DANRVAN

On 5/10/2021 at 3:27 PM, NECPA in NEBRASKA said:

Does anyone know if this is a normal thing to do?

Sounds like they are getting the cart ahead of the horse.

In order to file a gift return, you need legal documentation that the assets have been unconditionally transferred to the donee.

Once you have received copies of the deed...etc., there is no ethical barrier to prevent you from preparing the 709 in this case.

The client is rolling the dice against the Medicare look back period, as long as you have properly prepared the return you do not have any exposure.

On 5/10/2021 at 6:10 PM, Pacun said:

all gifts in the past 2 years are reconsidered and put back as income to the decedent or something like that. 

Section 2035(a) transfers made within 3 years of DOD are included in the gross estate of decedent.

Section 2035(a) transfers are gifts where the grantor retains a degree of control.

That does not include bonified gifts.

2 hours ago, Pacun said:

able to be considered for addition child tax credit.

I will try Form 2555 and see what happens. 

You cannot take ACTC and also file form 2555.  

Are you sure you understand what is involved for filing taxes for a U.S. citizen working abroad?

Form 2555 is not something to experiment with.

2 hours ago, Lynn EA USTCP in Louisiana said:

without using form 2555.

I agree Lynn, EIC could out weigh the benefit of the exclusion but was wondering if form 2555 was the reason EIC was not allowed.

6 hours ago, Pacun said:

US citizen living in SPAIN sin 2018, earned $18K in spain.

Sounds like form 2555 should apply.

Are you sure he qualifies for EIC?

No EIC if filing form 2555 for foreign earned income exclusion.

The bill is full of exemptions from special interest lobbyist including: real estate, auto dealerships (goodwill), timber, agriculture and other "small business".

There is a $250,000 general exemption.

Sounds like the main target will be sales of stock, bonds,...etc.

I have a few Washington clients that were former Oregon residents, most likely they will not feel the 7% sting.

On 5/1/2021 at 10:44 AM, cbslee said:

I think it falls into a gray area.

I agree.

You have to look at the "origin of claim test" to determine if the legal cost are related to the capital asset or operational expenses.

I believe a case could be made that by reducing the amount of interest paid, the taxpayer is attempting to cut  expenses and increase the profitability of the activity.  In that case, the origin of claim goes to back to operational expenses and is currently deducted.

If on the other hand the legal fees were incurred to defend the title of the property, the origin would be capital in nature.

On 5/1/2021 at 6:19 AM, Terry D said:

protecting or maintaining income-producing property are usually tax deductible"

That quote sounds like it was  made in reference to section 212,  which basically applies to investment expenses which are itemized deductions currently suspended by TCJA.

8 hours ago, Margaret CPA in OH said:

Articles of Org. state that the purpose is for 'real estate investment and creative purposes.

I would not be concerned about what the Articles of Org say, they have no bearing on the actual facts and circumstance.

Clearly does not rise to the level of a trade or business.  Therefore section 195 does not apply for start up: no $5,000 or 15 year amort.

Treat is as you would any other rental.

The only catch I see here is $1,000 paid by brother. Did he actually live there full time?

I question if there is anyway to justify Schedule E income and expense for 6 months 2020?

It would not be reasonable to charge fmv rent during remodel and for overseeing contractor, but how much?

Who paid for utilities?

Did brother continue to rent in 2021?

8 hours ago, Margaret CPA in OH said:

Is it not active business when looking into real estate investments in this case?

Not in the sense of an active trade or business.

2 hours ago, Mary not the other Mary said:

over 6000lbs (GVWR is 19,500 lbs)

GVWR is the recommended loaded weight.

2 hours ago, Mary not the other Mary said:

10 year water transport equipment (again, I don't find that sub category in ANY of my tax books--what IS that??  transport equipment over the water,

Yes, transporting over water, asset class 00.28  See table B-1 in pub 946.

2 hours ago, Mary not the other Mary said:

put it as 5year truck over 6000lbs (GVWR is 19,500 lbs)

Yes, asset class 00.21 or 00.242 if actual unloaded weight is over 13,000.

15 hours ago, tax1111 said:

2. is there anything else needs special attention on?

Is head of household an option for him?

On 4/18/2021 at 5:30 AM, Pacun said:

It seems to me that my client should not get money reported as ordinary income on K1s.  If the losses are not reported as "ordinary income (loss)", my client should be able to deduct up to $3K every year, correct?

The term ordinary income can be confusing since it comes in different types and flavors

In the broadest sense, it is any source of income taxed at ordinary rates which basically distinguishes it from capital gains.

Ordinary income is then broken down into different class types such as rental, interest, dividends....and so on.

These classes can have different characters: such as passive, active, investment, earned, SE.....etc.

Your clients share of the income/loss is reported on his K-1 as ordinary "business" income since it is his share of the ordinary operations of the business.  

Since he is a limited partner, his income is of passive character, therefore his losses are either suspended or used to offset passive income.

On 4/18/2021 at 5:30 AM, Pacun said:

If the restaurant were to be very successful and my client would get $100K, my client should not pay SE taxes, correct?

The only way he would have SE income would be for services provided  to the business.

For example, if he decided to spend his lunch hour busting tables and received compensation, that would be classed as Guaranteed Partner Wage subject to SE tax.

16 hours ago, peggysioux5 said:

, should I include the the W2 income on taxpayer's tax return as "other income"??

Since it appears surviving spouse has cashed the check and doesn't care about the withholdings, then why not?

In that case, it's probably not worth filing a 1041 to deduct the $600 exemption,  additional tax prep fees and income distribution back to surviving spouse.

I would be tempted to report other income at net, as that is all she received.

1 hour ago, cbslee said:

wait and see what happens.

Curious how that would work. 

CP 2000 to deceased and letter to explain it was reported by surviving spouse?

3 hours ago, DANRVAN said:

Did mom live in house "rent free" until death?

That was my question.

30 minutes ago, Lion EA said:

maybe mom quit claimed a percentage to her kids and kept a percentage for herself

No, I was not implying that she kept any legal ownership.  The quitclaim would transfer legal ownership, but it is possible she retained a beneficial interest until death.  In that case the house would pass through her estate.

On 4/14/2021 at 9:53 PM, peggysioux5 said:

Would the taxpayer be considered an equitable owner being she was a beneficiary

A beneficiary has equitable ownership.  An equitable owner who makes the payment is entitled to deduct mortgage interest, so why not?

37 minutes ago, Lion EA said:

The kids get it at mom's adjusted basis.

If mom held a beneficial interest then there is a incomplete gift per case law.  If that is the case then house is considered part of mom's estate and step up basis kicks in.

19 hours ago, GLJEANNE said:

But it was an inheritance!"  Um, no, it was a quit claim

I read into this that house was sold after mom's death, was that the case?

17 hours ago, Hahn1040 said:

Or is it a new gift from the estate to Grandma.

Looks like a gift from the parents since they inherited the condo.

On 4/14/2021 at 5:38 PM, Lion EA said:

Form SS-8 to save her half of the SE tax.

Might have case there.  But why fight over it when she expected zero payment to begin with?

On 4/15/2021 at 6:54 AM, Abby Normal said:

and the other....?? Gift??

I had that thought, but where would you draw the line?

Although she might have set up to due this on a volunteer basis, once she accepted the $$,$$$, it became a payment for her services.

The excess over reasonable was a big fat bonus.

On 4/14/2021 at 3:23 PM, GGRNY said:

Now I'm wondering if I have an argument for filing it on a Sch C, and claiming QBID. 

Yes.  

The presumption of former employee rule would not apply here, since she is not performing the duties for the former employer.

17 hours ago, GLJEANNE said:

mom quit claimed the house to her kids, who sold it.  They think it's not taxable.  "But it was an inheritance!"

Possible life estate due to beneficial interest?

Did mom live in house "rent free" until death?  Did she pay property taxes, pay for upkeep?

Those are factors tax court looks at in determining if the residence is included in the decedent's estate.  Living rent free is a big one.

18 hours ago, Hahn1040 said:

The daughter bought it to live in eventually but is posted overseas, so she is renting it.

Does she know that will count as unqualified use if she eventually uses it has her personal residence and later claims section 121 exclusion?

22 hours ago, jklcpa said:

Yes, if he meets all the requirements of claiming the EITC, the fact that he didn't live a full year doesn't matter. 

IRC sec 32(e) addresses this:

I am not sure that is quite right.  There are two separate tax year rules here.

First is the greater than 1/2 year residency test specifically for a taxpayer without a  child under 32(c)(1)(A)(ii).

Secondly is the full year test for all taxpayers under 32(e) which you mentioned.

I have been under the impression that 32(e) does not apply to 32(c)(1)(A)(ii).  That appears to be the position taken by the IRS.

The wording of question 4 of step 4 of the EIC question worksheet refers to the entire calendar year.

I have never heard of a situation like this addressed before.

I can't think of a case to compare it to. 

4 hours ago, Catherine said:

in some ways this is like winning a prize.  Not expected, not predictable, no for-profit motive.

I thought about that, but at first was thinking more along the line of a "nonprofessional" fiduciary or PR.

However, there is a difference here since the former employee was paid for her professional skills, whereas a PR can do very little for big $$$.

I can see factors against SE including:

1.  she did not expect to get paid, therefore no profit motive.

2.  it was a one time sporadic activity.

3.  she did not make any billings, track her hours or otherwise carry on the activity in a business like matter.

But on the other hand it could be argued that:

1.  after three months the activity was conducted in a continuous manner.

2. although there was not an agreement, it was likely she entertained the possibility of some compensation for performing work of critical importance to the company.

3. in the end she was rewarded for her professional skills.

2 hours ago, cbslee said:

My point is that reporting this amount of money as Other Income not subject to SE Tax will quite likely prompt a letter.

How do you respond to the letter with nothing to document your position?

I am not sure how likely the $50,000 will trigger an IRS letter, but I would sure document the facts and circumstances regardless of what position the taxpayer chooses to take.

It seems crazy that the company would pay out $50,000 and not issue a 1099.  It is hard to imagine that the payment was not deducted on their end, but that is beside the point.

I would not hesitate to report it as other income after explaining and documenting the SE aspect to the the client.