Corduroy Frog

I want to make sure I understand...We calculate on the year 2019 or 2020 with the lower income, even though the calculation may give a higher EITC in a different year because of change in children or other qualifiers. Is this correct? I did read your response above, but could not come away with a clear-cut yes or no. This pretty much means that this is NOT a good year to switch tax software.

Lion, it sounds like the criteria is based on income alone, and not necessarily the EITC formula which may involve different numbers of children....correct?

Thanks folks. Glad you are on top of this better than I am.

Some info floating around, and I want to make sure it is for real: If someone does not qualify for EIC in 2020, but qualified in 2019, they will be deemed as qualifying for 2020. In fact, if their EIC calculates greater in 2019 than in 2020, they will be entitled to the higher amount on 2020 tax return. On a joint return, the "above-the-line" charitable deduction is $600 rather than $300. For stimulus payments, all amounts received are calculated using 2020, even if some of the stimulus was not received until 2021. (For some reason, the automatic stimuli are supposed to be over and done by Jan 15th possibly to accommodate this. I'm sure there are sources to research, but I even wonder whether they are up-to-date.

I'm very interested to know. The virus is worse than ever, and we should be later than usual getting our appointments scheduled. Especially for deadlines due on March 15th. I have been vaccinated and will be immune (I'm told) by Feb 8th if successful. I am not taking appointments before Feb 12th. The IRS will be under pressure to collect $$ but their worst enemy in this regard is Congress itself. What I foresee: IRS does not want to enforce a deadline, assess penalties, and then go to the administrative hassle of having to waive penalties because so many clients (and preparers too) will be claiming the coronavirus was the reason for the delay. CBSLee if you are listening, you generally have a drop on IRS information quicker than the rest of us, so you are encouraged to share...

Thanks for all who have replied. To be clear on my example, it looks like: The net of $3500 is added to Federal Taxable Income The $3500 is not added to Social Security wages or Medicare wages. $3500 becomes SEHI on Shirley's personal tax return, given no complications with spouse.

I used to know this stuff inside and out. Now I can find citations but nothing which takes me thru the process A to Z: Shirley is a 5% shareholder and an employee for a Subchapter S corporation. The company pays out $5000 in medical insurance, and she contributes $1500 out of her paycheck. How much is added to her taxable income on her W2, $5000 or $3500? Is the amount added to Taxable income? Social Security Wages? Medicare Wages? Does the amount qualify as Self-Employed Health Insurance deduction on her personal return?

I am 60 miles from downtown Nashville and have AT&T supplying my cellphone. Could use my cell for about two days. Rita is further away, so don't know whether she was affected or not. If she doesn't use AT&T, she should have been OK. Is anyone's guess as to whether we have been given all the relevant facts about the bombing. For whatever benevolence may ascribe, it is obvious that the bomber didn't want to kill anyone but himself.

Tom, I'm sorry (I guess). You may look back at some point and conclude this was the best thing that ever happened to you. Just reading your recent posts it may appear that you were not afraid to speak up about your increased frustrations as your company piled more and more on you. Your employer must have been terribly remote to be so out-of-touch with what was going on. I have to take a page from Sara's post and conclude that the govt believes they can pull the rug out and change the rules up-to-the-last-minute. Just in the last couple weeks the EIDL grant had to be deducted from PPP forgiveness, and now suddenly it doesn't. Tax issue? Maybe not but all along we have to make allowance for non-deductible expenses paid from exempt funds. Oh, wait a minute! Now all-of-a-sudden these items change too, such that they are fully deductible. One of the worst things about it for people such as accountants and tax professionals: So much time is being spent on being sucked into PPP forgiveness applications and tax changes that we cannot address day-to-day normal issues that help management and profits.

Thank you Danrvan. Cleared up my question. Didn't think of what would happen if only a portion of the loan was paid, but it makes sense that the adjustment in basis would only occur to the extent of the partners' unpaid amount in proportion to what was really paid by the others. Calculation of basis at year-end means amended returns are not necessary but the entire amount falling out is the same as money received as cash.

Pacun, thanks for delving into this. I'll try to define in answer to you. Partner C put down $25K from his pocket for 25% of the shares, correct? There is no evidence that Partner C put down $25K from his pocket. He may have put in any amount, or may have put in nothing and this could have happened several years ago. The only facts are that his basis prior to default was $27,500 with loans attributable to $37,500. The bank will not issue him a 1099-C because the loan was repaid to the bank. Not stated that the loan was repaid in full, only that the partners were approached and C could not pay anything. Technically he just lost 15% of his interest on the partnership. He only has 10% of interest and this is the way the new interests should be stated: You could be right. Don't know that his default (with no other contributing circumstances) disqualifies him from being a partner or reduces his stated interest unless he is forced out by articles of partnership agreement. The question only involves his suddenly "overdrawn" basis and how it is handled on his personal return. Actually, there is also movement in the partners' capital accounts which is different from basis. This is heavy stuff (especially for people like myself to understand) so I have a feeble mind when thinking about it. Thank you, Pacun.

First of all, please enjoy Christmas under these strange and unusual circumstances. I've lost a few friends and hope the vaccine can be distributed to all of us soon. This question concerns partners' basis and what can happen. It is a technical discussion, so you may ponder whether you wish to go ahead with it. Partners A,B,C,and D have been borrowing money with partners' guarantees for a number of years to keep the company afloat. The company has lost money consistently but is holding out for a brighter future. The partners all co-sign the loans with joint and several liability, i.e. each or any of them are responsible for the entirety of the loan should the other partner(s) default. Since partners' guarantees are allowable additions to basis, the basis of each partner is increased in proportion to the their partnership shares for the amounts guaranteed. In the most recent year, the lender is insisting that some payments be made on the loan. Partner C is unable to pay his share, so his basis attributable to the loan is split by the other partners in proportion to their remaining shares. Partner C has been deducting losses on his personal return by virtue of his share of borrowed money. Question: What is the effect of the sudden reduction in basis for Partner C? Is there income in the current year or should amended returns be prepared? Does he have the classic forgiveness of indebtedness income? This is difficult reading and stilted language, so it become clear if I put numbers behind the events. Partner A: 40% with a basis of $40,000. Guaranteed loans are $150,000 so his basis attributable to the loans is $60,000. Partner B: 20% with a basis of $20,000. His basis attributable to the loans is $30,000. Partner C : 25% with a basis of $25,000. His basis attributable to the loans is $37,500. Partner D : 15% with a basis of $15,000. His basis attributable to the loans is $22,500. Sorry I can't do anything about the graphics and emoticons showing up as I type. Partner C cannot pay. His basis in the loans of $37,500 is removed and split in the ratio of 40:20:15 among the other partners. This means A's basis is increased by $20,000, Bs basis increased by $10,000 and Ds basis increases by $7500. After the default by partner C, the new basis for A is $60,000 with $80,000 attributable to loans. New basis for B is $30,000 with $40,000 attributable to loans. New basis for D is $22,500 with $30,000 attributable to loan guarantees. Partner C who defaults loses all his basis, and actually goes into the negative by $12,500. He previously deducted losses of $3000 in 2017, $5000 in 2018, and $6000 in 2019. The question becomes: Does the $12,500 become income in the current year? If so, is it capital gains or loan forgiveness? If not income currently, does he have to amend 2018 and 2019 removing the losses claimed in those years? Is there a 1099-C from the bank or from the partnership? This is already complicated, so for purposes of this illustration do not consider the insolvency effect to avoid income.

Appears on page 57 of instructions, and I suppose it is ready to use if they don't change it. Thanks Lion.

Don't know whether I'm in the right place for this message or not. My seminars keep referring to the ever-forthcoming IRS worksheet to calculate or reconcile the stimulus payment received in 2020. Basis for calculation is 2020 statistics, but I understand there won't be any repayment to the IRS if the taxpayer has been overpaid. Has anyone seen the IRS worksheet?

Thanks to all who have hung in there with me. DANV you took the time to paint a very good picture of how such a situation should be treated, and I am very appreciative. Much of the cobwebs in my head were removed as a result. A great discussion for "inside and outside" basis/capital.

I am fully capable of looking up "where to file" on the IRS website. But it is a small inconvenience when there is a tab on Drake which says "Filing Instructions" and the address doesn't exist. This year, I have had to file a few paper returns. But the Drake filing instructions still say "Your return will be e-filed once your signed and dated Form 8879 has been received by this office. Do not mail your return to the IRS." The return I am working on now says "This return must be paper filed". Taxpayer is disabled, has no picture ID, and is a EIP2020 return only.

Tom, I happen to agree with you - the bank is not wrong, but it is an "either/or" situation. Either incurred or paid. Payroll is a special situation, and your bank could be right, but if you choose to report "paid" and choose the "alternate payroll periods", I believe you were doing it correct to begin with.

Thanks for the responses - I've been out for a few days. I'm not sure I gave out the perfect example, but please just assume mainstream events. Assume amortization is correct and goodwill was properly calculated. No additional information for exotic events. The subject matter (it seems to me) is convoluted enough as is and I don't have a clue. I might access the enrolled agent exam if I knew where to find it. I passed that thing 12 years ago...

This came up in a seminar a couple weeks ago, and no one could wrap their arms around it. The presenter spoke confidently but was not successful imparting anything clear. Even my multiple choices above are all over the map.

I don't know how to ask this question quickly without creating a test sample: BarryCross,Surveyor joins a real estate development partnership, and brings with him all his assets, including $40,000 of unamortized goodwill. Eight years later the partnership is sold for a substantial gain, and during the eight years the unamortized goodwill has dropped to $28,000. Which of the following, if any, best describes the treatment. Barry's K-1 should indicate his proportionate share of the gain, his basis includes the $28,000 of unamortized goodwill. Barry's K-1 should indicate his proportionate share of the gain, his basis includes $40,000 of goodwill, because he has not been able to deduct the $12,000 amortization which has transpired. There is no recognition of the goodwill because the sale has exceeded the five year statute for "hot" assets. Barry could not have transferred the goodwill into the partnership to begin with because it is not a tangible asset. Any gain/loss on the goodwill should have been calculated upon entry into the partnership and no further recognition. Goodwill cannot be transferred into the partnership, and any gain/loss upon entry is forgone. None of the above. Sorry for my ignorance, I could never research this subject on my own. Thanks to any of you who volunteer an opinion.

Max, if you've followed me, you know I'm outspoken. I will not hesitate to present something fuzzy if it invites clarity. So in this situation, thank you for your opinion, and presentation of factual information.

This has been the general rule for a long time, but just Wednesday, on IRS notice 2020-240, confirmed that expenses covered with PPP loan forgiveness are not deductible, since the proceeds were not taxable. There are plenty of people waiting on Congress to act and allow deductions for said expenses. And many people think it will happen but at this point it has not. By nature of the subject, this should be captioned under the Coronavirus heading, but I thought the subject matter should be brought to the attention of as many as possible. Move if you wish.

i have a hard time dealing with people who give me whatever information suits them the best at the time. Facts don't change if the times don't.

In many cases, I didn't have a thing to do with my clients receiving this free money, they worked it out with the banker. However, now comes the time to apply forgiveness application, and the banks all-of-a-sudden want nothing to do with it. I have a few clients who are banging on me to apply because their hero banker doesn't want anything to do with it. Are we stuck with the 3508S instead of having the loans automatically forgiven without application? I thought congress and the SBA were going to go down that road.

Yes Gail - they are looking for ironclad documentation that will save the egg on their face if something doesn't work. Even if there is no possibility of that happening. One of the things that has surfaced in the last 10-12 years in Tennessee is the idea of a "medallion notary." Whereas the signature of a notary would be sufficient, now this "medallion" notary is bonded, insured, and has to large fees to cover liability insurance and other increased costs. Compared to 30 years ago, administrative work is five times as more necessary, staffed by low-paid personnel who are not accountable for performance, and generally part of a morass of sludge and inefficiency. It's no wonder that in the skilled trades, those people are plenty busy, hard to find, and are now making a ton of money because of the law of supply and demand.