DANRVAN

2 hours ago, kathyc2 said:

QBI income is calculated at the corporate level and reported on K1.

But does not result in an understatement on 1120-S by the preparer.

30 minutes ago, Catherine said:

That paper-filed return could very well be officially received, and then processed, long after e-file re-opens. 

The return is considered filed on the date it is postmarked, regardless of when it is actually processed.

If the return is e-filed after January 15th, there is two additional months of late filing.  

34 minutes ago, Catherine said:

Then the smoking gun gets pointed at you for not e-filing. 

Why would that be an issue?

1 hour ago, kathyc2 said:

It understates payroll tax matching. 

But that does not understate the tax return as signed by the preparer; 1120-S.  Therefore section 6694(b) does not apply.

1 hour ago, kathyc2 said:

Also, if QBI is involved it may cause an understatement of FIT.

Same thing, there is no understatement on the 1120-S.

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.

3 hours ago, Terry D EA said:

However, there was not any court case cited to back up the story. I'm sure the penalties are highly possible

There cannot be an understatement penalty if there is no understatement, I would question the CPE provider.  So he is saying 20 x $5,000, I say prove it.

The only penalty I can see would be under section 6701 as to the resulting understatement on the clients form 1040 for reporting a distribution vs a wage. 

Maybe the IRS could take the position that preparer's role in preparation of the 1120-S was an act of aiding and abetting understatement of tax liability on the individual's 1040.

However, the maximum section  6701 penalty is $1,000 for an individual tax return.

So I question how the presenter came up with $100,00.  

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

20 of those returns, the officer did not take any reasonable compensation.

1 hour ago, Terry D EA said:

I'm sure the penalties are highly possible but was this a real case????

I question that.  The $5,000 penalty falls under sec. 6694(b) for understatement due to willful or reckless conduct on behalf of the preparer.

First of all, the unreasonable wage issue does not result in an understatement  of tax on the return.

Secondly, I don't think the preparer really acts in a willful or reckless manner in these cases, he/she is just reporting on the actual facts and representations of the client.

I am not trying to justify a non-reasonable wage case, but question the potential preparer penalties.

1 hour ago, Terry D EA said:

make sure I'm in complete compliance.

And I agree 100% with you!

On 12/10/2023 at 7:22 AM, kathyc2 said:

When you prepare and sign a return you are stating that it is true and correct.  If there is reasonable doubt, I wouldn't sign. 

Good policy!

On 12/10/2023 at 11:03 AM, Max W said:

Also, bear in mind that the preparer should advise the client of "Reasonable Compensation".  Failure to do so could result in a $5000 penalty for each year involved.

The $5,000 penalty falls under sec. 6694(b) for understatement due to willful or reckless conduct on behalf of the preparer.

Have you seen an actual  "Reasonable Compensation" case where sec 6694(b) was imposed on the preparer?  I have not.

11 hours ago, Terry D EA said:

But... what course do you take if your client says okay let's get it right? Recharacterize the distribution, advise of the payroll penalties and related issues, then prepare the return? I don't see any other way to do so.

Yes, that would be the correct thing to do.

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.  I think that would be a questionable practice.

On 12/9/2023 at 12:56 PM, Terry D EA said:

. I've told the client to wait until we know the IRS has received the return(s) and then use the direct pay to pay the balance due. Would it be better to have him pay what is due now for the remaining years? By this discussion, it sounds like a better idea to do so.

I believe it is best to advise the client to pay as soon as you determine the liability if they wish to minimize interest and penalties.

1 hour ago, Catherine said:

As Lee B said, it does not stop the late filing penalty. But it does stop interest after the payment date (on the tax).

And you don't want the smoking gun pointed at you when client gets extra months of late filing penalties due to waiting to efile on an unknown date in January. 

My advice is to file by mail ASAP, don't sit on it.

9 hours ago, Lion EA said:

And, I've yet to contact my E&O carrier. Probably because I'm hoping they say NO.

The E&O carriers and AICPA are currently backing away with concerns the reporting might be seen as a legal matter, but I think that might change once the dust settles.  

For my existing clients I refer them to the Jan 2024 vs 2005 reporting requirements.

8 hours ago, Lion EA said:

Thanks for the Guide. Just what I need: 57 pages! It's on my desktop to be handy. Hope someone does distill this for us.

It is actually a well written document with a table of contents, chapter summaries, checklist, flowcharts and examples.

About 30 minutes to get a good grasp.

8 hours ago, kathyc2 said:

See chart on page 2. The form they file doesn't matter so much as if the C, E or F business is a LLC. 

Or corporation or entity registered with Sec. Of State (page 2) unless exceptions are met (page 4).

One takeaway is the filing deadlines:

"If your company already exists as of January 1, 2024, it must file its initial BOI report by January 1, 2025. If your company is created or registered to do business in the United States on or after January 1, 2024, and before January 1, 2025,..."

1 hour ago, TexTaxToo said:

19 hours ago, DANRVAN said:

For 2022 he should have been able to deduct the following if each item not eligible for employer plan: LTC both him and wife; wife's medicare; and wifes supplemental.

I don't think this is correct

You are correct, only LTC can be taken separately.

1 hour ago, Lee B said:

using a simplified application form (Form 1023-EZ) to test its effectiveness

I agree with Bulldog.

Appears 1023-EZ is effective.

For 2022 he should have been able to deduct the following if each item not eligible for employer plan: LTC both him and wife; wife's medicare; and wifes supplemental.

What is the source of your post Lee?

EDIT: now I see it on you subject line!

3 hours ago, artp said:

Sch C net income is projected at $20,000.

Then med insurance premiums up to that amount including LTC and medicare (but see below)  are deductible. See section 162(l).

2 hours ago, artp said:

the 75% reimbursement is under Sec 105 plan of the former employer so it should not be reportable or taxable

If under a sec 105 plan, then not taxable.

However,  the medicare reimbursement would be considered a subsidized health plan; therefore the remaining 25% would not be deductible as SEHI, but that does not effect supplemental or LTC.

3 hours ago, artp said:

always had a Sch C side business.

 I am not aware of anything in the code that would prevent a new retiree from starting up a part time business and make just enough to cover his and hers health insurance premiums.

4 hours ago, artp said:

Question 1. Is 25% portion for health insurance deductible (line 17) on 1040?

Are you referring to 2022 or 2023?

4 hours ago, artp said:

retired in Dec 2022 from his employer who provided 75% health insurance (medical and drug) coverage as a tax-free benefit-employee paid 25% through payroll deduction. For retirees the company will reimburse him 75% for Medicare part B and D premiums for taxpayer and wife.  Taxpayer has always operated SchC business (no employees).

So he was both an employee and self-employed until Dec 2022?

On 12/1/2023 at 4:56 PM, kathyc2 said:

received less basis of 62,600.

That is correct, assuming he was the original sole owner of the stock and did not aquire through purchase, inheritance or gift.

1 hour ago, schirallicpa said:

retained earnings doesn't come into play. 

That is correct.  Since the C-corp is a separate taxable entity, retained earnings do not change basis and are subject to double taxation.

His basis equals his investment; internal transactions do not change it with a C corp.

On 12/1/2023 at 2:47 PM, Christian said:

I thought we had settled on the house having been fully depreciated but no it apparently was not.

Just curious how you have now determined it had not been depreciated either in full or part?

Also, how are you going to determine if the improvements (either in full or in part) have not been written off as expenses over the years?

On 12/1/2023 at 2:47 PM, Christian said:

He has a check he paid for the house for years back and a number of receipts for cash payments he made on improvements with no darn date on them.

In order to include the improvements in the 481(a) adjustment, you will need the date placed in service to determine the amount of depreciation allowed or allowable.

Section 645 is one of the shortest sections of the code.

Anyone working with estates should be aware of it.

2 hours ago, mcbreck said:

Think that would be a major problem?

If you did not switch to a calendar 2 years after DOD (assuming a 706 was not required) you would be out of compliance to continue with a "fiscal" year.

Also, you should know that a 645 election is irrevocable; you can not terminate it until the election period ends.

1 hour ago, mcbreck said:

Client died in 2020

1 hour ago, mcbreck said:

file an Estate return using the EIN and filing on a fiscal basis.

A 645 election.

2 hours ago, mcbreck said:

I'm filing a 3 month tax return to get it to the fiscal year and then we'll shift to the trust return and continue using the same EIN.

 You mean to a calendar year?

2 hours ago, mcbreck said:

 

Or should I just do a correct trust return for 3 months?

You must not be familiar with an election under section 645 which allows the trust to file as an estate, however there is a time limit.

In most situations, the election period ends two years after date of death.  So for 2022 two returns (and related K-1's) are required regardless.

22 hours ago, artp said:

but when the escrow money is finally paid out we are expecting that the oldest brother will receive an adjustment for the unpaid taxes by the other brothers. 

So are you saying brother A will receive an additional amount for the unpaid taxes of his brothers; and then take the responsibility to pay the county?

If that is the case, it becomes a wash for him.  No additional income or deduction.

8 minutes ago, DANRVAN said:

In that case his basis would be the greater of the amount he paid for the 2/3 of the basis of the transferors (brothers)

Meant to say " greater of the amount he paid for the 2/3 or the basis of the transferors"

37 minutes ago, artp said:

you are saying that the step-up basis of the other brothers is added to the oldest brother' basis since the July purchase via court partition sale is considered a related party transaction. Correct?

In theory his is taking the brothers basis as adjusted immediately before the sale. $66,000.  But in practice he is taking their disallowed loss and adding it to his actually cost basis from the July transaction.  Either way the result is the same, $66,000 basis for 2/3 interest.

The result would be the same if we look at it as partial sale / partial gift since he paid less that fmv to brothers.  In that case his basis would be the greater of the amount he paid for the 2/3 of the basis of the transferors (brothers), or again $66,000.  However I don't think we can call it a partial gift since the transaction lacks the element of gratuity.

48 minutes ago, artp said:

we are expecting that the oldest brother will receive an adjustment for the unpaid taxes by the other brothers

Are you saying he has paid some of his brothers' share of the taxes and is expecting reimbursement from escrow?  If so, has he previously deducted the amount paid for his brother's share?

30 minutes ago, NECPA in NEBRASKA said:

Does a payment mailed on 3/1/23 certified return receipt qualify for qualified farmers that do not make estimates?

Yes, the return must be filed and payment made by March 1.  They are multiple IRS sources to confirm.

30 minutes ago, NECPA in NEBRASKA said:

I talked to a PPS rep for a long time yesterday and she would not budge. She said the ACK date was 3/2, when it was clearly 2/28. She did agree that was correct and said that 3/1 was too late to mail the payment.

In those cases, I politely terminate the call.  Then call back and talk to someone else with more knowledge.

30 minutes ago, NECPA in NEBRASKA said:

It took until November for the IRS to post my POA that was faxed in March. I

When I make the initial call, I have a copy of the POA ready to fax the rep on a separate phone line.

30 minutes ago, NECPA in NEBRASKA said: