Edsel

Mr. Lee's message tells the story of why we can't get rid of complications and cryptic deductions/credits in the tax code. There are too many vested interests competing with each other to accomplish true tax simplification. To amplify their case, some of them attach to the heart strings of people who follow the six o' clock news (like the coal mine disaster mentioned), when much of the tax benefit has already been used up. It matters not to congress that we as practitioners are in the cross-hairs of the complications. Perhaps we need to become yet another "vested interest."

Because many of these effects are so minimal they wouldn't even pay the cost of preparation. Residential energy credits, excluding exotic things like geothermal, are limited to $500, but the preparer has to examine all previous credits dating back to 2007. Speaking only for myself, most of my long-time customers who would upgrade for energy have used up their credits long ago. Reviving some of these credits would help a small percentage of energy-conscious taxpayers because of prior usage. Being conservative, I do worry about the huge deficit. I wish some of these lobbyists fighting for these goodies would figure out a way to pay for them. Not partisan political here, each party is as bad as the other re: spending.

Thank you Judy. It doesn't speak well for my retention to realize I asked virtually the same question in the past.

Several people among the public are aware that the govt will not enforce collection on the Obamacare penalty. Situation: taxpayer incurs penalty of $695 for failure to maintain eligible insurance coverage. In addition, there will be an estimated $250 penalty for failure to file, failure to pay, etc. The gov't will not enforce collection on the $695. Question: Will the govt enforce collection on the $250??

I am inclined to agree with DANRVAN about the value of real estate versus depreciable equipment. Under theory, the equipment is worth less as time goes by, whereas real estate increases. What I ended up doing: Allocate the original value spent on the s. 1245 when new, subtract this from the total sale, and the remaining price is thus allocable to the s. 1250 assets. The result: s.1245 gains were depreciation recapture and ordinary income, and there was significant capital gains on the real estate as well as s. 1250 recapture capped at 25%. Something else to think about, and it's not very professional. I often wonder what an auditor would do and whether he/she would go to a lot of trouble creating an adjustment. In this case, the lack of an appraisal might cause heartburn with the auditor, but then he/she would have to write up an adjustment. In other words, in order to do his/her job, the auditor would have to use appraisal techniques and suffer from the same lack of appraisal as the preparer. My experience is if an auditor is confronted with a difficult and time-consuming detail with questionable results, they are inclined to back away.

Thank you DANRVAN. It's hard to allocate based on FMV when the taxpayer does not provide a separate appraisal. That means the tax preparer has to take a shot at it or ask the taxpayer to pay an appraiser extra. Appraisals are usually required somewhere on the sale of real estate, but they never give a separate appraisal for equipment/fixtures.

55 views so far but no responses? Either no one knows, no one wants to take time to respond, or everyone believes I should already know the answer... Thank you in advance to those who respond...

I learned in a seminar last fall that under the new tax law, a separate 2848 was required for each year. I don't know whether this changed or not, but it would seem that this new requirement would create a furor, and a pile of needless paperwork.

To put this into perspective, this client will have an AGI well over $1MM. A large part of this will be the sale of commercial real estate. We elected component depreciation - such things as heat pumps, furniture, etc. were given shorter lives than the 39 years, and much of this is fully depreciated. The questions are as follows: Are the components eligible for the 25% ceiling on 1250 property? I don't think they are but I thought I would ask. I believe them to be mostly 1245 property. They were purchased as 1245 property and depreciated as such. How do you allocate the selling price between 1250 and 1245 property? The initial building was purchased in 1984 for $475,000 but should be worth over $1,000,000 in today's money. The 1245 property was purchased along the way, timewise. Thank you in advance to those who respond...

All the normal sources have sent me packing... Can anyone provide a link for: The Schedule D worksheet for calculating taxes using capital gains rates. The similar worksheet when section 1250 gains are involved. If you can't send a link, can you provide a reliable source? Thanks in advance - Ron J.

I have a client that lost $100,000 over the last 2 years in a failed business. Being cash poor, they owe a half dozen loans totalling $120,000 which they will pay because the lenders are in a strong collateral position. In coming years, they will thus encounter $5K to $8K in deductible interest expense. The only way I believe I can report this will be on a Schedule C with zero revenue, and no other expenses. I believe they are entitled to the deduction for interest, but it will appear as a single line item on an otherwise empty Schedule C. Will this raise eyebrows??

Gross Receipts Taxes are becoming increasingly popular, especially at State and Local levels. States got tired of not getting revenue from companies who reported losses. So in addition to taxes on income, taxes on gross receipts guaranteed that the state would collect money even from companies who lost money. Have they abandoned taxes on income? I haven't noticed them dropping the tax on income. The new taxes on gross receipts are assessed in addition to taxes on profits.

This is mostly an investment discussion and not taxation (although suffice to say the taxation strategy associated with this is miserable). And most of our members are not trained investment people. But there is something inherently wrong with a brokerage firm making more money than the client is making. There is the possibility that the value of the investments are increasing and not reflected on the 1099-DIV, but this is eventually deferred capital gains, and limited to growth funds - some of them with a turnover of less than 4%. Very few of them exist. Vanguard? Yes, fees are very low, because their advisors are doing no research. Take a look at the funds they offer - nearly all of them are index funds. This is still a plus, because I can't see where all the research provides any benefit to the investor. And yes, we don't know the expenses faced by a brokerage firm and its brokers, and consideration of that tends to lessen the evil we associate with greed. But take a look downtown at the tallest and most plush facilities - they will nearly all be financial products and services. That's where the money is going. and slick advertising telling us how much they care about US.

Thanks for your response Rich. You are indeed one of the best and most accurate members of this forum. I did try to carry forward the loss from 2015 to 2016, but this was disallowed because the IRS claimed they had no return for 2016. The letter denying us the carryforward allowed us to carry back the loss to 2013. When they injure the situation as bad as they did, it's hard to get the train running on track.

I recently prepared a return showing 1099-B with some $550 in dividends and $300 in capital gain distributions. There were two minor sales of funds which netted another $200 in capital gains. The last page of the information statement showed $1600+ in brokerage fees to maintain the account. Looking back over the last few years, I would estimate that, like the above, the investment fees are more than the income generated by the portfolio. The brokerage firm is making more than their customer. Until a few years ago, these firms were not required to show their fees. I have sounded the alarm to my clients whom I find in this situation, but to no avail. They have been told that the brokerage firm has THEM as their first priority. I won't get into the subject of banking and financial services industry - there is plenty to tell. Have any of you noticed how much your clients are having to pay for these charges?

Based on responses, I'm inclined not to try this. I'm not being cowardly to back off this, it's simply that it won't do any good. I was going to spare the readers from getting into the gory details, but there appears to be some interest in how this account became FUBAR. Read ahead if you're interested. It started when IRS sent a letter stating they received the 2016 return but there were errors in it. (There weren't any and they didn't elaborate with any sensible language). Two months later they sent another letter stating they were not in receipt of the 2016 return. Not a great way to start a case. A prior preparer left a huge (half million $) loss on her 2015 return, without taking any action on handling the NOL which resulted. I rolled the NOL forward to 2016, but IRS refused because the taxpayer had not yet filed a 2016 return (see above). They explained that the NOL had to be rolled back. To simply avoid arguing a useless point, I decided instead to "roll back" the NOL to 2013. This brought another letter rejecting my 2013 amended return because the prior preparer had indicated a desire to roll forward the 2015 loss and rolling back was against the desires of the taxpayer on their 2015 return. A number of phone calls to IRS followed, and I charged the taxpayer for all my fuss and bother. This half million $ NOL was enough to negate all the income between 2013 and 2018 and there will be a little bit left over for 2019. We filed amended returns for 2013, 2014, and 2016. The loss was timely included for 2017 and will be for 2018. Next comes a letter from the IRS stating the rollforward to 2016 was incorrectly calculated, and would we please read on page 2 the correct calculation from the IRS. The "corrected" calculation was exactly as I had proposed on our 2016 amended return. They are withholding money from the amended returns from 2016 and 2014, although they had never contested 2014. Is this FUBAR enough to provoke me to vent?

It wasn't when this mess started....

I've been told the Taxpayer Advocate only represents poverty-level people. This taxpayer is single and makes six figures. I have had success with the Taxpayer Advocate, but was told when the IRS cut back their staff in 2013-14, the taxpayer advocate was swamped, and had to find ways to restrict their new cases.

Keep in mind that my mindset is not "boxed in" by conventional thinking, so I am inclined to provoke the beast. IRS has completely botched up beyond recognition my taxpayer's 2014 and 2016 returns. I have already charged the taxpayer $1200 in writing letters, telephone, and other attempts to fix the problem, which was created and perpetuated by the IRS. They have been sitting on some $15,000 in refunds for those two years. I have not been successful in drawing any more attention to this by the IRS. What I propose doing: File the taxpayer's 2018 return, showing the $15,000 as an estimated payment for 2018. When the IRS figures out it hasn't been paid in, they will create a form letter, and this will draw attention to the problem. Hopefully, someone will revisit the 2014-16 mess and straighten it out. I'm sure purists will disagree with me, and tell me I could face jail time. Government in general is not accountable for the misery they create, and the IRS is no exception. Thoughts??

Thanks Lion. I imagine this is a big problem in the Northeast. Most states tax law is aggressive when it comes to claiming income, and double taxation is quite possible. The problem is made worse when one of the states has no income tax, because there is no way to take a credit.

What is the latest on the seemingly endless struggle to divide income for telecommuters? State 1 has the employer providing the income, but State 2 has the employee doing work from home...

Got It. Thanks to all.

Thanks to everyone. I have one seeming problem remaining. The Illinois 1120ST forces a composite payment on the income from the 1120-S on behalf of the shareholders. But then on the personal return, the payment is calculated again. There appears no credit for the amount paid on the 1120-S. Does this make sense? Should there be a place to enter a credit?

Flush this post. Victim of my own carelessness. Keypunch error on Minister's allowance.

Thank you, Illmas.