to SE tax. So the loss should net with the GP, IF [big IF] they had 'basis' in the LLC. But since they have no basis, the loss is 'suspended', and the GP is all that will go to the SE.

Thanks for the response, KC. So we would both be overriding the software and entering A = $800 on line 14 of the K-1 in this example for the limited partners (other members).

However, from your first sentence: "Both the GPs and the share of ordinary income from the LLC are subject to SE tax," I take it that if the distributive share was a $1000 gain, you would figure SE on that as well for a limited partner (other member)? They would pay SE on $1800? From everything I've read (and it's a lot and somewhat frustrating, "not heard from IRS since 1997, 1998, no rules, section

1402(a)(13), blah, blah, blah") I would not figure SE on the distributive share (either gain or loss) for a limited partner.

Heck, there are some that would be so aggressive as to not figure SE on anybody's distributive share. I might go along with not figuring SE on the distributive share on a member-manager (general partner) if he had sufficient guaranteed payments on line 4 and the distributive share was truely a return of investment, but when there's no capital contributions, just earnings from conducting the business, I make it all subject to SE for a member-manager (general partner).

In the original post, I just could not figure out why the program left line 14 on the K-1 blank for a limited partner with guaranteed payments for labor contributed. I would think line 14 for a limited partner would have to equal the guaranteed payment regardless of the distributive share.

Did I mention that I really hate LLC's?

LLC has two members personally responsible for all debts and contributing 100% of capital to a trail riding venture. Five other members have not contributed anything to the business, nor are they responsible for any debts, but they have been paid for working at the stables. (They should be employees, not members, but the two "real" owners want to avoid paying for Workers Comp Insurance!) If these five members who are the equivalent of limited partners have guaranteed payments of $800 and their share of ordinary loss is $1000, they will still pay SE on the $800 guaranteed payments, right? (They cannot offset the guaranteed payments with the ordinary loss, correct?) Line 14 of K-1 needs to show "Code A = $800", I think, but since ATX leaves line 14 blank and I have to override the software to show $800 subject to SE, I have started thinking maybe I'm missing something.

I think there is no crook preparer without crook tax payer.

Yes, I think you are absolutely correct. You might get fooled once, but when you go back year after year to someone who won't sign the return, you must be aware that something is fishy. We are getting several people from a gentleman who passed away a couple of years ago. He never signed his returns and always overstated mileage, put charitable contributions on Sch C, or something. I always make the client bring me the old returns, point out all the errors, and let them decide if they want a correct signed return or not. It takes time to show them the errors, but then I just leave the ball in their court. I just let them decide, without trying to scare them or anything, cause if knowing the return is correct is not enough, I really don't want them.

The estate use FMV at DOD plus selling fees/other costs after DOD. Depreciation is considered only for any allowed or allowable after DOD.

Thanks, Old Jack. That makes perfect sense, since we're starting all over with the estate. New entity, and all that. Got it!

Thanks for all the responses.

I have run into something else with this return:

Decedent had a rental house which the estate sold. Does the estate use FMV at DOD plus selling fees/other costs less accumulated depreciation as cost basis? This is what I'm getting from the instructions for Form 1041, p. 35. The Personal Rep thinks the estate doesn't have to recapture depreciation. I think that would be too good to be true, unless the rental ceased being a rental property before the moment of death?? (It didn't.)

The decedent was a lawyer without a will. The Personal Rep is his niece who is also a lawyer. This info is totally irrelevant except it might help you understand why I'm checking with you all so much. I'm a little intimidated I guess.

I am sorry to be asking so many questions, but I don't have the archives to search, and this is new to me. Thanks again!

Decedent passed away on 8/22/05. Personal Rep sold mutual funds on 4/06/06. I will need to know the # of shares and price per share on 8/22/05. This will be the cost basis for long term gain or loss (inherited = long term and cost = FMV on date of death). Correct?

The sold shares that accumulated (from reinvested dividends) after 8/22/05 would have to be considered separately in order to figure short term gain or loss. Right?

Also, I want to do this return for the calendar year 2006. It will be the first filed return, since it was not necessary to file a 1041 for 8/22/05 through 12/31/05, so should I mark this first filed Form 1041 as initial return or leave that blank? The first year of the estate is not 2006, but this is the first required return. Know what I mean? Thanks!

I had a client who sold her rental house in 2004 and decided she didn't need me to do her 2005 taxes because "they are so simple". She had a W-2, interest income and dividend income. She ended up paying about $1000 in additional taxes.

For 2006 she sold some stock and decided this "was not so simple" and dropped off her stuff. I asked her to drop off her copy of what she filed in 2005 "because it was so simple". She did not take into account the qualified dividends of over $6000 and even forgot to take her exclusion. I'll be getting her about $1200 plus interest back. She vows never to do her own return again.

taxbilly

Stuff like this just makes my day! I worry about myself when I am so happy that someone screwed up, and I found it. This past season I had one that decided to do their own "easy" 2005 return, came back to me for 2006 cause they sold some property. They had missed the Retirement Savers Credit in 2005, so I pointed it out to them and told them it would be really easy to correct, I'm sure you don't need me to do that little 1040X (heehee).

Hey, I only charged them $75 to do the "difficult" 2006 return, and I may even amend the 2005 free gratis when they ask, but the very idea of how cheap some people are when it comes to tax prep!

Just like your lady with $6000 is qualified dividends - No doubt she spends more eating out or getting her hair done in a year than you charge to prepare her taxes for a year. What she's saying is the restaurant and beautician are worth more than you. OK, maybe I am taking this a tad too far...

Unless these huge amounts are figured based on the very day the refund check was mailed Wouldn't that be fun?

I thought of something else that will be fun. Family has $2795 in rental income (or some other investment income), and so that $9 (or whatever it turns out to be) in interest disqualifies them for $2000 in EIC. (The maximum investment income amount to still qualify for EIC in 2006 was $2800. I know it'll change, but you see where I'm going here.) It'll happen to somebody, won't it?