DANRVAN

Assuming this is an ordinary and necessary business expense, why would you not recommend treating as a reimbursement under an accountable plan?

your are right, 5 days

Isn't that a 4 day window to resubmit a rejected e-filed return, Oct 19 2020 for this year?

Actually you were leading this discussion down the path to a 382 limitation. Hence my abrupt heading out the door to go build fence reply. A 50% change in ownership of a loss C-corp will kick in a section 382 limitation. The 50% change can come from 1 or more shareholders who ends up owning 5% or more. For example in the post by ILLMAS, if a single buyer purchases 50% or more of the stock section 382 kicks in. Also if 10 buyers purchase 5% each, then 382 kicks in since 50% changed in the hands of a group that ended up owning 5% of more. But if 25 buyers each purchase 4%, then 382 does not apply since the 100% change was made by a group of stockholders owning less than 5%.

The tax attributes stay 100% with the C-corp unless you are dealing with a section 382 or 383 transaction.

I didn't catch that. In this case, the 100% of depreciations goes to beneficiaries since 100% of the TIA was distributed to them per the reg. Rev. Rul. 74-530, 1974-2 CB 188 confirms that they are allowed depreciation in excess of their K-1 reported income.

If the trust did not have any Trust Accounting Income, then there would be no reporting of depreciation as a separately stated item to the the beneficiaries per Reg 1.167(h)-1(b).

I will send that link to my client, Thank you!

Sounds like good route to go. Probably need to find out the minimum requirements to run QB.

Thank you for the suggestion Gail, but not an alternative in this situation.

Does anyone have suggestions for an economical laptop capable of running quickbooks? Client is struggling with a barber shop hit by pandemic and some other issues. Thank you for any suggestions you might have. Dan

that's it, the step-transaction-doctrine

That is correct, I was thinking roughly 22,000 instead of 12,000 as I posted above. There are other possible methods of allocating such as sales or volume per store.

Are you aware of the "substance-over-form doctrine"? Why would you not use it to your client's advantage? Looks to me like you would have a gain of about $12,000 if basis is allocated on 30,000 / 130,000 figures.

Look at the substance of the transaction. The bakery reduced taxpayers route by a few stores and compensated him $30,000. That is how I would treat it. They went through some extra hoops to get there for legal/admin purposes, but they still have the route minus a few stores + a check for $30,000.

Not knowing the facts and circumstances, I would inquire as to the business purpose in order to justify the expense. Are they holding as a reserve for drought years? Future expansion? An adjoining piece of property bought to avoid new neighbor conflicts ( encroachment of non-farmers) ? In my area there is a high demand for pasture so capitalizing idle ground is not a concern. Mowing unused pasture is unheard of and in most cases not practical due to the terrain and acres involved. I don't believe that is an accurate allocation method. The 20 acres in your example has two components; the land and the timber. You would need to know the value of both to make a reasonable allocation, that was the point of my question. To go further with this, you would also need an estimate of the standing timber volume in order to track the expenses on a board foot basis. Otherwise, how will you know how much to write off when x amount of timber is logged off and y amount is left standing? Do you see a record keeping issue here? For the ranchers with both pasture and timber, grazing is the primary purpose and the timber is incidental. I have never seen an accountant make an allocation in that situation; it is all wrote off. Getting off topic, but I have consulted with foresters to back track basis of timber sales using growth rates and historical sale prices.

If those are Schedule F expenses allowable under section 163, then why would you capitalize instead of taking the deduction to maximize the tax benefit to your client? The 266 election is for allowable expenses, so they should be deducted if that is to the advantage of your client. If this is an isolated parcel which farmer is holding strictly as an investments, then the expenses would fall under section 212 otherwise deductible as misc on Sched A, subject to TCJA. What reasonable method do you use to allocate those cost? You would have to allocate by the amount of standing board feet of timber at the end of each year, then recognize per board foot as logged.

From what I have read it is going to fall on the shoulders of the employer regardless.

While the property fell victim to TCJA for carrying charges, any expenses in 2019 related to the sale can be added to basis.

That would be the case in tax years beginning after 2017 thanks to TCJA. Prior to that, expenses that are ordinary and necessary to maintain the investment property under section 212 can be capitalized through a section 266 election. I believe that would include insurance, utilities, lawn maintenance....etc. and since it was incurred for the management, conservation or maintenance of the investment property, it is a section 212 expense eligible for the 266 election. The basics of the 266 election in this case are to capitalize expenses that would otherwise be deductible to the partners as misc on Schedule A. Since the house was not held as a rental, the legal expenses are not deductible above the line.

It is treated as investment property and covered by a sect 266 election. Since the returns for those years have never been filed, you might be in luck. Reg 1-266-1(c) states that the election has to be made with an original tax return, there is no reference that the return must be timely filed. Pub 535 also state the election must be made with an original return or if an original return has been filed, the election can be made with an amended return filed within 6 months of the due date without regards to extensions. So it appears that since your client's partnership has never filed any tax returns, those years are all open and original returns can be filed to make the election. However, you need to consider the effect of TCJA for years beginning after 2017. An election for sect 266 only covers otherwise deductible expenses. That limits the election to $10,000 of property taxes for years after 2017; and also eliminates the election for carry charges subject to the suspension of misc itemized deductions. Unless I am overlooking something, it looks like you can file a 1065 to make the 266 election for each open year and increase the basis (subject to TCJA for 2018 and 2019). $100,000 increase in basis should be well worth your fee for some basic returns to make the election per the reg and IRS pub. In situations where the election was omitted on original returns, PLRs have ruled favorably for taxpayers that were not advised of the 266 election, but that does not appear to be the case here.

Charge by the hour, but if you are working in an area that you are have limited experience, or maybe a little rusty in, then you need to make an adjustment for the amount of extra time it took.

The clock stops during the suspended period and starts again when it ends. The fact that he retired does not erase the suspended period. So if your client retired on June 30 2019 and sold the house on June 30 2020, he would look back four years from the date of his deployment in 2014 for a base period for the 2/5 year rule (assuming he meets the 50 mile rule of 121(d)(9)(C)(i)).

There are a couple ways to report the liquidation. but the answer is the same. Assume the basis was $94,000 on 12/31/16. Add to that the reported 2017 gain of $211.971= $305,951 basis before liquidation. Assume the $258,000 reported in box 16d is the liquidating distribution. Loss = 258,000 - 305,951 = (47,971). As understand it, your client owns 1\5 of the shares which were inherited. However the closing statement you mentioned seems to report only your client's share. I am curious as to who the closing statement shows as the seller?

So you will have two transactions to report: the shareholder's allocated gain from the k-1 and the capital loss that should result from the liquidation. The gain comes from an internal transaction dependent upon the adjusted basis of the building in the hands of the S-corp.