Corduroy Frog

Judy, thank you for hanging in there with me. You demonstrate a keen intuition for possibilities, and are bulldog tough in thinking things through. I am thinking there may be a problem with Drake - that is doubtful, but I have found them to be in error a very few times over the years. We agree that Taxpayer A was handled correctly - unable to take the loss in the current year. Taxpayer B is not a real estate professional - a private high school principal. His $236K income is very high in his geographical area. There is no entry at all on page 2 line 43, as he is not a real estate professional. Instead there is a loss appearing on line 41. This is Sch E, page 2 - there is no Page One. Also there is no 8582 form and no 8582 worksheet, which typically allocates the suspended losses - such as for Taxpayer A. I would call Drake, but the call center personnel are knowledgeable about their software - not responsible for the intricacies in the law. They would have to refer it to their "development team" who forges the tax law into their software. I am convinced that Taxpayer B should not be entitled to the rental loss - whether it's my fault or Drake's. Thanks again - Ron

This one is really tough, and I appreciate any help. A client sold inherited stock in 2024. The stock is "WESTROCK CO" The stock symbol is truncated by Schwab, so we can't tell the symbol. The selling price was $51 per share in 2024. We need the historical price as of April 23, 2001, when the mother died. We do know at the time in 2001, there was a predecessor company in Chattanooga, TN. Hint: We have already consulted with Stock websites such as "Investor.com" and "Bigcharts.Marketwatch.com" and they are no help at all. Tjhe brokerage firm, Schwab" can't help either and listed $5.25 as the "basis" but could not confirm it. Actually we do know that prior to 2011, brokerage firms were not required to track basis. Preparers like myself are not going to be able to help. If any of you are savvy in investment data, please look into this and I will appreciate it.

Thank you Judy for your response. I'll deal with your questions in Bold Italics 8582 must be produced to determine the correct amount of net loss to use at the bottom for the limitation, if that actually applies. 8582 appears on Taxpayer A, whose loss has been suspended, and this is what I expected to happen. Taxpayer B, whose losses were allowed on a 1065 K-1, has not 8582 at all. What boxes are checked on the input for the activity? The only boxes checked for Taxpayer A, are "Active Rental Real Estate" and "Single Family Residence." Taxpayer B, has no page 1 for Schedule E, and lists the loss on page 2 of Schedule E under "Nonpassive Loss allowed" Line 28A coming from the pass-through K-1 (form 1065, 8825) The K-1 shows the loss on Line 2 - Rental Income or (Loss). What is the modified AGI being used? Have you checked to make sure that MAGI is below $150K, and that you aren't basing your statements on AGI? Modified AGI for taxpayer A is $156,307. There is no calculation of Modified AGI for taxpayer B, but their AGI is $236,778. TTB lists 10 elements which comprise "Modifications" for Modified AGI and none of them occur with Taxpayer B. I doubt Drake is wrong and is probably doing what you are telling it to do based on your input. Don't know what else to say. Thanks.

Sorry folks. The $150,000 has not been adjusted for inflation as the personal losses continue to go to 8582. And no restriction on rental losses for the pass-through. The rental activity is "active participation." I'm missing something relevant in the comparison, and reaching dead-end streets with the responses, for some reason. Or else Drake is wrong. Thanks.

For high-income taxpayers, rental losses phase out and are totally suspended after $150,000. But suppose a partnership invests in rent (Form 8825) and has a loss. Or maybe an S corp that passes through the loss to the owner/shareholder. The loss is allowed on the personal return. Why the difference? They are both rent - and both investments (if a profit they are subject to the NIIT). The pass-through character is the same from the entity as to the owner. What is the difference? Thanks in advance...

To what extent does the IRS match Names to SS#. Possibility matching Dates of Birth as well?

Please correct me if I'm wrong, but I believe for purposes of the IRS, a recovable trust is ignored (as if it had never occurred). If the trust is created by state statutes, it probably exists for state law unless it piggy-backs with the IRS. By contrast. an irrevocable trust has it's own identity, and must file a 1041 with the IRS for every year it exists. The basis of its assets are frozen as their value as of the date of its creation.

Excellent response Judy and thank you. From your response, The heirs are not entitled to the impounded loss, although do acquire the rental house at stepped up basis. The deceased can treat the house as disposed, which should free the impounded loss. I didn't know this - for example if there is a Capital Loss carryforward by virtue of the $3000 limit, the capital loss carryforward dies with them.

George and Elizabeth owned rental property, and consistently have AGIs well over $150,000. As a result, they have accumulated losses of over $75000 that they have not been able to deduct. They both die in the same year (maybe a car wreck), and their son Robert will inherit the rental house, FMV of $300,000. Robert's FMV stepped up is $300,000. Can he inherit the $75,000 in his parent's impounded losses? In other words, can he: Sell the house with basis of $375,000, or is his basis only $300,000? Continue to rent the house and absorb the $75,000 as his own impounded losses going forward?

This could drift into political expressions about the current administration, which won't be allowed here. But I would expect much of such as this to be rescinded when it hits the fan. Tennessee required all tax payments and unemployment taxes to be electronic 7-8 years ago. But they still accept checks and dare not penalize the issuer. They need and love any kind of money like a pig after slop.

Actually, I've been comparing information returns with previous year's for the last couple years. This was based on advice from kathyc2 some time ago. We'll note if the ugly letters drop some. Again, this still will not stop notices from the IRS that are in error. Still in the 50% range, and providing them ironclad information doesn't help. It's like it just sails over their head.

Doesn't surprise me. When you consider all the returns that are filed with TurboTax because they have only a W-2 and no deductions, and those who file by themselves with only a W-2, those people never get a letter. My 10% is absolute maximum, more like 5-6%. Almost all my returns have farms, small businesses, rental property, investments, etc. Being in southern Tennessee, I do several Alabama returns, and haven't had a letter from them in years. Maybe the AL tax people are understaffed.

Seems like June/July is the season for most of them. What are the error percentages? 50% the fault of the IRS, either in part or in total. 40% my customers for not giving me information, or bad information, as in "I didn't know I had to turn that in" or [tee! hee!] "I forgot. Some of their excuses are quite imaginable... 10% or less are my goofs and mistakes. They don't happen everyday, but I admit they do happen. And overall, maybe 10% (at the most) of my clients receive such letters.

Exactly. This is another example of the powers that be are so out-of-touch with the real world. No firm guilty of these crimes is going to comply to begin with. And especially after the application which has hiccuped in fits and starts.

When they had a $500/day penalty with no limit, I backed off, just as the malpractice insurance companies were telling us to do. I referred my clientele to corporate attorneys, and bailed out. I never looked back, and will not.

Have any phaseouts been adjusted for COLA or inflation? I can't think of any. If there are any, I would think the most likely ones are those associated with banking products, e.g. IRAs, Ables,529s etc.

Whatever happened to the concept of LOCOM? (Lower of Cost or Market). If it had been applied consistently, this inventory should have been largely written off over a period of years - not just written off as a huge loss in one fell swoop.

Exactly 20% ?? Issuers commonly ask if tax was desired to be withheld from distributions and if there is no answer, sometimes they will default a withholding. And a 20% withholding is very, very common. From your post, this is not what happened. However, it might be an accidental transformation of instructions to the issuer.

Wonderful explanation, Kathy. Thank you.

In southern middle Tennessee, there was a severe drought. This led to farmers selling much of their livestock, and also USDA issued money to the farmers for Drought Relief. The effect of this causes farm income to uncharacteristically rise. I am trying to deal with Schedule J income averaging. The first entry is for farm income - meaning Sch F and everything else which may attach, e.g. 4797, capital gains, fishing, etc. But the first entry leads us to believe the amount of income is an "election." Question: If the farm income is defined, what other income can be "elected" for the previous 3 years. Election usually implies the taxpayer may have an advantage by making a choice. I've read the IRS instructions and still can't figure this out. Thanks in advance for any suggestions or comments.

Focus on our Tennessee friend Rita B -who was good enough to host a gathering a few years ago. Rita lives in Cumberland County - site of an unusual geological instance. Not far from her is a tiny town of Crab Orchard. Over 100 years ago, an usual sandstone rock was discovered near the town, and was called "Crab Orchard Stone." This is sandstone - so brittle that you can break it with your bare hands. In fact if you handle it, it might even break without effort at all. Geologically speaking, limestone rock is much harder - impossible to break without a jackhammer or something really tough. However, rainwater will dissolve limestone, and leave sandstone intact. This gives rise to limestone caves, such as Mammoth Cave in Kentucky. There are more limestone caves in Kentucky, Tennessee, and North Alabama than in the rest of the world combined. All this to say that the brittle limestone, if sliced by a saw, can cover a frame, and will not break at all. Ever. Crab Orchard sandstone is light reddish, with streaks of light brown, and blue, purple and yellow. In the 1920s, this gorgeous rock was shipped all over the world because of its beauty. By the 1950s, Crab Orchard stone was pretty much mined out. There are more buildings covered with this stone in Cumberland County than anywhere else. Some of it is in Nashville, and a few other towns in the United States. If you get off the Interstate 40 in Cumberland County and take the old road, U S 70, you will see several older homes and buildings with colorful coverings of sandstone. There is probably the most in Crossville at the county courthouse. Not a tax topic - but perhaps a refreshing journey into the Sunny South. If any of you are close to Manchester TN, drop me a message before you come, and I'll take you to a good meal.

Client received a 1099-C from a credit card company (also business related) that he feels he never owed the money appearing on the 1099-C. If he doesn't deal with this, the IRS will expect him to claim the forgiveness as income, and they will not wish to be dragged into a dispute. Any suggestions??

We have from Jan 1 to April 15th, right? But we all know the "rest of the story." A few years ago, IRS moved the due date up to March 15 for almost all "entities." Most of us consider March 15th more stressful than those due on April 15th. An increasing number of taxpayers are investing in securities, and those issuers do not issue 1099DIV and 1099B until February 18th. That takes away the entire month of February from our opportunity. Tax preparers such as we do not have a multi-million dollar lobbyist working to change things. Our only hope is that the IRS becomes strangled with these short deadlines. They won't make an issue unless they can make a case for more revenue.

Thank you to all.

A minor child has income resulting from a sale of securities, $10,000 minus cost of $9,000. Gain is $1000. For purposes of having to file, he must have "unearned income" over $1300 (among other possible requirements). In the above example, is his "unearned income" $1000 or $10,000 for filing requirement purposes?