DANRVAN

Sounds like a bypass trust was setup to minimize estate taxes.

I agree that 4835 would be a good place to report the patr div, but would leave land on E unless he is receiving crop shares as rent. In reguards to the past gift of grain (which should be taxable income to dad and not son), dad is the one who is putting himself on the line by not reporting it. I am not 100% sure what your responsibilty as tax preparer would be.

If the son is working with dad on the farming operation, then you might be dealing with a misguided form of commodity wages. This article does a good job of covering the nuts and bolts of how it should work: http://www.cpaontheweb.com/listings/51.html

Sounds like the real issue here is "assignment of income". The courts have been firm on this. The grain income most likely belongs to Dad. That might be why your client was looking for a new tax preparer who is not savy to this income shifting scheme.

Those facts might be true, but that does not make it a bona fide loss. Reg § 1.165-1 In this situation the unfortunate taxpayer was compelled to enter into an agreement with a friend for personal reasons (home mortgage) instead of selling it on the open market in an arms length transaction. That fact was clearly stated by the original poster who seemed skeptical about taking the $11,000 loss until he received the blessing of this board. There is glaring evidence that adequate consideration was not likely received by the taxpayer. That is where the taxpayer has burden of proof and tax preparer needs to use due diligence and professional standards. Very unlikely that FMV equals balance on note and that was the best price taxpayer could get on the open market. Also highly unlikely that FMV dropped 75% in such a short time period. (again we dont have the facts but based amount of depreciation shown it could have been less than two years.) The non business purpose of the transaction, the unclear agreement with the friend, and the extremely low amount of consideration received indicates to me that this was not an arms length transaction and the taxpayer needs help in cleaning up this mess.

So you would take a $11,000 loss due to "an agreement with a friend" at face value. In my opinion that shows a lack of due diligence. Sounds to me like some more digging needs to be done.

In my area, there is actually a higher demand for used trucks because of the poor economy many people can’t afford new ones Judging by the amount of depreciation, this one may have only been in service for 2 years or less (assuming 100% business use and luxury rules do not apply). At any rate, it seems highly unlikely that the FMV would have dropped 75% in such a short time period. But if that is the case, it should be well documented in your files. In many cases an “agreement with a friend” does not include fair market value. (a) (a)Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer.

At a glance, it looks like this was a transfer to a friend at less than FMV. I would question as to whether it was an arm's length transaction. Maybe there are some strings attached.

If son is 50% partner for profit and loss, then his share of losses will reduce his self employment income. You should get a copy of the partnership agreement before you proceed.

I am looking for someone who has experience in PLR involving Code section 408(d)(3)(I). In this case, the exception is for death of spouse and rollover was made after 60 days. If anyone has experience with the hardship exception and wishes to kick it around, please respond. Thanks.

I am not familar with your area, but out here timber does not grow much in two years. I would find out what the market price per board feet was at time of purchase and apply it to the volume sold to determine basis. Timber prices have fallen out here since 2006. Good luck, Dan

Dependency exemption—earned income credit—incarcerated child—proof of support; principle abode. Taxpayer was denied dependency exemption for son who was incarcerated during entire year at issue: taxpayer failed to show that she provided more than 1/2 of son's support where she wasn't required by state to support son while incarcerated and amounts she voluntarily contributed to account for him to purchase allowable incidentals was significantly less than support provided by state. Also, taxpayer was denied EIC where son wasn't qualifying child under Code Sec. 32©(1)(A)(i) : he didn't have same principal place of abode as mother for more than 1/2 of year at issue. (Latanya Haywood v. Commissioner, (2002) TC Memo 2002-258 , 2002 RIA TC Memo ¶2002-258 ) Maybe this will help. Good luck, Dan

That's a common misunderstanding and tax trap of installment sales! In an installement sale, all depreciation is repcaptured in the year of sale as an ordinary gain, as was done here by JenMO. I believe the worksheet is throwing you off since 100% gain was realized in year of sale. Subtract the basis of the obligation related to the equipment ($9,640) from the FMV on date of repo. For example if the FMV was $10,000, you will have a gain of $360 and basis of $10,000 in the equipment. Check out Pub 537. Dan

Sounds like you need to amend your client's 2007 Schedule C and form 1040. Good luck, Dan

Thanks for your responses Kea and Jack. Dan

Can anyone tell me if it is possible to E-FILE Form 511-NR? (My ATX program does not create an e-file) Thanks Dan

Well for starters, it depends on what type of trust you are dealing with. Dan

That’s a million dollar question Dan. The IRS is taking the position that all CRP income is subject to SE Tax, see CCA 200325002 and Notice 2006-108, 2006-51 IRB. The IRS no longer says in Pub 225 that inactive farmers and landlord can report CRP income on form 4835. There is supposed to be a provision in the Farm Bill that retired farmers are exempt from SE tax in regards to CRP. Last I heard, congress is still wrestling with the current farm bill.

You have to be kidding. Why would it take two hours to read a simple trust document?

And you certainty would not commingle those activities.

A lease-hold is an intangible per Reg § 1.162-11. The buyer will amortize it, your client will treat the sale of it the same as goodwill, capital gains.

Why would a trade-in trigger recapture if he is paying boot?

All you need to know is the volume of the timber cut and the timber market price on the date the property was purchased. Since this was a recent purchase, there is probably no growth factor to consider.

I can't seem to find a 1041 payment voucher to use when e-filing 1041 with payment due. Can anybody point me in the right direction? Thanks, Dan