DANRVAN

8 hours ago, cpabsd said:

If the 1099 is not for the full $345,000, how would i possibly determine the amount it is for?

The consulting fee is a service deductible by the buyer when paid and taxable to the seller when received.

Per the agreement, it appears 15% of each payment will be allocated to the consulting fee.

This is a buyer friendly part of the agreement.  Unlike the Goodwill which is amortized over 15 years.

8 hours ago, cpabsd said:

$115,000 was paid as a down payment with the remainder being the owner financed  - $42000 paid on principal during the year.  

1099 amount for the year is $23,550 by my math.

8 hours ago, cpabsd said:

Goodwill/client list       1,840,000

Furniture                          69,000

Non compete                   46,000

Consulting                        345,000

allocated: 80%, 3% ,2%, and 15% 

6 hours ago, jklcpa said:

any items in the sale that are ordinary income are reported in the year of sale and are not eligible for installment sale reporting.

I believe there is some confusion in that statement.

I am not aware of any reference to "ordinary income" in section 453.

In regards to depreciation recapture, 453(i)(1)(B) basically states that any gain in excess of recapture income shall be treated as installment sale income.

Also, there is not any reference given in the exceptions listed in 453(b)(2).

Thank you for the heads up, I haven't got there yet. Been working on business returns this week.

On 1/19/2024 at 9:31 AM, Lee B said:

However it didn't clear my checking account until Tuesday January 2nd.

I am going to treat just like an outstanding check.

And ODR will treat as paid on 12/28 as well.

On 1/19/2024 at 9:48 AM, Medlin Software, Dennis said:

have a client who would hold incoming checks for months at the end of their year.  Tens of thousands of dollars. Passed audit just fine several times

Clearly income in year received.  Hard to imagine agent missed that on multiple audits.

On 1/19/2024 at 9:59 AM, Medlin Software, Dennis said:

did not get 1099's, and if they did, I am certain they would have refuted them as being not required, so not valid. 

But that does not make any difference,  doctrine of constructive receipt rules since he had control of the funds on 12/31, regardless of 1099s.

On 1/22/2024 at 9:28 AM, schirallicpa said:

you may need to amend your return" letter. 

If you filed it correctly then there is nothing to do but move on.

On 1/18/2024 at 3:27 PM, Bungee10 said:

the state filing included "LLC" while the federal filing, SS-4,

SS-4 needs to use the state filing name.

On 1/18/2024 at 4:11 PM, Bungee10 said:

I think I can just mark the name change box on the 1065 form in 2023

That should work.

On 1/18/2024 at 4:11 PM, Bungee10 said:

However, if the bank requests documentation of the name change

The bank probably just wants to see the correct name for their records.

On 1/18/2024 at 3:27 PM, Bungee10 said:

helped a client set up an LLC with two partners

Hopefully you were not giving out legal advice.

3 hours ago, Patrick Michael said:

Total revenue on line 9 does not equal the total revenue on the P and L.

My guess is that the P & L total revenue reports the gross amount from the fund raiser; and the cost is included with total expenses.

The line 18 amount on 990-EZ should match the P & L bottom line net amount.

On 1/13/2024 at 4:02 PM, Terry D EA said:

invests the funds contributed into a venture (another business)

The relationship between the your client ( a partnership) and this other business is the key in determining whether there was a capital loss or ordinary loss.

If it was another partnership and your client can pass the test to prove it was either worthless or their share was abandoned,  then you will have a case that it was an ordinary loss vs a capital loss.

It appears you are trying say the partners of your clients partnership need to claim their interest is worthless or abandoned to claim a loss.  But that is not the case.

On 1/13/2024 at 7:54 PM, Terry D EA said:

75,000 cash contribution - 2022 ordinary income loss $400.00 = 74,600.00 remaining capital - 2023 loss $600.00 = 74,000.00 remaining capital.

Once the partnership has recognized the loss of the invested $150,000, the 50% partner will have a capital account of -$1,000. (But somebody must have contributed more capital to cover the admin expenses.)

So at this point there is no further loss to claim from worthlessness or abandonment of your clients partnership; since the full loss of each partners contribution has been recognized on their K-1s.

In other words, If the partnership is dissolved nothing is owed to the partners so nothing is lost!

10 minutes ago, DANRVAN said:

Did they invest capital in another partnership or stock in a corp? 

Or something else?

6 hours ago, Terry D EA said:

Three folks get together and form a partnership and make total contributions of $150,000.00 in 2022

It sounds like three partners each contributed $50,000 for total of $150,000.

Partnership invested $150,000 in XYZ Company.   Did they invest capital in another partnership or stock in a corp? 

Either way it appears an investment account should have been recorded as a debit on their books as "Investment in XYZ Company".

Now the investment is worthless so the entry is debit to "loss on investment" and credit to investment account to zero it out.

The result should be a $50,000 capital loss allocated to each partner.

3 hours ago, Terry D EA said:

75,000 cash contribution -

I don't follow, where does $75,000 come from if initial contribution was $150,000 total by three partners?

6 hours ago, Terry D EA said:

partnership reports the loss on part II of form 4797.

Form 4797 is for gain on loss on disposition of business assets.  What you are describing sounds like a capital asset, resulting in a capital loss reported on the K-1s.

3 hours ago, Terry D EA said:

Year one partnership experiences 800.00 loss in ordinary income

3 hours ago, Terry D EA said:

2022 ordinary income loss $400.00 = 74,600.00 remaining capital - 2023 loss $600.00 = 74,000.00 remaining capital

 

Are there two partners 50/50 instead of three?

Sounds like those losses came from admin. of the original partnership?  Someone kicked in extra cash to pay for them and additional capital?

7 minutes ago, Lion EA said:

I don't think it matters that the production company is for-profit.

Not at all. NPs hire accountants, lawyers, contractors, web designers......all the time.

1 hour ago, Margaret CPA in OH said:

donate/give money to a production company to make a film/documentary

Sounds to me like they are hiring the production company to provide services for the benefit of the NP.

1 hour ago, Margaret CPA in OH said:

I know there will be an argument.

With who?

2 hours ago, Terry D EA said:

then it should be pertinenet for them to know how much the previous employer contributed.

Why? What difference would that make if they are offering a generous benefit package to attract talented employee as allowed by the tax code?

2 hours ago, Medlin Software, Dennis said:

most of the 401 plans that are an employer "match"

Not all, and that is the point.  They could use non-elective contibutions as a means of E'R contributions. 

This is not just my opinion:

" non-elective contributions can not exceed the annual contribution limits the Internal Revenue Service (IRS) set ($58,000 annually in 2022)."     (note that information is outdated by two years)

per: https://401go.com/how-do-non-elective-401k-contributions-work/#:~:text=Non-elective plans give businesses,(%2458%2C000 annually in 2022).

2 hours ago, BulldogTom said:

 would be a huge loophole.   69K from second employer and 46K from first employer tax deferred until retirement?

My example might be hypothetical but not unrealistic.  Let's say generous employer #2 had a plan where the full annual addition was funded by employer and new hire met requirements for the plan in first year (2024).  In that case it seems a $69,000 E'R contribution would be mandatory.

As Tex cited above, the 415(c) annual addition limit is not aggregated by unrelated employers.  So new hire is entitled to whatever amount is allowed by E'R #2 plan, whether it be the full $69,000 of another $46,000.

Also, the employee could have an unrelated side business with contributions to a solo 401(k).

2 hours ago, BulldogTom said:

Something about this does not seem right....but I find a lot of things in the tax code that don't seem right.

Sect 415(c) and 1.414(c)–2 look black and white to me.

It sounds like the following would be true for an employee who switched jobs during the year:

If employee's annual addition was maxed out at $69,000 with first employer plan. Then he takes a job with an employer unrelated to the first. The employee cannot make any contributions to the new E'R plan for the year, but looks like 2nd employer could contribute the full $69,000 annual addition under his plan.  Maybe I am missing something?

On 1/8/2024 at 8:12 AM, TexTaxToo said:

I believe that applies to related employers but not necessarily unrelated employers.

That is also my understanding, although I have not dealt in this situation.

12 hours ago, Randall said:

Plannning for a client in 2024.  His 2023 is a done deal and ok.

The limits were recently increased for 2024 per Notice 2023-75.

The total sec 415(c)(1)(A) annual addition, which is the sum of E'R and E'E contributions is $69,000 for 2024.

The E'E contribution limit under sect 402(g) for 2024 is $23,000.

14 hours ago, Randall said:

Is the total limit of $66,000 (which would include employee's $22,500) per employer or total of both employers?

The annual addition limited by 415(c)(1)(A) is per plan participant as I read, as long as the two employers are not related.

I am curious if you are planning for employee or employer?

For an authoritative cite see 1.16-2(c) which has been referred to in many cases.

"Where, however, pursuant to an agreement or understanding, services are rendered to a person for the benefit of an organization described in section 170(c) and an amount for such services is paid to such organization by the person to whom the services are rendered, the amount so paid constitutes income to the person performing the services."

1 hour ago, Ringers said:

had the check for her usual honorarium of $800 made out sent directly to a charity.

Sounds like a "Donations in Lieu of Honoraria",  received  under constructive receipt doctrine since he had control of the funds.

On 1/5/2024 at 11:39 AM, mcbreck said:

hand written 1099-nec's all the time

But there is a huge difference in the complexity and knowledge needed to prepare a  K-1 (and related 1065..etc) vs a 1099.

Also, self prepared 1099's are wide open to mistakes like reporting rents as SE income.  I see it every year!

On 1/5/2024 at 7:02 AM, Terry D EA said:

Lesson I am learning is to not trust completely some of the resources the internet can return.

I think part of the issue is the confusion with the two types of ERC.  They are similar in some ways and quite different in other ways; particularly in the manner the credits are claimed.

The ERC for an inoperable business due to a designated disaster falls under sect. 38 as a general business credit and used as an offset to income tax via form 5884-A.  

They should have been given different names to avoid the confusion!

2 hours ago, Lion EA said:

Paychex was probably qualified to amend Forms 941 based on your client's word that his income decreased the appropriate percentages,

But OP indicated that ERC was due to a business that became inoperable resulting from a qualified disaster and therefore should be claimed on form 5884-A.  In that situation, both the credit and wage deduction flow from form 5884-A to the actual income tax return; which is 1120-S in OP case.

10 hours ago, Terry D EA said:

In this case Paychex prepared the ERC for this client and provided the figures. I am preparing a statement of the periods and qualified wages to attach to the return in support of the form 5884-A

10 hours ago, Terry D EA said:

I know the ERC was calculated and received

Which ERC credit are you talking about?

The ERC for COVID-19 reduction of business income is reported on 941.

There is also a ERC for businesses that became inoperable because of qualified disasters during the years 2018 - 2020 and continued to pay wages.

After reading your post again, it appears that Paychex amended form 941 for COVID related ERC.  If that is the case, then you simply amend the 1120-S (and K-1s) to reflect the reduction in wage expense.  But you do not file form 8554-A, or you will be double dipping and filing an inaccurate tax return.

You only use form 8554-A when a business was inoperable due to a qualified disaster.  That results in an income tax credit rather than a credit applied to payroll tax deposits on form 941.

3 hours ago, Lion EA said:

I'd dig a little deeper.

For sure!

2 hours ago, Terry D EA said:

I am preparing a statement of the periods and qualified wages to attach

I would not attach anything unless it is required.

2 hours ago, Terry D EA said:

should start from the beginning to arrive at hopefully the same numbers.

Is that what you are doing in the above statement?

2 hours ago, Terry D EA said:

What would anyone else do in this situation?

Depends on the facts and circumstances.  But with all the ERC abuse I would ask for some sort of summary.

How well do you know your client, how reputable is Paychex vs some of the ERC mills that have popped up?

Bottom line is you are relying on clients representations, but doesn't hurt to ask for additional information given the recent ERC abuse.