Sara EA

I do a lot of deceased taxpayer and estate returns and would NEVER check the box that there is no court appointed rep if that is not the case. The refund will come to the person who signs the 1310, who is supposed to distribute it according "to the laws of the state." What is s/he doesn't? If a court-appointed rep, the refund is paid to the estate, and the court verifies that it is distributed according to the state law or will. If you check that there is no court appt on the 1310 just to be able to efile, you may be cheating the other beneficiaries (or creditors) out of their rightful share if the payee just keeps the refund. Don't do it. I also don't understand how you can attach docs that aren't listed on the 8453.

What will we put to verify identity on the ELF screen? Last year's AGI automatically populates in UT, or we take it from last year's return if we didn't prepare it. These numbers come from the original return, so we ignore amendments. Now that IRS is changing AGI, without an amended return, what number will go there? UT and I'm sure most other programs automatically updated returns when the unemployment mess got cleared up. It wouldn't if we never entered the return again after it was efiled, but we had to enter many to amend the state. So the new numbers will get proformaed. Is this another reason tax season 2022 will be a time-consuming disaster? (In addition to no one remembering the $1400 stimulus that came over a year ago by he time we see them, advance child tax credit, increased state refunds because of unemployment, and on and on and on.)

Read the trust document. Ask questions of the trustee (the ones in my first post). Rather than have the potential tax liability hanging over them, maybe suggest they just pay the tax bill and distribute the remainder.

What kind of trust? If revocable the house will be part of the estate and IRS will have claim to its piece. Irrevocable, it depends. Did the deceased have a retained life estate? Regardless of whether it was written or unwritten, if he lived in the house and paid the bills the house is part of the estate. Did he put the house into trust after the IRS debt was noticed? Did it go to the trust after death? In either case the IRS may have claim on it.

Charging that kind of money for audits and you only need a few clients a year!

Sinister! All that money this crook owes might buy the IRS a new computer or two or a few printers or maybe some phones and people to answer them.

Spouse might not be so innocent; the IRS will determine how much she knew when it reviews her innocent spouse claim. I wouldn't touch it. His criminal attorney surely has contacts with a good tax attorney for the spouse. Just decline the engagement because this situations calls for an attorney.

Yes, converting one coin to another is a sale of the first coin (Sch D) and a purchase of the second (no reporting), just like selling Apple stock to buy a fruit farm is a sale and a purchase. Both sales and purchases come with fees, just like many brokerage accounts used to impose. Brokers will usually report proceeds net of fees; Coinbase does too, but I'm not sure of other crypto exchanges. I will never embrace crypto! I have been fascinated by it ever since a client started mining years ago. The boss gave that piece of the return to me and told me to figure it out. Now I'm hooked and not only have taken several courses but follow the business news about crypto. I would never buy one though. Even my miner client says he can't wrap his head around non-fungible tokens (like digital "original" artwork, first-edition digital baseball cards, etc), but I don't see the difference between those and cryptocoins. Blockchain technology can establish proof of ownership and definitely has a use (no more title searches!). Digital coin transactions, however, are mostly the traders placing a value on essentially nothing and waiting for another trader to buy the nothing for more than they paid. Perhaps someday they will be useful for purchases of goods and services, but not until they become less volatile. No way will I accept $300 in bitcoin for tax prep knowing it might be worth $250 in the 10 minutes it takes to convert it to cash (of course, it could be worth $350 by then, but I'm not the gambling type). The prolific use of crypto for ransom and money laundering taints it as well.

Follow Pacun's explanation to get a grasp on crypto. IRS regs consider crypto to be property, subject to the usual cap gain/loss rules with the exception that wash sale rules don't apply; no FBAR reporting is required either at this time. (Not sure about a Venezuela registered account though.) The FMV of the "rewards" is reported as other income, because the client got something of value for nothing (just like getting interest). I'd say the Venezuela freebie is also other income (just like banks used to offer you $20 to open an account), again because you got something for nothing. Crypto purchases are not tax reportable (just like buying stock isn't; IRS even says not to mark the box on the return if the client only bought crypto). Sales, however, are capital transactions. Conversion is selling one type of coin to buy another (just like selling GM stock to buy Ford stock), so it goes on Sch D. Using a coin to pay for something is also a sale, but hardly anyone ever does that. Moving coins from one wallet or exchange to another is not reportable, just like changing banks doesn't have any tax implications. Just think of the coins as stock. If you buy it, nothing to report. If you sell, it goes on Sch D. Tell crypto clients to get the tracking software. My clients who have it produce a filled in Sch D complete with 8949s, which I attach to the return. Coinbase statements often don't give dates and even if they did, the prices of various cryptos change by the second so there is no way to look up FMV like you could for a stock. The software may also account for things like "hard forks" and "airdrops" that I won't confuse you with because I'm confused! The basic rubric, though, is treat it like a stock transaction--that should make it simpler in your mind and eliminate most of the noise.

Apparently if you owed tax and requested a direct debit, even though IRS had your banking info the return only authorized them to take money out, not put it in, so those folks may have gotten checks or dr cards. SS recipients have direct deposit info on file with SSA, so I'm not sure if IRS was able to use that if the client owed tax.

Was the client over AGI of $150k?

Prior to EIP3, you could go to irs.gov and look up your EIPs. Years back you could also look up special credits with an IRS tool. Wishful thinking here, but it would be great if IRS would make both payment amounts available online.

Gail, did your client's debit card perhaps get stolen and used by a thief? Anyone get one and know how they get activated? Is it easy for someone else to do? And how did IRS decide who gets a debit card? I have one client who got the 3 stimuli payments all three ways--direct deposit, check, and dr card. I find it hard to believe that so many people just threw them out. When an envelope contains a plastic card, you can feel it. When you get a credit card the month your old one expires, it too comes in a nondescript envelope. Do people throw those out too?

This is overkill. When a business is audited, the first thing asked for is bank account statements, so that info is available when there is "need to know." If they actually looked at just about all bank accounts, there would be so much data it would be impossible to mine anyway. As for hiring more employees, we all know how badly the IRS needs them to conduct audits, answer the phone, open correspondence. We never thought about the people who do those things until this year when there aren't enough workers to get them done and it's affecting us and our clients.

The income was paid after death, so it is income in respect of a decedent. Report it on the 1040 to satisfy the computer matching, then back it out with the notation "IRD to be reported by EIN xxxxx." Put the estate on a fiscal year, beginning on the date of death and ending Nov 30 2021. You can use probate and legal fees as well as your fee as expenses, maybe taxes on the land while it is in the estate. If everything is sorted out by then, the estate can close and the remaining income will pass through to the beneficiaries, who are likely to be in a lower tax bracket than the estate. You can file the 1041 before Nov 30 using a short year if everything is settled earlier.

I have had clients get IRS notices when they reported IRA contributions but the 5498s showed otherwise, so they do match them with returns. I don't know if they do anything with the ones showing Roth contribs, as evidenced by my client with a seven-figure income and Roth contribs for years.

I remember reading that with the Dec tax law changes and the Dec-Jan 3rd stimulus payment, the IRS didn't have the time or resources to coordinate the computers that contained the stimulus with the 2020 tax computer systems. Therefore all returns that claimed a rebate recovery had to be hand reviewed, leading to huge backlogs in a department that typically cleared its inbox every day. The delays caused many refunds to be paid after the 45 day statutory period, so many got more than they thought because interest was added. I believe the interest was paid back to April 15 because in their haste, congress never considered that the due date was changed to May. Like everyone, I've been getting several of these letters recently. One was from a guy who got a bill from IRS. My notes showed that he supposedly looked up his stimulus amount and I used the figure he gave me. When he called about the letter, he said he looked it up and IRS was right! I always queried every client who gave me an amount that the software didn't predict or who said they got nothing. Most looked it up and agreed with my calcs, some didn't and are getting letters. We can't trust ordinary people who never even glance at their bank statements to go back and try to figure out what's in there. Next season our questionnaire is going to have two questions at the very top: How much did you get for stimulus and how much for advance child tax credit, with a warning that their return will not be started unless those questions are answered.

IRS actually did go after one of the big fish, Liberty. A few years ago they shut down several huge franchisees who owned a lot of offices. They also went after corporate. The owner, John Hewitt, had to resign and tender all his shares. His sycophants were removed from the board and their replacements made some of these decisions under court orders. Does anyone know what happened to Liberty franchisees? I see some of their offices around, but I believe the company has now become a franchisor for diverse businesses like vitamins and rental centers. I just wonder how the tax franchisees are faring.

No back door in this case! A contribution was made to a Roth and recharacterized to a traditional. That cannot be undone. See the code section cited by Danrvan. I have doubts that the broker said it was too complicated to keep track of so forget it. Clients hear what they want to hear, or fill in blanks in their misunderstanding. Vanguard likely explained that the client would now have basis in the IRA and would have to keep track of it by filing 8606 every year. Client likely heard that to mean too much paperwork and blamed Vanguard, who by law cannot convert a recharacterization. OP gave the client bad advise to recharacterize the contribution instead of withdraw it, then contribute to a traditional--a contribution can be converted, not a sum already recharacterized. As for the consequences of leaving it in the Roth, who knows if the IRS is watching. I recently posted about a client who has a seven-figure income and has been contributing to a Roth for years without my knowledge. When I found out about it this year and warned him of the excise tax, he decided to leave it alone and he'll pay up if they ever catch it. I made copious notes about that conversation.

I looked it up. A conversion can only be done from a traditional to a Roth. You can't convert a Roth to a traditional. A recharacterization is when you contribute to one type of IRA and change it to the other type (in other words, you make a contribution to a Roth, call it a Roth contribution, and then decide to characterize it instead as a contribution to a traditional). Neither can be undone. If your client had told you about this before May 17, s/he could have withdrawn the contribution and then made a traditional IRA contribution and done the back door. Too late now.

Vanguard is right. Since TCJA it is no longer possible to unwind a conversion. Your client converted a Roth to a traditional, and I don't think that can be recharacterized back to a Roth. Prior to TCJA it could be done. I had a client who kept recharacterizing Roths to traditional and back again during the same year every time the market moved. I had a million spreadsheets trying to keep track of it all and was glad when the law changed just because of him.

Am I the only one who has clients who have Roths and never think to tell us? A client took a $92k Roth distribution this year. All I knew about the account is that there was a big conversion amount in 2019. This year I finally saw my first 5498, which showed a balance twice as high as the conversion so I worked with the FA and discovered that the account existed since 2004! The FA could only give me the last 10 years of contributions and one other conversion. I did a ton of historical research on AGI and contribution limits. For most of those years AGI was way too high to contribute to a Roth. There were no annual backdoor Roths. How did this client with seven-figure incomes some years get away with this? I know IRS pays attention to the 5498s because clients have gotten letters saying they didn't contribute to an IRA when their tax return said they did. ("Gee, I thought I did.") Do they not check those same 5498s for excess contribs to Roths??? Anyone ever had a client get caught doing this?

Is the attorney confusing an LLC with a corp? An LLC is a Limited Liability Company, not a corp, and limits the individual owner's responsibility but doesn't eliminate it. A corp is a different animal altogether, and if your client ever sells the property it can become a tax nightmare to sell real estate within a corp. I agree, buy an umbrella policy.

You originally stated that the businesses were reported on Sch C and Sch F. The trust and estate now own the businesses and report them on their separate 1041s. There was never an S corp or any corp and there isn't one now. QSST doesn't come into play here. That election is usually made when a shareholder in an S corp dies and that ownership transfers to a trust, which S corps can't have as owners. You may have over-researched this, but look at all you've learned that you never knew existed! I do that all the time and finally realize I have to drag myself away from the big, big picture and focus on the small piece in front of me.

Good decision, cbslee, because starting in 2020 IRS requires tax basis reporting. If you can't prove it, basis is zero. I had a partner once who always took out more than his share of income, got his basis down to zero, and had to pay tax on excess distributions every year. He thought he was getting away with something by submitting receipts for golf club memberships, family cell and internet plans, etc, to the partnership, which reimbursed him. Other partners were not happy to realize he was taking out more than his share. Could that be the case with your client Darlene?