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DANRVAN

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Everything posted by DANRVAN

  1. On second thought, it could be argued that expenses in respect to the July transaction are related to the acquisition of the 2/3 from brothers.
  2. So it was a forced sale and title passed directly from brothers. As Sara EA pointed out, the July transaction was a related party sale, so brothers B and C have disallowed losses of $6,667 each. The disallowed losses are transferred to brother A and reduce his short term gain to $2,000. Agree that his LT gain is $1,000. Yes to both.
  3. Did the county actually take possession and title of the property. But if the county took possession and title, then sold the property that would change my answer. There would then be three transactions, the first being the foreclosure by the county, which would be treated as a sale for all three brothers offset by DOD adjusted basis. The second transaction would be the purchase by brother A from the county for $79,000. Off the top of my head I don't think that would be treated as a related party transaction, but I would look into it. The third transaction would be the final sale by A of $102,000 offset by $79,000 basis.
  4. I agree with what you are saying. I think it is a good idea to lay out all the options for the client and let him decide which direction he wants to go. As Lee B pointed out the "Build to Suit" route is complicated and risky, but client should be aware of the option.
  5. From an AICPA source: Another potential structure is to insert a "straw man" on the front end to own and construct the property. For example, an exchanger could locate a builder who will act as the straw man and acquire land or a building to be renovated and construct the desired facility or make the requested renovations to what will be the replacement property. In this example, the builder is the owner of the project while the construction is taking place. This means that the exchange process has not started and, more importantly, that the 180-day exchange period has not started, so any construction delays are not potentially disqualifying. When the replacement property is ready, the exchange can be executed using a standard forward exchange. Under the straw man exchange structure: An unrelated party acts as a straw man to own the project while construction or renovation is taking place; The actual exchange does not happen until the relinquished property is sold and the replacement property is ready for use; A standard forward exchange can be executed; Construction or renovation can begin before the sale of the relinquished property; and The exchange can be further delayed if a buyer for the relinquished property is not identified until after the replacement property is available.
  6. I agree with you on that statement. For the first transaction, brother A purchased the interest of his brothers B and C for consideration of $26,333 each. B and C each had a basis of $33,000 and therefore incurred unallowable losses of $6,667 due to the related party rules. (That is assuming there have been not been any adjustments to basis since mom's DOD). However, for brother A, I can't visualize how he could have actually bought and sold his own share in the same transaction. It appears he is entitled to most all of his share of the $79,000 that was placed in escrow, since the lien is against property taxes owed by his brothers. Therefore, for brother A, the transaction for the most part would be a wash. Any expense he incurs for the transaction will increase his basis. Excellent point! As I see it, he has a basis in his original share of $33,000. Plus he paid each brother $26,333 for their shares. Also per sect 267(d)(1) the disallowed losses of his brothers are also transferred to him. So he ends up with a gain of $3,000 based on the known facts. I have to disagree on that point. He held one third of the property long term and 2/3 short term.
  7. Since the property was sold in it's entirety, as I understand it, a portion of the $79,000 should got back to him So disregarding any other expenses related to the JULY 2023 sell and purchase, your client is entitled to 1/3, $26,333. Then the unpaid taxes owed by his brothers would come out of the balance and the remainder split between them. Each of the two brothers would realize $26,333 from the sale, which would include their tax debt, which was paid off for them, and the actual cash they received. The actual cost to your client for the 2/3 would be $79,000 he paid less the $26,333 he should have received from the escrow account, subject to additional cost and expenses. So as I see it, the basis of his brothers shares is $52.667. For sure the sale November 10 transaction needs to be reported, and get an estimate from clients attorney on which direction the escrow might go. The difference might result in a separate transaction to report in 2024 or an amendment to the 2023 tax return. I don't see why that would apply to the 2/3 from brothers held for four months or less.
  8. The key is he cannot take possession of the land until the building is completed. I don't think the article mentioned another strategy where contractor buys land (not the existing land) and constructs the building before the exchange takes place.
  9. Step transaction doctrine. He sells land to contractor then buy it back? I see an issue of substance over form.
  10. but if he puts a new building on the new land, the building does not qualify.
  11. There is no "exchange" in this situation. Replacement period is moot point.
  12. I believe it is better to request a check, otherwise the bank might reject the deposit since the name on the account does not match that of the deceased tax payer.
  13. Not unless it falls in into the the disguised sales rules and becomes a deemed sale of the asset to the company.
  14. There is not enough information given. The answer is either (a) or $525,000. There is no logic behind answers b or c. Just because the property was solely titled by deceased spouse does not mean it goes 100% to his estate. For example if he acquired the property with money he earned during the married, it could be considered marital property and 1/2 would go to his estate. If on the other hand he acquired the property before the marriage. it would most likely be considered separate property and go 100% to his estate. There are several factors in determining if the property is marital or separate for estate purpose and determining basis. If considered marital property then surviving spouse gets 1/2 stepped up basis, so in this case her net basis is $525,000. Answer (a) would be correct if they reside in a community property state. Apparently you do not understand the concept of stepped up basis; it is a clean slate and prior depreciation is disregarded.
  15. Sect 751 prevents converting ordinary income to capital gains at the partner level. It does not apply to corporations since the transfer is a deemed sale to shareholders. And the situation you described is a direct sale unless Sec. 368(a)(1)(D)) is applied.
  16. Why are they selling inventory and recognizing income instead of a Type D tax free transfer if ownership is the same? 751 applies to transfers from partnership to partners. Transfer of corp. assets is an entirely different ball game.
  17. I use excel spread sheet to allocate and summarize. Several years ago I did one for a new client with 1040x because original had been totally blotched by previous preparer. That and other mistakes were in client's favor by $20,000+. 1040x was audited with no change.
  18. That is correct, it is a separate return which is filed to report UBI.
  19. Report sales on Schedule F and depreciate same amount as cost of vehicle.
  20. That was my first thought, but there are three parties involved. I have never head of anything like it. So if farmer wants to buy a $50,000 pickup from Fast Freddy's auto lot, he delivers grain with the exact same value to Riverside Grain Grabber's Inc. RGG then forwards the money to Fast Freddy. Seems odd Fast Freddy has no obligation to report for sales tax.
  21. FMV of product is recorded as sales. There must have been a negotiated price before the deal was closed with the buyer. That also becomes basis of vehicle. I have not seen this before, is the buyer of of calves/grain independent from vehicle dealer?
  22. If the nonresidential portion is within the residential dwelling unit, then the exclusion applies to the entire gain except for any depreciation that was allowed. See reg 1.121-1(e) for details.
  23. Due diligence comes first in my book. In this case the the only extra work is probably the form 2553 which is simple. An initial / final 1120-S is not going to be much different than a 1065. Sure they are a couple kids that made a mistake. If they were my clients I might give them a $ break but not a free pass to avoid compliance. Their actions created an entity where the members were paid wages and shared in profit and loss. Why not report it accordingly?
  24. Abatement for ignorance of the law does not apply to inaccurate return by preparer. Late Sub S election and 1120 S covers all the bases with very little extra effort or cost.
  25. From an AICPA source which did not give a cite: "This administrative penalty waiver allows a first-time noncompliant taxpayer to request abatement of certain penalties for a single tax period—one tax year for individual and business income taxes and one quarter for payroll taxes." There is also this possibility: Internal Revenue Manual Section 20.1.1.3.2.2.6 (11-25-2011) Ignorance of the Law 1. In some instances taxpayers may not be aware of specific obligations to file and/or pay taxes. The ordinary business care and prudence standard requires that taxpayers make reasonable efforts to determine their tax obligations. See IRM 20.1.1.3.2.2, Ordinary Business Care and Prudence. 2. Reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. For example, consider the following: A. The taxpayer’s education. B. If the taxpayer has previously been subject to the tax. C. If the taxpayer has been penalized before. D. If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know. E. The level of complexity of a tax or compliance issue. 3. Reasonable cause should never be presumed, even in cases where ignorance of the law is claimed. 4. The taxpayer may have reasonable cause for noncompliance due to ignorance of the law if the following are true: A. A reasonable and good faith effort was made to comply with the law, or B. The taxpayer was unaware of a requirement and could not reasonably be expected to know of the requirement.
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