DANRVAN

Terry, the issues here is not "for profit". Section 280A disallows most expenses for a personal residence when rent is below fair market value. The only allowable expenses are for those that go on schedule A, property tax and mortgage interest. Section 280A closes a loophole of writing off personal expenses of a second home owned by the taxpayer, regardless of who lives in it. It's different for a business. You can charge half price for tax work and still write off all your office expense as long as you are still doing it for a profit.

The only imputing rule I can think of is for below low market interest loans under section 7872, which actually makes sense. If there was a "general imputed income doctrine", we would be taxed on any returns we prepared for less than the going rate!

Imputed rent? I have never heard of it. It is well know fact that below fmv rent limits deductions under section 280A. Under what authority can the IRS impute rent which would otherwise be considered a gift?

No. There is a general misunderstanding that farmers must file by March 1st. However they can avoid paying estimated tax penalties if filed by the March 1, provided that 2/3 of their gross income is from farming; that includes gross income from form 4835. Form 4835 is used when rent is based on production, such as a percentage of the crop sales or calves sold. The land lord shares part of the risk. In regards to the pasture rent, that would go on schedule E, unless the rent is based on percent of gain. That would be the case if tenant was grazing steers and rent was based on how much they gained. In that case 4835 would be used since landlord is taking risk. Percent of production arrangements usually qualities the property for special use valuation under section 2032A for estates. In regards to the pond work, it depends on whether is was routine maintenance or major overhaul.

I don't see a concern with state of California. We get transplants here so I am aware of California Conformity to fed tax code and adjustments for differences. I am not aware of any adjustment for difference in recognizing dissolution of corporation. ************************************************** California Conformity to Federal Law On September 30, 2015, AB 154, the Conformity Act of 2015 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2009, to January 1, 2015. California’s conformity results in numerous substantive changes to both personal and corporation tax law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2009. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, get FTB Publication 1001, Supplemental Guidelines to California Adjustments.

The first thing I would ask is how much is he charging her?

The IRS and the courts could care less about state law. Note what Reg § 1.6012-2 posted above says "whether or not under State law it may thereafter be treated as continuing as a corporation" Also, Rev. Rul. 54-518, 1954-2 CB 142 states "There is no provision insection 112(b)(7) of the Code, and the regulations promulgated thereunder, which requires the formal or legal dissolution of a corporation. However, for the purpose of this section, where, as in the instant case, a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated within the calendar month, there is in effect a de facto dissolution even though the corporation has not been formally dissolved. See I. T. 3871, C. B. 1947-2, 62; Rev. Rul. 215, C. B. 1953-2, 149; A B C Brewing Corporation v. Commissioner, 20 T. C. 515" Also note what the IRM states: 4.11.7.4 (12-01-2004) Definition of "Complete Liquidation" "Complete liquidation" is a term not defined by the Code. The regulations under IRC section 332 suggest that the status of liquidation exists when the corporation ceases to be a going concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders. The Tax Court applies a three-pronged test to determine whether a complete liquidation has taken place (see Joseph Olmstead v. Commissioner T.C. Memo 1984-381): Was there a manifest intent to liquidate? Was there a continuing purpose to terminate corporate affairs and dissolve? Were the corporate activities directed and confined to that purpose? Dissolution under state law or lack thereof will not be controlling for federal tax purposes. Intent coupled with actual distributions to the shareholders are the usual determining elements. IRC section 346(a) allows for a series of distributions pursuant to a plan of liquidation to be treated as being part of a complete liquidation. If the plan is not formal or is ambiguous, there may be uncertainty as to which distributions are made pursuant to the plan. Distributions made before there is evidence to support an intention to liquidate should be taxable as dividends (ordinary income to a shareholder). The U.S. Tax Court's decision in Pittsburgh Realty Investment Trust v. Commissioner, 67 T.C. 260, 1976, shed some light on a corporate liquidation. The Court stated that: The determination as to whether and/or when a corporation has liquidated is a question of fact. Proof of a distribution in complete liquidation not only depends on an intent to liquidate but also requires acts which demonstrate and effect that intent. A corporation in existence during any portion of a taxable year is required to make a return. If a corporation was not in existence throughout an annual accounting period (either calendar year or fiscal year), the corporation is required to make a return for that fractional part of a year during which it was in existence. A corporation is not in existence after it ceases business and dissolves, retaining no assets, whether or not under State law it may thereafter be treated as continuing as a corporation for certain limited purposes connected with winding up its affairs, such as for the purposes of suing and being sued. If the corporation has valuable claims for which it will bring suit during this period, it has retained assets and therefore continues to exist. A corporation does not go out of existence if it is turned over to receivers or trustees who continue to operate it.

At $135,000 I would take a hard look at. I see two issues, first would the corporation need to file amended returns if the tax is paid at the corp level. Secondly if the shareholders claim the refund is there an assignment of income issue. I believe you are off the hook on the first issue. Per Reg 1.446-1(c)(ii) "under an accrual method, income is to be included for the taxable year when all the events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy". The second issue opens a can of worms tried by case law where reference is given to Reg § 1.6012-2 Corporations required to make returns of income; which states "A corporation is not in existence after it ceases business and dissolves, retaining no assets, whether or not under State law it may thereafter be treated as continuing as a corporation for certain limited purposes connected with winding up its affairs, such as for the purpose of suing and being sued. If the corporation has valuable claims for which it will bring suit during this period, it has retained assets and therefore continues in existence." There are a number of cases you can look at. "SIGURD N. HERSLOFF, 46 TC 545". In this case, it was determined that an asset award due to a dissolved corp. was not taxable to the corp. but to the surviving share holders. The opinion reads: "Considering anew the issue in this case, we are of the opinion that since both dissolved corporations had ceased business, were without assets, were not being operated by the newly appointed trustees, the dissolved corporations must be regarded as fully liquidated and no longer in existence for tax purposes. Accordingly, we hold that the Commissioner erred as was alleged by petitioners in their assignment of error previously set forth herein." Here are a couple more cases you might look at: Beauty Acquisition Corp. v. Commissioner, TC Memo 1995-87 is a case where the IRS failed to prove "the corporation has valuable claims for which it will bring suit during this period". Therefore the income was not taxable to the corp. JAMES PORO, 39 TC 641 where a lawsuit asserting a claim of the corporation was started several years after distribution of all corporate assets and was filed in the name of trustees in dissolution of the corporation, the Tax Court held that the claim was asserted on behalf of the shareholders, rather than the corporation. Thus, the corporation was not subject to tax on the collection of the claim I think you have a strong case in favor of reporting the refund to the shareholder. I would discuss the regs and case law with him, and document that discussion. One thing that is certain is the corp. did not bring suit against any valuable claim per Reg § 1.6012-2.

They need to consider who is going to get credit for SS earnings.

Dealers and salesmen are such a great source of tax advice.

Agree with Bulldog.

So in the case of partnership with income from only rentals, you are creating an ordinary loss by deducting the expenses mentioned above on page 1 of 1065. That is not supported by the IRS document in your link.

Still personal property so the choices are line 21 or C. From what you are saying the activity is carried out in a manner that indicates a degree of recurrence, continuity, and availability as described in R.R.77-356.

The bottom line is not the same. An ordinary loss and passive loss can have very different tax consequences. The expenses are those of managing a passive activity and therefore should be allocated to the passive activity. The expenses of a partnership that is strictly involved in a passive activities should be allocated to those activities. If the partnership has both business activities and rental activities then an allocation would depend on reasonableness and materiality. Beside the annual fee, you also mentioned that legal fees, office supplies and accounting/tax preparation fees should be reported on form 1065. Can you give a cite where these expenses are allowed to create a ordinary loss when there is no ordinary income?

I disagree with your logic. Maybe it's because it Friday night, I am fighting the flu bug with a pounding headache, but I don't see how you can justify creating an ordinary loss from a passive activity.

Yes, that is true. It is not that difficult to make a reasonable allocation.

Income from rent of personal property does not go on Schedule E. If not a trade of business it goes on line 21.

What I meant to say was: send only the corrected W-2c with the W-3c, and send only the omitted W-2 with a new W-3. Thanks for the reply Rita.

I don't see issue with allocating, but see an issue of creating ordinary losses as described in original post.

Maybe the return was prepared by the "Tax Doctor" and he prescribed some under-the-counter deductions for chronic tax pain.

Depends on the facts and circumstances. If not for profit it goes on line 21.

Client has already submitted W-2s and discovered "short term" employee that did not have wage reported and another employee with under reported wages. It appears the cure is to submit a new W-3 that includes only the omitted W-2 and submit a W-3C for the corrected W-2. Can anyone confirm that is the correct procedure? Thanks

Tax court disallowed $5,000 as personal auto (commuting), the rest was unsubstantiated except for $120 in tools, which court recognized was not enough for to itemize on Schedule A.

Sorry my math was off, Example should have been $45,000 before GP of $15,000. Managers K-1 would report $25,000 and other partners $10,000, all on line 2.

Obviously, W-2 should have been issued. There might be a case for line 21, but that could ultimately be decided by tax court, IRS will probably not buy it. Ron mentioned the options to push it back to sister-in-law with SS-8 or 8919. Sounds like client needs to be informed of all options and possible outcome of each as it is not a black and white case. Has client addressed the situation to sister-in-law? How much income are you dealing with.