LindaB

I do agree and have been filing for my clients, even though I feel guilty because I am not sure they need to.

In this particular case, there were about $200K of stock sales on the 1099-B and only $1900 short term gains (no long term). That 1900 along with 600 in dividends is this persons total income without social security. Oh yes, and the management fee was 10K. (the broker must be happy).

I guess I will file to keep the IRS away from her, but I just wanted to be sure I was doing the ethical thing.

Thanks for all your help and opinions.

Steve M

If you really want to help this client, convince them to change brokers. The broker is churning the investments and taking the money.

Enter the sale the way you think it should be, then go to the tax worksheet and follow it through carefully so you know that you're getting the correct result. With the Sch. D open click on 'Pages & Worksheets' and select 'Tax Worksheet (Sch D (1040), 8949).

There is a place in the drop down list for line 21 of the 1040 to put this (assuming you've determined that it's taxable).

Thanks, Catherine. The more I think about it the more I think the brother made a mistake--Turbo Tax asked him where he lived and he said IL.

I have a client whose mother passed away last year. The mother lived in MI, and the client lives in MI. Clients brother is the trustee, and he lives in IL. The brother gave my client a federal K-1 (form 1041) and also an IL K-1, and filed an IL-1041. According to the IL K-1 the 'pass-through entity made tax payment on behalf of the nonresident beneficiary'. Is this right? I don't do estate returns, but it doesn't seem right to me that an estate in MI, all property in MI, would have to file an IL estate return just because the trustee lives in IL. I asked my client to ask her brother why he filed with IL, the only useful information she came back with was that he did the estate returns himself on Turbo Tax. Would IL be looking for a non-resident tax return from my client?

Real property uses mid-month convention and personal property uses half-year convention, I think this figures into it.

I looks like it should be in part II, total amount on line 16 and the nondeductible part on line 17. Line 7 in part I says do not include conversion amounts there. Do it so it comes out correctly, you don't want them to pay tax on the nondeductible part again.

MI doesn't require registration, so yes you can efile.

Don't know if this applies to your situation, but pub. 970 also says:

"If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest.

But Pub 970, page 29, says "Student loan interest is interest you paid during the year on a qualified student loan. ... Qualified Student Loan - This is a loan you took out solely to pay qualified education expenses (defined later) that were:

* For you, your spouse, or A PERSON WHO WAS YOUR DEPENDENT WHEN YOU TOOK OUT THE LOAN (my emphasis).

From that I take it that I input the amount for the filer (student's mother's husband) if he is legally responsible for the loan. That I will have to check. They filed jointly so student was his dependent although not related.

I was just working on one of these too, I read it that if the taxpayer took out the loan and is responsible for repayment, and took out the loan when the student was his dependent, then the taxpayer can take the deduction as long as he is paying off the loan, even if the student is no longer his dependent.

I think you have to go back to the definition of a qualified distribution (from pub. 590):

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

2. The payment or distribution is:

a. Made on or after the date you reach age 59 1/2,

b. ...

c. ...

d. ...

According to this, wouldn't any distribution he took be a qualified distribution? There is also a flow chart in pub. 590, figure 2-1, to determine if a distribution from a Roth is a qualified distribution:

Start Here: "Has it been at least 5 years from the beginning of the year in which you first set up and contributed to a Roth IRA?" -> yes -> "Were you at least 59 1/2 years old at the time of the distribution?" -> yes -> "The distribution from the Roth IRA is a qualified distribution. It is not subject to tax or penalty."

Updated April 16, 1:30 PM EST

Below is a schedule of acknowledgment events you will see over the next 24 hours, as posted earlier today, plus a progress update of each event.

Note: check print files and InterviewPLUS files go through a different outbound process and therefore are posting to mailboxes timely.

* Complete posting the acknowledgement files for returns sent in the 4/13 drains. We have approximately 2500 to post -- Posting Complete and available for download. We will start the process of running internal reports to see if any acknowledgement that we received failed to post once we get through the backlog of items in the third bullet

* Complete posting the acknowledgement files for returns sent to the IRS in the 4/14 11 AM drains. We have approximately 2500 to post -- -- Posting Complete and available for download. We will start the process of running internal reports to see if any acknowledgement that we received failed to post once we get through the backlog of items in the third bullet

* Complete posting the acknowledgement files for returns sent to the IRS after the 4/14 11 AM drains. We have approximately 750,000 acks. -- Status as of 12:45 PM EST shown below:

• 14,020 acks left to split from returns sent to the IRS prior to last night’s 2 AM drain. This is the step that updates return query and kicks of bank applications to the banks

• 711,171 at the send CCH queue (formats the flat acks we receive from the IRS to the SFS ack we deliver to you)

• 93,114 currently in the post item to mailbox queue that inserts the ack into your electronic mailbox

Update April 16, 10:30 AM EST

We have now changed the scale of concentration from sending to the IRS to posting items to your electronic mailboxes. We are expecting to receive approximately 600,000 IRS e-file and extension acknowledgements this morning.

* Due date for resending rejected returns: April 20th

* Due date for resending extensions due to things such as name control mismatches: April 20th

As we receive the acknowledgement files from the IRS, our first steps are to process and split them. This allows us to send any necessary files to the banks and also allows the status to be updated on Return Query. We are then stopping them at the "outbound postmaster". Prior to today this was allowing us to concentrate our efforts on sending to the IRS. Today this allows us to priorize the order in which we post the files.

Below is a schedule of acknowledgment events you will see over the next 24 hours.

* Complete posting the acknowledgement files for returns sent in the 4/13 drains. We have approximately 2500 to post

* Complete posting the acknowledgement files for returns sent to the IRS in the 4/14 11 AM drains. We have approximately 2500 to post

* Complete posting the acknowledgement files for returns sent to the IRS after the 4/14 11 AM drains. We have approximately 750,000 acks.

We will update you throughout this process

Claimed as a dependent on her parents return, finished college in spring of 2009, working as an independent contractor--Sch. C income. If she used a car that belongs to her parents, can she use the standard mileage rate? (I don't think she can) Can she use actual expenses?

I think first you need to find out for sure what happened to the property in the divorce. Did the bank use the full amounts on the 1099-A sent to each of them? If you're going to use half of those figures on your clients tax return, you want to make sure it's right.

You're on the right track for figuring the sale of the property, but you also need to find out about the canceled debt, from your numbers it's about $52K. Is the bank still trying to collect that, would they try to collect it from either of them or half from each? Or is the bank finished with it and not going to try to collect? Get all of the information first, file an extension for her if you have to.

You need to find out from the client the amount of original contributions to the Roth, and if there were any conversions, the amount and the date. You also need to know if there have been any other distributions from the Roth. There are certain ordering rules for distributions from a Roth, first origianl contributions, then conversions, then earnings. Use part III of form 8606 to determine if any is taxable.

so are you saying as soon as any of the questions you can say no to... it means to get the refundable part of credit?

That's the way I read it. I think the language is very awkward. I also think that it's saying that if 1, 2 and 3 apply, then maybe the parents should have claimed the student.

If you check the box on line 15 of part IV of form 8863, she won't get the refundable part of the credit. This is what determines if you check that box or not:

You do NOT qualify for a refund if items 1,2 AND 3 below apply to you:

1. You were:

a. Under age 18 at the end of 2009, OR

b. Age 18 at the end of 2009 AND your earned income was less than one-half of your support, OR

c. A full-time student over age 18 and under age 24 at the end of 2009 AND your earned income was less than one-half of your support.

2. At least one of your parents was alive at the end of 2009.

3. You are not filing a joint return for 2009.

From what you said, it doesn't sound like number 1 above applies to her, so she should get the refundable part of the credit. She doesn't need to be a full time student all year, only at least 1/2 time student for at least one academic period.

Linda, thanks for your help on this. If I click on help when I am in that field, it gives me the menu for program instructions, government instructions, etc. What button are you referring to that will specifically address what goes in the field on the disposition sheet?

Thanks.

I went back and tried the help button from that field and it came up with 'instructions not installed' and a choice to get the instructions from the web, but that came up with 'instructions not available' so I guess that won't help. Use that adjustment field and then look carefully at the 4797 to make sure you get the result that you want. This must be better than trying to override on the 4797.

My client made a ROTH IRA contribution in 2008 but it turns out her income was over the threshold. She withdrew the excess before the deadline for filing a 2008 tax return (including extensions). She has received a 1099-R with Codes JP -I inputted it and it's getting included in taxable income. Should I not be inputting this slip because it was a ROTH? On the 1099-R summary it's showing up on the excess contribution line P and J-early distribution no known exception. Am I missing a checkbox somewhere?

According to the instructions for form 8606 this should go on the 2008 return. Contribution would not be taxable but earnings would be, and also subject to the 10% penalty it taxpayer was not 59 1/2.

Do I just add the additional value to the basis adjustment line of the disposition tab or is there a better way to do that.

Thanks.

I was playing around with it and that adjustment line seems like what you want. I didn't try it but you could try the help button while you're in that field, it's usually really handy to tell you what goes in that field.

If I'm following you, I think you're talking about reducing basis as a result of excluding COD income--reducing tax attributes. The way I see it, by the time you get to that point, the property has already been 'sold' and you don't have any basis to reduce, on that property anyway. I'd go with the deduction on Sch. C.

If you have a 1099-C you have to report the sale on sch. D and also calculate the COD income, use form 982 to exclude it from income if the home is a qualifying personal residence.

How would you treat these loan fees if he had just sold the property?

All Debts included in Bankruptcy.

I guess my real question is do I reduce the basis in the assets by the amount of cancelled debt prior to "selling" them on the 4797?

I know what the final answer is, I just don't know for certain how to get to it on the tax return. The lack of 1099C's is throwing me for a little loop. The taxpayer qualifies under 2 separate rules for exclusion (business property & bankruptcy) and I don't know the order to apply them. So I don't know for sure if I should reduce basis and then sell or not reduce basis, sell, and exclude debt.

I do know that cancelled debt is to flow to the activity that generated it. So all the business debt cancelled should go on the C. Do I show it, and then cancel it on the same form with an explanation refering to the 982 form?

I keep coming up with too many ways to do this and not enough certainty on if I am on the right track.

Thanks.

Tom

Lodi, CA

"The taxpayer qualifies under 2 separate rules for exclusion (business property & bankruptcy) and I don't know the order to apply them."

I'm pretty sure the bankruptcy is used before anything else.

"Do I show it, and then cancel it on the same form with an explanation refering to the 982 form?"

You don't have to do this, it might confuse the IRS into thinking there are more of these than you actually have. It should either go on the Sch. C if it's going to be taxable or on 982 if it's excluded.

"I guess my real question is do I reduce the basis in the assets by the amount of cancelled debt prior to "selling" them on the 4797?"

No

"The lack of 1099C's is throwing me for a little loop."

If you haven't looked at it already, there's a section in the instructions for form 1099-C titled 'When Is a Debt Canceled.' You might get some insight from this, but a lot of it refers to state or local law. I've been looking and looking at this stuff, and there are inconsistencies. In the instructions for 1099A & C it's clear that if there is canceled debt, the lender should use 1099C. But in all the pubs. talking about foreclosures they only consider whether it's recourse or nonrecourse debt to determine whether there is COD income and how to determine the 'sales price' of the property. I think you're right to report the sales and calculate COD as you described.

"I keep coming up with too many ways to do this and not enough certainty on if I am on the right track."

You're on the right track. List each sale as you describe: Recourse loans "sold" for FMV listed on the 1099A, non recourse "sold" for outstanding loan amount listed on 1099A. (Recourse loans 'sold' for FMV if FMV is less than outstanding loan amount) Then total the COD from the recourse loans on line 2 of form 982 and check box 1a. Then go through the tax attributes in part II of form 982 and use up all the excluded COD income that you can.

Good Luck!

... Cancelled debt included on Sch. C. Gain or loss on 4797. Cancelled debt excluded under BK exception...

Tom

Lodi, CA

Are you going to include canceled debt on Sch. C or can you exclude it all under bankruptcy exclusion? And were these debts all included in the bankruptcy?