peggysioux5

It definitely would be more beneficial to the taxpayer to be able to amend prior year tax years rather than claim the lump sum in the current tax year. But.....what is my requirement as a tax preparer. The taxpayer has now received copies of the W-2c's and the city (large city in CA) that employees him adjusted his income box 1 of the W-2c's. Taxpayer does not pay into Social Security or Medicare so no adjustment in box 3 or 5. The taxpayer is a police officer who had a case brought against him and the outcome was in his favor so he received his back pay. Is there certain circumstances where there are exceptions?? I would think a large city would know how to properly handle. Taxpayer said that other officers who were in similar circumstances filed amended tax returns after receiving the W-2c's. Being he has W-2c's, should I amend previous years' tax returns even though the W-2c's are not in line with IRS regulations? Peggy Sioux

Taxpayer (local city employee) was awarded a large back pay in 2016 that was for 2014, 2015 and 2016. He was advised by the city that he would be receiving amended W-2's for 2014 and 2015 for portions of the back pay. I was surprised at the handling of the back pay. Pub 957 states: Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. However, for income tax purposes, the IRS treats all back pay as wages in the year paid. Are there certain circumstances where the wages would be correctly reported in the previous years? Peggy Sioux

Bumping up hoping to receive some feedback. Would the IRS deem the expenses surrounding the memorial event as "non" funeral expenses and thus deductible being event was "called for" in the Trust and Will? It seems to me he is splitting hairs - a memorial is part of the funeral expenses and therefore still be non-deductible. He stated his stance was defensible as Trust expenses due to facts and circumstances. I know that I have received direction in previous posts to file form 8202 with individual income tax returns, but just wanted to see if that would still be the recommendation based on the additional info.

I received a response from the other tax preparer who handled the filing of the 1041 and was advised that the care giver expenses were expenses paid for assisting the family with going through personal effects which he states is part of Trust Corpus and thus deductible. Would other tax preparers see that expense as a deductible expense? Secondly, the tax preparer states that the final disposition costs were not funeral costs, but were a collection of expenses surrounding the memorial event called for in the Trust and Will. The expenses included supplies, consultation services and the like......would you also see these as deductible on the 1041 with the new information? I still would not think deductible, but am no estate expert, so would appreciate other tax preparers input. He also advised me rather than filing the form 8082 if I still fill uncomfortable with the deductions to just exclude those expenses from the Schedule A 2% expenses on the individual returns. Appreciate your input.

Agreed....that is the more important question!!!!

Taxpayer refinances home mortgage in early part of 2015 and takes out $175,000. Taxpayer is using $125,000 to gift to children and the remaining $50,000 is put in saving to apply to home improvements but home improvements have not commenced. Can the $50,000 still be considered acquisition debt or is there a time period that the improvements need to be done after the refinancing of the home in order to be considered acquisition debt?

Thanks - I found the form - #8082. Still makes me uneasy if client wants to file as is and I know it is incorrect - just want to make sure I would not be penalized.

The deductions were claimed on 15a. The client is confused as she has two tax preparers giving her conflicting information and she did question the other tax preparer who adamantly assured her that the tax return was correct. Also, is there any penalties that I could receive for completing a tax return with information that I know is incorrect?

One more note regarding the 1041 - it was marked "Simple Trust" and Box G was NOT checked.

Thank you.....very much appreciated.

How would other tax preparers handle: I am handling taxpayer's returns that received a K-1 for the estate of parent. Parent had a trust and everything was to be disbursed to beneficiaries at death. Another tax preparer handled the 1041 return (there was not enough assets to file the 706 estate tax return) but had some income. The taxpayer gave me a copy of the 1041 along with the K-1. In reviewing the 1041, the taxpayer had deductions for burial expenses and for care of the parent totaling over $15,000. Those expenses carried over to the K-1's as there was not enough income to deduct on 1041. I advised taxpayer that she should double check with the tax preparer who handled the 1041 being burial and medical expenses (care for parent) were not deductible as part of the 1041 return. The tax preparer assured taxpayer that the return was correct because the estate did not exceed the 5.43 million......what should my next step be?? Do I file taxpayer's tax return based on a K-1 that is incorrect?

Thank you for pointing me to reg. 1.1001-1(e) and it would appear that the full basis that the parent has in the home would be used in the calculation to determine capital gain. And just to make sure I am understanding, then would I have a zero basis showing on the gift tax return that is required to be filed on the portion that was gifted?

I understand the difference between the FMV and consideration = gift. However, I have to show the sale of the asset on the parent's return which will show the $250,000 as the sale price, but I am unsure if the basis for the parent (to determine the capital gain that will have to be paid) has to be adjusted because a portion of the home was "gifted" to adult child and the gifted portion would also have some of the basis, is that not correct? When I file the gift tax return, I also have to determine the basis of the gift (which is the "basis" in the hands of the parent). My uncertainty is due to the "partial" gifting of the home. Thus, my question above about splitting the basis. Input would be appreciated.

Another question regarding the partial gifting of a residence. If appraised value of home is $350,000 and taxpayer sold home to her adult child for $250,000 and gifted the remaining $100,000, are you required to divide the basis by the % by purchase/gift? For example: $350,000 appraised value 250,000 is 71% (selling price) 100,000 is 29% (gift) So if basis is $175,.000 than the adjusted basis to carry to the gift tax return for the gifting portion of the home is $50,750. Or can taxpayer put a zero basis on the gift and carry all $175,000 basis to the sale of the home to lower the capital gain on the sale of the home? I would think one has to go with my first scenario but wanted to get input from knowledgeable tax preparers. Thanks.

So, I received a copy of appraisal from taxpayer (parent who sold to adult child) and the appraised value was $325,000, sold for $250,000 and closing statement shows gift of equity of $50,000. The home that was sold was a second home so taxpayer (parent) has to pay capital gains on the difference of $250,000 and her basis and closing costs and a gift tax return has to be filed for the $125,000 (the $50,000 of gifted equity and the difference between appraisal price and sold price of $75,000). Please let me know if any of the above does not sound correct. My question is more of a "why would the sale be handled this way?". If they had sold the house for $200,000 and didn't provide the "gift of equity", the parent still would have to file a gift tax return for the $125,000, but would have to pay less capital gains on the sale of the property. The only reason I can think of is adult child had no monies to pay the required down payment so mortgage insurance wouldn't apply. I would appreciate others' input. Much appreciated.

I think I know the answer to the following question, but am second guessing myself so want to be sure. Parent sells home to adult child lets say for $250,000 and gifts the equity of the home of $50,000 to the buyer. I know the sale price would be $250,000 but does the gift of equity of $50,000 come into play in the calculation of net capital gain? The closing statement for the sale shows in section "Amounts Paid by or in Behalf of Borrower" an amount of $50,000 and description of "Gift of Equity Seller Credit to Buyer. There was also a "Gift of Equity Letter" that states: This gift of equity is being given to xxxxxx who resides at xxxxxx. The purpose of gift of equity is to cover buyer's down payment and closing costs. This is an outright gift, with no repayment expected or implied in the form of cash or by future services. So does the gift of $50,000 play into the calculations when determining the capital gain on the sale or is gain strictly based on listed sale price less original purchase price plus any improvements?

Taxpayer took a distribution in 2015 of $50,000 but paid it back within the required 60 days (I have statement showing the payback date); however, the 1099-R shows box 1 and box 2 the same. Shouldn't box 2 show $50,000 less than box 1? Taxpayer contacted investment company and was told that the "tax-free roll-over" will be reflected in the 5498 when issued. Am I missing something? Peggy Sioux

The trust stated that asset was to be split between the beneficiaries. My question is that being the asset was sold under the name of the trust rather than the beneficiaries, should a trust return be filed with K-1's to the beneficiaries showing the disbursement of the funds?

Taxpayer's mother had a revocable trust with her personal residence as an asset held in trust. Mother passed away in 2015. Trust reads that asset was to be disbursed to beneficiaries after Settlor's death. The closing statement for the sale of the residence lists the Living trust as the seller. Would a trust return need to be filed with K-1's to the beneficiaries showing the disbursement of the funds? I would have thought that the asset would have been disbursed to beneficiaries and then sold. The daughter stated that the property was put into her name so she could sell the property, but the closing statement shows differently. I would appreciate input on the correct handling.

Thanks Judy - very helpful. Peggy Sioux

And the taxpayer is working for a non-profit so she will only have to pay on the loan (based on her income) for a total of 10 years. Very generous program. But I am still trying to find a cite that helps me determine if the any of the interest would be considered deductible.

Taxpayer has been going to college for several years and began paying on her student loans in 2015. She also entered into one of Obama's Student Loan Forgiveness Programs in 2015. She received two 1098-E statements totaling over $7000. She definitely did not pay that interest in 2015; however it appears that the new loan company under the forgiveness program paid the interest to the original loan holders. Normally, if she had not entered into a loan forgiveness program and refinanced her loans, that interest would be deductible being she technically paid the interest in the refi which she will pay off during the length of the loan. I would not think the interest is now deductible due to the forgiveness program. However, she said she is paying interest on her current loan so shouldn't some of the interest be deductible. Do any tax preparers have a cite reference that clearly states how to handle this situation?

This taxpayer works for a small company with fewer than 50 employees and has not received a raise in several years so income does not fluctuate. I want to handle in a way that is most beneficial to my client but within the IRS guidelines and making sure I have done my due diligence. It seems very unfair to taxpayer if insurance representative advises her that she is eligible and sets up the PTC and then at the end of the year find out that she is not.

I have asked the taxpayer to request documentation from employer regarding MEC. We will see what she receives.

The employee's income is not the issue - she gave the correct "household income" to determine her eligibility. While the idea of contributing to an IRA is a very good idea; unfortunately, for this taxpayer, contributing to an IRA to bring down her income would not benefit her because the employee portion of premiums would still pass the test for affordability. Taxpayer swears that she laid everything out to the Marketplace representative regarding the employer insurance and her income/household income (and I have dealt with this taxpayer for many years and believe what she is telling me -- which does not really matter) and the representative told her she was eligible for the PTC. I was hoping I was missing something or that if Marketplace representative deemed her eligible with all the required information then she was eligible. I am unsure if the employer insurance meets the minimum value requirement. Is there a good website that would help me determine if the employer insurance meets the minimum value requirement?