DANRVAN

2 hours ago, Lee B said:

The property can be both section 1231 and section 1250.

That is correct, I think of 1245 and 1250 as subsets of 1231 property.   Sec 1231(b)(1) includes property "of a character which is subject to the allowance for depreciation provided in section 167, held for more than 1 year".

Section 1250 applies since 1250(c) states  "the term “section 1250 property” means any real property (other than section 1245 property, as defined in section 1245(a)(3)) which is or has been property of a character subject to the allowance for depreciation provided in section 167."

Therefore,  the undepreciated portion of the building and land are taxed as capital gains.

Because of the above definitions, the rental does not need to rise to the level of a trade or business to be classified as either 1231 or 1250 property.

It is not a new form or concept, been around for as long as I can remember doing taxes; and referred to in multiple replies to the OP above.

1 hour ago, Marie said:

can I efile, or must I paper file

You can e-file the previous two years when they start accepting business returns in the next week or two.

1 hour ago, Marie said:

use the 2022 return

Use 2022 for periods beginning in 2022 and ending in 2023.

On 12/22/2023 at 10:05 PM, Corduroy Frog said:

but I think at a recent seminar, a new form was introduced, whereby all of the prior depreciable amounts are added to income, but the accumulated amounts plus current year is allowed as a deduction. 

I think you are confused.  That does not make any sense at all.

On 12/21/2023 at 2:53 AM, Sage said:

client recently found out business return (1120) has not been filed since 2012 for serval years.

How did he find this out?

5 hours ago, Sage said:

picture of handwritten P&L showing loss

I suppose he could file using those as his representations.

Still lots of unanswered questions. 

How long has the business been closed.

Was this a Sub S?

Does he know if any returns were ever filed?

Was he the sole shareholder?

Did he take a wage? Has be been filing his personal returns?

Did the Corp own any assets, and if so what happened to them?

5 hours ago, Sage said:

Would filing a POA for me to request transcripts wake up the sleeping dog.

Most likely not. 

If he really wants to know if any any assessment have been made try calling the PPS hotline.

1 hour ago, Sage said:

Does 1031 incur a higher taxable gain when the 1031 property is eventually sold?

No, the gain from the first property is deferred to the sale of the second property.

The total gain is the same, but there a possibility that the combined gain on the second sale could push the taxpayer into a higher tax bracket.

and Merry Christmas to you and all on this board!

6 hours ago, Sage said:

There is no book, only pictures of hand written P&L showing loss for all those years.

Without knowing all the facts, I would probably let him know there it not enough information to file complete and accurate tax returns after all these years.

I would be carefull how I phrase it, but after 10 years how likely is the IRS going to contact him now?

1 hour ago, schirallicpa said:

I just don't see where I can put in anyone else's information.  Mine is in there and I can click in and out of "make a payment" all day and it still has my info in there. 

So to get this straight, you are trying to set up client accounts for the first time?

Go to the home page but do not log in.  You will see a tab to "enroll"

https://www.eftps.gov/eftps/direct/EftpsHome.page

I just did one few days ago.

16 minutes ago, Terry D EA said:

For form 1120S, it would have to be amended to reflect the credit amount taken against the PR liabilities as well correct?

 

That is correct. 

I am curious, are these 1120-S returns that you prepared?

11 hours ago, Corduroy Frog said:

I have indeed printed out 15 pages of 172(a) and will read it.

You are making it way to complicated.  You don't need to read past paragraph (a) titled "Deduction Allowed".

8 hours ago, Terry D EA said:

If employer A did not reduce the wages on form 941 for the affected periods, they must file form 941X to amend the wage deduction.

Wages are not reduced on form 941, just the employer's deposit liability by the credit.

8 hours ago, Terry D EA said:

if Employer filed form 1120S with the full wage deduction and did not reduce the wages by the credit amount, form 1120S MUST be amended

That is true to prevent a double benefit.

6 minutes ago, Corduroy Frog said:

So in my example, if the taxable income is due to Capital Gains, there would be no offset.

Incorrect.

Suggest you review sect 172(a).

2 hours ago, Lee B said:

Reminder:   The IRS considers NOL and Capital Gains to be two different classes of Income, which cannot be used to offset each other.

Maybe some confusion in how I am reading your statement; but I think you are referring to the year of loss and carryforward computation.

In the year of deduction the limitation is taxable income (with 80% rule)  without regards to section 199A.

We also have a lawyer on our finance committee that offers help with those types of issues.

40 minutes ago, schirallicpa said:

Auxiliary of the church.  It's actually for the cemetery maintenance. 

Oh, that changes my answer.   per:  https://www.irs.gov/charities-non-profits/churches-integrated-auxiliaries-and-conventions-or-associations-of-churches

"Churches (including integrated auxiliaries and conventions or associations of churches) that meet the requirements of section 501(c)(3) of the Internal Revenue Code are automatically considered tax exempt and are not required to apply for and obtain recognition of exempt status from the IRS."

So now what is the next step? If this was my local parish, I would furnish the above information to the investment group.

If that did not work, I would ask the CFO of our Diocese for help in resolving the matter. 

4 hours ago, schirallicpa said:

This organization is an auxiliary.

Out of curiosity, auxiliary to what type of organization?

4 hours ago, schirallicpa said:

the investment firm wants proof of exemption. 

It looks like they will need to apply for tax exemption.

7 hours ago, schirallicpa said:

I have been given an organization that's been around since 1937.  No 990 of any sort ever filed. 

Have you tried the IRS TEO search?  https://apps.irs.gov/app/eos/

3 minutes ago, Terry D EA said:

now I am inundated with advertisements to buy their reasonable compensation software with a $400.00 price tag. A scare tactic maybe to get people to jump on the software???

Now I am convinced it was made up as well, after I have beat it up trying to figure out how sec 6694 could apply!

47 minutes ago, kathyc2 said:

You may want to review Rev Proc 2009-11

In OP situation there is zero liability or understatement on the 1120-S; even though the preparer of the return is subject to 6694 per Rev Proc 2009-11, (which also includes form 1065).

As I explained in a post above, in order for 6694 to apply in this case, it would come from an understatement of the shareholder's income tax liability.

For example if a sole shareholder claimed a $50,000 tax free distribution instead of a wage, the understatement of liability would end up on his form 1040.

12 hours ago, DANRVAN said:

Okay, here is a possibility.  Accountant prepares 1120-S and K-1 showing distributions and zero wages while there was no doubt shareholders were providing substantial services to the corp.

If in fact that is the case, the 6694 penalty would be avoided by using a 1099-NEC (right or wrong) to avoid the 6694 penalty as I also mentioned.

1 hour ago, Catherine said:

Because we know most of them would then take their papers to some shyster who will let them continue to mess up for years to come.

Sound like the guy Terry mentioned in his OP specialized in those.

40 minutes ago, Catherine said:

Keep in mind, this is not my decision to make, but the client's. I give the client the options and let them decide (and document that).

That is the key.

41 minutes ago, Catherine said:

In the cases I've done that, the return is already late, and e-file re-opening is less than a month, rather than more than two months.

If filed by Dec 15, the return will be two months late from the extended due date.  If filed after Dec 15, three months.  If e-filed after Jan 15 four months, so the late penalty increases from 10% to 20% between now and then.

Even though there  might not be any penalty because there is zero tax due, that could change if there was unreported income, or denied credits or deductions.

The return is now eight months past the normal filing date.  They can wait a little longer for a refund if that what it takes; I am not sitting on unfiled returns for 30+ days for a number of reasons.  

1 hour ago, Lee B said:

It does result in a substantial understatement of employment taxes at both the federal and state level.

That is true, but it is not going to result in a section 6694(b) penalty of  $5,000.

On 12/9/2023 at 12:51 PM, Terry D EA said:

The IRS recharacterized the distributions as wages and penalized the preparer (CPA) 100,000 for negligence, reckless disregard and assisting clients in evading taxes.

Okay, here is a possibility.  Accountant prepares 1120-S and K-1 showing distributions and zero wages while there was no doubt shareholders were providing substantial services to the corp.

Then accountant prepares 1040 (or in this case 20 of them) based on the K-1 he prepared which shows zero wages.  

Now there is an understatement at the 1040 level and IRS as the burden of proof to show:

a. There is an understatement of liability which is due to a willful attempt in any manner to understate the tax liability by the preparer, or

b. The preparer has recklessly or intentionally disregarded rules or regulations.

On 12/11/2023 at 8:37 PM, DANRVAN said:

There appears to be a common practice of reporting the distribution on 1099-NEC for the year in question, and then bringing client into compliance in following year

In this situation, there should not be a substantial understatement on the 1040 (and lets leave off the 199A deduction) for the year in question by reporting on Schedule C instead of W-2 wages.  And since there is not a significant understatement, there is not a potential sec 6694 penalty.  Although the 1099-NEC amount could be reclassified as wages, the bottom 1040 liability should not be significantly different.

Not saying that is the proper way to handle it.