DANRVAN

4 hours ago, BTS said:

why all the $100k in "Non Compete" had to be claimed in year one ?  The preparer is showing a $200k payment for 2022 when all that was received is $100k

6 minutes ago, cbslee said:

and non compete value (150k). 

Looks like preparer has several things to explain......

47 minutes ago, BTS said:

copy of any legal documents related to the sale. 

Why would you need any more documentation  if the note clearly states that $100,000  of the $500,000 principal  is allocated to the covenant?   Then clearly one-fifth of the payments are also allocated to the covenant.

19 hours ago, BTS said:

good write up:  https://www.thetaxadviser.com/issues/2021/may/tax-issues-noncompete-agreements.html

 That  article is not relevant to this situation.   The allocation has already been made and there is no reason to question it.

1 hour ago, BTS said:

  Preparer told them it was the law ?

Have him ask for the code section or authoritative source, or ask how section 453(b)(2) applies in his situation.

Looks to me like $20,000 (1/5) would be reported in 2022.

18 hours ago, BTS said:

Total business purchase price (including non compete money) is on an installment sale for 5 years.

That looks clear to me, as you stated in your 2nd post $100,000 was allocated in the contract.

18 hours ago, BTS said:

I've searched and found nothing that says it all has to be all claimed the year of the sale.

Look at sec 453(b)(2) which does not indicate the covenant is excluded from installment sale treatment.

18 hours ago, BTS said:

I say spread it over 5 years as Cap. Gains. 

 It is ordinary, see  RR 69-643

1 hour ago, JackieCPA said:

ALl the income from the K1 is ordinary income 

On 3/30/2023 at 2:56 PM, JackieCPA said:

put the depletion amount as a negative ordinary income.

That is correct for that situation.

2 hours ago, Catherine said:

, distributions of corpus don't get listed on a K-1

Correct.  Only distributions of taxable income.  Trust takes income distribution deduction for same amount.

1 hour ago, DANRVAN said:

instructed

"or as allowed by the governing instrument"

On 4/1/2023 at 9:16 AM, TAXMAN said:

where I could use a fiscal year

Would also be eligible for accrual accounting  election;  and an initial short year that might result  in better matching of income and expenses.

On 4/1/2023 at 9:16 AM, TAXMAN said:

645 election?

 As long as it was a qualified revocable trust under sec 676.

3 hours ago, schirallicpa said:

estate that funded the trust for the purpose of community development

Will the trust make distributions to a public charity as instructed by the governing instrument?

If so, the they might be able to take a Charitable deduction for funds permanently set aside.

3 hours ago, schirallicpa said:

(There are 3 trustee that are trying to write bylaws etc on how the money will be spent and how they will decide.)

 Possibly a Private Foundation?

32 minutes ago, DANRVAN said:

I don't think the estate is not entitled to take a deduction on 1041.

Please forgive my double negative error, that should have read "don't think the estate is entitled."

4 hours ago, schirallicpa said:

showing a loss.  But - do I need a K1? 

There would be a K-1 if taxable income was distributed.

6 hours ago, tax1111 said:

They can split any way that is most beneficial taxwise

I don't think so, unless there is some special rule for community property states.

1 hour ago, grandmabee said:

goodwill since no assets.

Should be treated like the sell of any other business and recognize goodwill.

3 hours ago, Yrags said:

designated a charitable institution as the beneficiary. This is not noted in his will. T

Off the top of my head, I am going to say probably not.

First of all I don’t think it would be allowed since it was not spelled out in the will.

Secondly, I don’t believe the retirement account would be included in the gross estate of the decedent.  It should be excluded as a charitable deduction regardless of whether a 706 was filed.

Therefore, if it was not part of the estate, I don't think the estate is not entitled to take a deduction on 1041.

Does the K-1 show ordinary income or royalty income.

16 minutes ago, JackieCPA said:

as a negative ordinary income.

That does not sound the correct, I believe it should off set passive income, not ordinary income.

Is this a new client for you?

22 hours ago, JackieCPA said:

flowing from a K1

Should be line 20-T on the K-1 input sheet.

I have a similar situation.  Partnership makes distribution to trust; trust makes distribution to individual.

Trust deducts tax prep and income distribution deduction.  Very simple. 

Trust also follows 65 day rule since partnership makes distribution right at year end.

The second question, are there any computations on the tax return affected by tax exempt interest such as SS income or MAGI?

On 3/25/2023 at 10:06 AM, cpabsd said:

He passed away without a will.  The wife gets 60% at sale and two teenagers get 20% each.

Just curious, are the two teenagers from a previous marriage so wife did not get 100%?

Under that scenario in Oregon, wife would get 50% and teens 25%  each.

You referred to the first amount from line 8, can you be more specific as to where the last four amounts came from?

On 3/25/2023 at 10:06 AM, cpabsd said:

Client's husband owned the rental property 100%. 

Could be an issue of marital vs nonmarital property depending on where the funding of the property came from.

There are cases where 100% ownership turned out to be 50% ownership; and 1/2 step up bass instead of full step up in basis.

Estate attorney should have sorted it out.

3 hours ago, cbslee said:

would back out the CRP payments with the explanation that the recipient

You can put it directly on line 1b without explaining.

9 hours ago, JackieCPA said:

Is there a way to add on the K1 (ATX) that it is CRP payments and not just farm income and to be deducted on the Sch SE on their personal return?

If you are working on the individuals 1040, just let it flow from the K-1 to SE,  then enter on line 1b of form SE, which is specifically designated for the CRP subtraction; same as you would if it came from Schedule F of 1040.

The 1065 preparer should show as other information the amount of SE income from CRP, especially if going to non-client.