DANRVAN

I make it a practice to review any open year tax return of a new client. That includes reviewing the information used to prepare schedule C, E or F and related depreciation which has resulted in a number of 1040X's. For this fly-by-night prepared return you might dig up some treasures or unearth some land mines.

The courts have held HVAC as personal property in cases where the primary purpose is to maintain the proper temperature and humidity of equipment. Such as in the case of Piggly Wiggly v Com. where primary purpose of HVAC was to meets the needs of refrigeration equipment instead of the comfort of customers and employees.

I agree since they were made out of generosity and without full and adequate consideration. Also not taxable as prizes, awards.. When a gift is received from employer there can arise the question of wages or bonus. But in this situation the money was clearly given out of generosity and not for compensation.

I don't see anything inappropriate with that. When working in a gray area where the IRS might take a different view I think it is a good idea to estimate what an adverse ruling might cost the client. If I am reading your last post correctly, it looks like you are taking a conservative approach by valuing the 1245 stuff at cost, so the maximum recap will be depr. allowed /allowable. In regards to the H2O heater example above, even though the asset might not have any salvage value, it does have value to the buyer of the building. While that value might not be much by itself, accumulated with other items the value can be significant. For example, say there are two equal buildings for sale except one needs a whole bunch of fixtures etc replaced. The building that has all the fixtures working is going to have more value even if they are fully depreciated, vs the building that needs thousands of dollars of new stuff to make it usable. That extra value comes from those depreciated assets. I would not let the finger point at me when the question arises as to how the assets were given a zero value. Now getting back to your question as to what the auditor is going to say. That would depend on fact and circumstances and potential understatement of income. The IRS will bring in their own experts when feasible as we see in tax court cases.

I see problems with allocating all assets based on original cost. First of all, while the value of the real estate has more than doubled, the value of the other assets have most likely decreased. Because of that, your client will end up with overstated 1245 gains and understated 1250 gains; to his disadvantage. The question is how much is it worth to find the fmv of the personal assets? If an appraisal is not feasible then work with the client to come up with values. I am cautious as an accountant to never put on an appraiser's hat but will use my judgment on what is reasonable.

You can't have the best of both worlds. Since you depreciated as 1245 you recapture as 1245. You allocated based on fmv.

SaraEA got me back on track, I think you could have a strong case that father has equitable ownership and your client would not report rental income. Case law has allowed taxpayers without legal ownership to deduct interest and property tax as equitable owners. Now flip it over and use the same argument that the legal owner is not the equitable owner and therefore not required to report the income. For example, look at TC MEMO 1997-551 and put your client in the place of the legal owner in the case. The case involved an unrecorded quit claim, if your client goes a step farther and records a quit claim deed it would help wash his hands of equitable ownership and pass it on to father. I would work with a trusted real estate attorney to address the equitable ownership issue. Then going forward, look at how equitable ownership is applied to a residence converted to rental in TC SUMMARY 2008-84. If father is not your client, then his United States income is not your concern, although it would not hurt if you were involved to see that it was properly reported. I would also look to see how much extra tax your client would have if income and expenses were reported by him if and if worth the trouble of doing otherwise. In regards to gift from a foreign country, although form 709 might not be required, I believe your client would report on form 3520 any foreign gift received over $100,000.

Since it is a business expense, why not report on C where it would also factor into calculation of earned income,.. SE income... etc if any?

Agree, client should get asset detail. Sounds like preparer mistake, maybe put in wrong date asset was placed in service.

Lion EA, I read this as an "assignment of income doctrine" issue vs sublease where father collects rent from unrelated tenant and turns it over to son (legal owner of property) to make payments. Does dad even touch the rent or does son collect and make the payment? Agree legal input is needed to sort this out. Phase one of the arrangement is grayer where dad was 'gifting" payments in return for college student to live in the house. Maybe not a gift since dad received a place for his son to live in exchange for providing cash to make payments. On the other hand, if dad had bought the house and kept client out of the transaction , there would be no tax consequence of allowing college age son to live there

and depreciation.

Sounds like your client is the owner and will need to report the rental income and deduct interest and property tax. If the house is sold he will also have to report the sale since dad is not on the title. Maybe dad will reimburse for resulting income taxes.

Agree, moving expenses for self-employed would have been deducted on form 3903; suspended by TCJA. Broker fee is not a moving expense.

Maybe some legal advice is needed.

Sounds to me like client is the owner of home purchased with gifted money. Maybe intent was to someday quit claim deed to father? Is father now living in house and covering mortgage?

Sounds to me like you have an ordinary and necessary business expense that will be paid after the business discontinues operations. Deductible in year paid by cash basis taxpayer regardless of raising eyebrows.

I have not dealt with this issue but it looks to me like you report wages on line 1 to include as earned income and subtract on line 21 to exclude from taxable income. However, IRS might revoke notice 2017-7 to eliminate the double tax benefit that they argued against in Feigh v C. The court firmly held that that the IRS does not have the authority to deny EIC to the payments IRS excluded under Notice 2017-7. The judge was critical of the IRS in it's drafting of Notice 2017-7. The judge stated that Notice 2017-7 contradicted previous court ruling. While it appears to me that the IRS has no grounds to appeal the Feigh case, it may very well follow the advice hinted by the court and rethink Notice 2017-7. As the court clearly pointed out the IRS created the double tax advantage and it would be up the IRS fix it. As far as amending returns to pick up EIC while excluding the payments, as of today that appears to be the law of the land.

The IRS can not take collection activity on the individual mandate penalty, but as Max pointed out that has nothing to do with repayment of PTC.

In order to petition the tax court, you will need to dispute a notice of deficiency or determination. It sounds like you have not got to that point and are still in a cat and mouse game. When you get to that point, the case is assigned to an appeals officer. You do not need to be "admitted to practice before the tax court" to deal with the appeals officer. I dealt with one a couple years ago. Case was resolved in taxpayer's favor within 6 months of filing petition following several correspondence and final telephone conference.

Could you give some detail? How did the IRS botch those returns? That might just create another letter and another problem, besides an inaccurate tax return.

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What I really did not catch was the need for immediate action vs long term resolution, which is beyond PPL.

I did not catch that part.

Looks to me like the 10 SOL started on 11/3/08 and from what you are saying there were no conditions that would have extended the SOL. "Currently Not Collectible" status (CNC) does not suspend or extend SOL. I would respond to the letter and refer to the SOL expiration date under section 6502 Also point out that you are not aware of any factors that would have suspended or extended the SOL per IRM 5.1.19.

Sorry if I am getting off topic, but the whole point of the B trust is to serve as a by pass, set up prior to death of first of spouse to shelter his/her estate tax exemption. Why would it be created and funded for any other purpose?