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Corduroy Frog

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Everything posted by Corduroy Frog

  1. When I have customers who run into endless logjams, especially when threatened with liens and levies from the collection dept for money they really don't owe, I have had success referring them to their congressman. IRS obviously listens to congress when they won't listen to anyone else, and it might improve the situation with congress well if they start receiving many referrals from their constituents.
  2. Thank you Mr. Lee - you did answer the question. And FWIW, there is usually a real client, but never with big round numbers that are used for a contrived example.
  3. Assume a company follows the "equity method" for accounting for investments - i.e. adjusting the balance sheet investment account for profits and losses of companies for which they own 20% or more. Does this create a book-to-tax difference? Example: Company A owns 30% of Company Z. It's initial investment in Company Z is $100,000, and is carried on the balance sheet of company A as such. After one year, Company Z profits are $50,000. I am told the "equity method" requires Company A to increase it's investment account by $15,000 (30% of $50K), and report the $15,000 as "investment income" for P&L purposes. As far as I can tell, Company A's basis in Company Z is still only $100,000, and the $15,000 profit is recognized but not realized. My question: Is the $15,000 a book-to-tax difference?
  4. A strategy I use for amended returns (dunno whether it is smart or not): If the amended return results in a refund, apply the refund to 2021 estimated taxes. That way the IRS must wait on itself to validate payments, and has to deal with the amended return to get closure on taxpayer's liability or refund. Serves them right.
  5. Thank you. The link is complicated reading, and the distinction has more to do with NOLs than suspended losses, although they are addressed as well. I don't mind research so long as I don't have to get into regs and their circular language. I was able to find enough to apply to my situation.
  6. The losses are strictly the result of rental losses over a 10-year period where the taxpayer made too much money to deduct the losses. There is no risk problem, and there is active participation. No other reason for accumulated losses than what is stated above. Thanks for your responses.
  7. For suspended losses due to at-risk or passive, the software is calling for a distinction between all such suspended losses and the losses suspended prior to 2018. What impact does this have? Thanks in advance -
  8. Thanks Judy - strictly non-recourse.
  9. Loans guaranteed by partners can add to the basis of partnership. A stark difference between this and S corps. Is this true of the loan is from a related party? Thanks in advance
  10. With the advent of so many LLCs in the last 30 years, the March 15th deadline is far worse than April 15th. We can weed out the April 15th crowd by not taking any appointments, but the LLC crowd represents some of our better clients and those most worthy of our assistance. For most LLCs, according to their election, a balance sheet is required if sufficient assets are in force, but I have always taken the position that a decent preparation should include a balance sheet and M-1 and M-2. There seems to be different strategies in dealing with the deadline. Many firms simply file an extension to give them more time, and drag out the returns (and owner's returns) until Sept 15th. I would prefer to attack the LLC preparation as soon as December bank statements are available, and before we get into the W-2 crowd at the end of January. Comments?
  11. So much of what may be relevant for 2021 could be easily tied up in pending legislation, so I am intentionally waiting to ask questions until the verdicts come. But I understand the EIC base is already in place. Specifically, the calculation for EIC, I'm told, will be based on the greater of: 2021 EIC, as calculated. 2020 EIC, as calculated. However, my question: What if 2020 EIC was based on 2019? as was the case with many last year? In other words, Taxpayer A has EIC based on 2021 circumstances based on 2020 circumstances, but the actual EIC was based on 2019. based on 2019 circumstances. i.e. the greater of three years, instead of two.
  12. Good discussion from all parties - thanks. Judy, good to see you posting again. Those of us who often need help should be thankful.
  13. Please let me ramble, and when I post something that is wrong, jump on me... S Corporations operating in every state effectively create a liability for the owners in the various states. This liability can be absolved by the corporation making a "composite" payment on behalf of the owners. The rates are usually at a maximum, but the objective is to pay off the state so the owners don't have to file a non-resident return. Owners are happy, and the states are happy to get maximum $$ without processing a return. The composite payment constitutes a dividend/distribution on the books of the S corp, and is thus not deductible expense for the S Corp. As being charged as dividends, the owners should be able to deduct the composite payment somewhere. However, state income taxes are a Schedule A deduction, and the benefit may be lost because the standard deduction is so large, or lost because of the SALT. If the S Corp cannot deduct the payment, and the owners cannot deduct the payment, then how can it be deducted? Seems like it should be deductible somewhere...
  14. Already have some, with increased activity showing up this past week. When I prepared taxes for 2020, I had to inquire from each client the amount of stimulus payments received to determine whether a credit would be forthcoming. Most of them were unprepared to answer - many of them had to review their bank accounts, and some of them tried to answer off the top of their heads. I would think the IRS (being the paying agent) should have records that are infinitely more accurate than taxpayers, but I think I'm giving them too much credit. I have a couple families that are being "corrected" when I can remember reviewing their bank statements with them in a sit-down session. I'm also throwing this out to ask the forum for possible remedies. No one wants to go to Tax Court, or any court for that matter.
  15. One of the bills in front of the govt is to place upon banks the requirement to report any transaction flowing thru an individual's account if it exceeds $600.
  16. Excellent information Sara. I have to compete with the big box franchises, as their primary appeal is for customers who want to rush their returns in and get refund money as soon as possible. In fact some of these taxpayers rush to claim their children before their ex-wife can legitimately claim them. Then when ex-wife comes to one of us, we can't electronically file because her kids have already been claimed. We have H&R around every block, also JH. If we don't have Liberty then that's one less we have to worry with. I'm not really bashing them - I can't compete with their resources that they have to prepare a return from check stubs and the like.
  17. Scarcity of resources continues. It is important to note that the shortage created is gone, and has not been replaced at another location. One of my CPE lecturers (and a great one at that) is Chris Bird from Champagne/Urbana Illinois. He said that the entire IRS region below Springfield lost their only field auditor. The personnel requisition called for a graduate with a Bachelor's Degree. Did not have to be in Accounting, Math, Taxation, or anything relevant. They could have hired a candidate with a degree in Sociology or Physical Education, I suppose. No wonder we're having headaches with the IRS.
  18. Assume you have absolutely nothing except current year statistics. If you don't have current year, you should not be doing the return. Reconstruct beginning balances by asking about real estate and equipment, and dates of purchase, then reconstruct accumulated depreciation. Current year cash can be rolled back to a Jan 1 balance. From amounts on loan service, you can deduct the amount interest, then reconstruct beginning balances on loans. Current year information is necessary anyway. Make sure you charge enough and tell them up front it will cost. For what it's worth, I do schedule L, M-1, and M-2 for every Partnership and Corporation regardless of size. Anything less means I am not setting forth proper due diligence.
  19. I put the extinguishment of installment sale items in the following order: Depreciation recapture of S. 1245 property. Many times rental real estate has section 1245 property (such as large appliances) which bear more rapid depreciation than building components. IMMEDIATELY TAXABLE - No installment advantage. Depreciation recapture of S. 1250 property which is in excess of Straight line. IMMEDIATELY TAXABLE - No installment advantage. Section 1250 gains allocable to S/L depreciation. Eligible for installment treatment. Software has a bucket for this if we just look for it. Pure capital gains on remainder of assets not mentioned above. Eligible for installment treatment. Over the course of years, the above items may be relinquished in the order described.
  20. Jackie if what you say is true, the selling price is less than the purchase price. I don't know where you live, but this is quite unusual unless he hasn't done any upkeep, or sold to a relative. I would question your client.
  21. Not clear what kind of return you are preparing. Is it for the deceased or the estate?
  22. I haven't been able to get back on the forum until late tonight, but there is an update. If I follow CBS initial advice about populating Line 6 on Sch M-1, everything magically is taken care of. FWIW, there is no requirement for the entity to furnish a Basis worksheet, as this requirement is only on the recipient of the K-1. Even though the tracking of basis is the responsibility of the recipient, I still try to furnish such a schedule privately on an Excel worksheet, since most recipients don't have a clue. Thanks again - Frog
  23. WOW, thanks for being out there today! Thanks for the reply. Makes sense, and that might be why Drake does not allow for it. The big problem is Drake is now getting sticky about Basis worksheets, and Exempt Income increases Basis.
  24. Maybe I'm an idiot, but I'm working this Labor Day, and I need help from Drake, who (like most sane people) is shut down for the Holiday. An LLC (Form 1065) has a large amount of Tax Exempt Income (e.g. PPP forgiveness). There appear to be no field whereby this amount can be entered - not on the K-1 distribution, or anywhere else. I am able to enter into the M-1 reconciliation, but that's about all. Does anyone out there know where to enter this? I don't blame anyone for not reading or responding and ruining their Holiday.
  25. I haven't had unprofessional experience with IRS auditors either. When all the facts came out, they were usually more correct than my clients, who often were less than forthcoming with me when reporting their income or expenses. Like CBS, my worst experiences have been with State Unemployment auditors, who were definitely more hostile and wrong than IRS people. I've had to go to supervisors to get proper relief a couple times. But we are speaking of the IRS as it exists now. Not of the IRS when they receive regulatory powers. My guess is the regulators will not be the same people as the auditors.
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