DANRVAN

An LLC is a creature of state law and has nothing do to with how an entity is taxed, whether it be a corporation, partnership or a sole proprietor.

Peace on Earth and Goodwill to all on the ATX board!

Calendar year can be a powerfull tool for timing expenses to income. Also keep in mind the option to elect accrual method of accounting.

See Reg 1.1014-5(a): (2) Except as provided in paragraph (b) of this section, the proper measure of gain or loss resulting from a sale or other disposition of an interest in property acquired from a decedent is so much of the increase or decrease in the value of the entire property as is reflected in such sale or other disposition. Hence, in ascertaining the basis of a life interest, remainder interest, or other interest which is sold or otherwise disposed of, the uniform basis rule contemplates that proper adjustments will be made to reflect the change in relative value of the interests on account of the passage of time. (3) The factors set forth in the tables contained in §20.2031-7 or, for certain prior periods, §20.2031-7A, of Part 20 of this chapter (Estate Tax Regulations) shall be used in the manner provided therein in determining the basis of the life interest, the remainder interest, or the term certain interest in the property on the date such interest is sold. The basis of the life interest, the remainder interest, or the term certain interest is computed by multiplying the uniform basis (adjusted to the time of the sale) by the appropriate factor. In the case of the sale of a life interest or a remainder interest, the factor used is the factor (adjusted where appropriate) which appears in the life interest or the remainder interest column of the table opposite the age (on the date of the sale) of the person at whose death the life interest will terminate. In the case of the sale of a term certain interest, the factor used is the factor (adjusted where appropriate) which appears in the term certain column of the table opposite the number of years remaining (on the date of sale) before the term certain interest will terminate

I am not clear on your numbers. Are you saying the closing price of the property given up was $350,000? If $100,000 was used to pay off the mortgage and $200,000 was left in the exchange to purchase the replacement property, what happened to the other $50,000 after selling expenses?

The IRS does not close the door with a Notice of Deficiency; they will still accept and consider additional information. They will issue a written response and refer to the date your letter was received by them. I would get a copy of the letter from the client before proceeding and find out exactly how the IRS responded. You should still be well within the 90 day window to petition the tax court.

I would not assume that the amount shown on the 1099 is fmv. Per RIA CHECKPOINT: Even though fair market value of an item is usually considered the price that a willing seller and a willing buyer would agree to, the Tax Court has taken special factors into account in determining the fair marketvalue of awards and prizes. Where it is obvious that a prize winner may not be able to resell the prize for as much as the contest sponsor paid for it, resale value at the time of receipt, not cost, determines the amount of income.43 Value to the winner44 or cost to the payor45 may also be used as factors. 43McCoy, Lawrence W, (1962) 38 TC 84138 TC 841, acq 1963-2 CB 5.44Turner, Reginald, (1954) TC Memo 1954-38TC Memo 1954-38, PH TCM ¶54142, 13 CCH TCM 462.45Wade, Nathan, (1988) TC Memo 1988-118TC Memo 1988-118, PH TCM ¶88118, 55 CCH TCM 413.

While this issue is not black and white, I believe the key words here are "significant services" per the IRS pubs. Does the client provide food or maid service including changing the beds and cleaning on a daily basis? On the other hand, are the guest left to fend for themselves for the duration of the stay? My wife and I recently stayed at a "loft" through AirBnB while attending a wedding. We really did not have any "significant services" provided. Although I thought the place was fine, my meticulous wife decided the place need a little dusting and the bedding changed before we settled in for an enjoyable weekend!

Bottom line, personal use; no deduction.

You might point out to the client that per reg 1.641(b) the deductions of an estate are generally the same as an individual. I would also refer the client to reg 1.212-1 that explains when nonbusiness expenses are deductible: (a) An expense may be deducted under section 212 only if— (1) It has been paid or incurred by the taxpayer during the taxable year (i) for the production or collection of income which, if and when realized, will be required to be included in income for Federal income tax purposes, or (ii) for the management, conservation, or maintenance of property held for the production of such income, or (iii) in connection with the determination, collection, or refund of any tax.... (h) Ordinary and necessary expenses paid or incurred in connection with the management, conservation, or maintenance of property held for use as a residence by the taxpayer are not deductible. However, ordinary and necessary expenses paid or incurred in connection with the management, conservation, or maintenance of property held by the taxpayer as rental property are deductible even though such property was formerly held by the taxpayer for use as a home. ******** While the Knight case referred to by jmdaviscpa centers on whether an investment expense is subjet to the 2% rule, it also places the estate in the "hypothetical situation" of an individual in determining how the expense is treated by the estate. If in your client's situation the house was treated as an investment (for sell instead of for personal use) the exenses would be added to the basis. Hope this helps.

Did the extra income push him out of EITC range?

You have the burden of proving that the income was not taxable. The agreement is key evidence, you don't have to present it, but I believe you would have a weak case without it. Also, before you decide this is a case you would take to tax court, you might want to review how the judge determines what is credible: "Credibility includes those qualities of a witness that makes their testimony believable. A witness’s testimony is evidence. The believability of evidence is one of the most important parts of a trial. There are certain factors that tend to increase a witness’s credibility, including: AccuracyDemeanorLack of biasMotivation for testifyingA credible witness has first-hand knowledge of the case and accurately states the facts. They’re consistent in telling and re-telling their story. A credible witness is confident and knowledgeable. If a witness has an emotional or personal interest in a trial’s outcome, their credibility can be challenged for bias. On the other hand, an impartial witness has greater credibility. If a witness has nothing to gain, financially or personally, credibility isn’t a problem. There’s no reason to challenge the witness’s motivation for testifying"

The question still remains as to why the lender made the payment. You really can't go forward with this until you see a copy of the agreement that the lender made to pay the borrower. That will carry a lot more weight than the client's testimony (as the courts often refer to as self serving testimony). So this is a new client. Is he being straight forward with you? Any chance he might have come looking for a different answer than what the original preparer gave him? How much did the lender pay him?

I think you have more research to do. The IRS will have a strong case that there were two transactions: 1. The foreclosure. 2. An agreement not to contest the foreclosure. While section 1001(b) addresses transaction #1, it does not address #2 where it appears the taxpayer was paid to not take action against the lender. That is similar to the sale of a business and a noncompete agreement which are reported separately. A noncompete agreement is similar since the seller is compensated for not taking actions that would interfere with the business and is considered ordinary income. Was there a separate agreement not to contest the foreclosure? How much was paid? I am not saying you don't have a case, but it looks like you need more ammunition.

The purpose of form 8275 is to prevent penalties if a position you take on a tax return is ultimately disallowed. Relief from the penalties is obtained if you can prove your position had reasonable basis. Form 8275 has nothing do with following what was reported on a 1099 (which was correct since rent of $600 or more was paid out). In this case the taxpayer is following the rules by not reporting the rent since the apartment was rented out less than 15 days. The taxpayer is not taking a questionable position so 8275 does not apply. There is no position to disclose. If it turns out the apartment was rented for more than 14 days, form 8275 will not provide relief from penalties since the taxpayer either reported the information incorrectly or did not keep good records. In this case the preparer should verify the number of days the dwelling was rented. Per the instructions for form 8275: "If you failed to keep proper books and records or failed to substantiate items properly, you cannot avoid the penalty by disclosure".

I don't believe 8275 is appropriate at all in this situation and contradicts Mr. Pencil's statement that per the IRS instructions "this income would not be reported." It is my understanding that form 8275 is used for a position that might not conform to IRS rules for which you have reasonable basis for substantiation. Reasonable basis means the position has at least a one out of three chance of being sustained on its merits. In regard to the 14 day rule, that is black and white. How is form 8275 going to save from penalties if the tax payer did not accurately keep track of the number of days the house was rented out?

Was there a contract or an agreement to that effect? Sounds to me like it would be outside of the property transaction and most likely would go on line 21: defiinetly no SE tax.

Maybe it's to early on Monday morning for me to think this through, but how are they going to get a 40,000 contribution from a 10,000 investment?

Even if you could establish that the court house was a place of business, and therefore becomes the business premises, I believe the meal would have to be served on the premises, not at a "restaurant near by". 　

Agree, and its not just small employers, but also medium size and large size employers like FED-EX.

The only issue I can see would be if section 179 was taken and gift was made before the end of depreciable life; recapture.

Now that is creatave accounting; modify the tax code to benefit your clients!

It could be deducted on Sch A only if it qualified as a second home: personal use more than the greater of 14 days or 10% of the days it was rented.

We take part in all the Holy Week activities in our Parish starting with Holy Trursday Mass to celebrate the Lord's Supper. Our faith is a tremendous source of strength.

I do not have any experience with Christmas Trees either. Might be elgible for Schedule J farm income averaging.