Corduroy Frog

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.

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.

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.

Not clear what kind of return you are preparing. Is it for the deceased or the estate?

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

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.

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.

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.

Thank you for your help. Ironically Lion's Link to the CCH article meets Abby's criteria for being non-IRS publication.

Trying to read IRS publications to figure out how to depreciate leasehold improvements. Not having any luck. Can anyone point me to a reputable source? At some point I believed that Leasehold Improvements depreciate over 3 years or the term of the lease, whichever was longer. Is there any better or more recent information than this? Thanks in advance.

Apologize, ILLMAS, but Abby is correct. I didn't read deep enough into your post to ascertain that some of this money would never result in income.

I may be the only one to disagree, but I think the IRS has bigger problems to deal with - like the ones addressed by Olsen every year in her review. This doesn't mean I support bad preparers or bad tax returns. None of us do, and I wish they weren't out there. Especially shifty-eyed Sam across town who will deduct anything or lie for his customers. But Sam would be most likely to be shut down by increased audit activity than regulation. The problem with regulation of any industry is the enforcers pick and choose who to scrutinize. They are quick to go after low-hanging fruit to justify their jobs, but are not so anxious to tangle with difficult violators who can effectively throw up roadblocks. In other words, they could shut me down for accidentally failing to sign a return, or a failure to observe a petty regulation in Cir 1230. But a very bad preparer in a nearby town some 30 miles away has been spewing out inaccurate returns for 30 years, but is married to a Federal Judge. Big companies support regulation and in public relations campaigns they decry bad practices in their industry. Regulators can eliminate small competitors by shutting them down, but if a regulator knocks on the door of a Fortune 500 company, they are told "Our lawyers will be in touch" and that will be the end of it. I don't expect "like" emoticons from the group, but this is where I stand.

It is commonplace in some states that Grants from Federal Govt are Exempt for Federal Purposes and Taxable for State Purposes. Conversely, in these areas Grants from the State are Taxable for Federal Purposes but Exempt for State purposes. Sorta a reverse flip. This is true in Alabama, but can't say this is true everywhere - I haven't filed everywhere and even so, I dunno. I'm dealing with a Kentucky customer who received a $32,000 economic (COVID) grant from the City of Louisville. Can anyone tell me where to look in the IRS code to determine whether this is exempt or taxable? If I know where to look, I'll find out for myself. For what it's worth, I'll have to file Kentucky taxes for this person as well. Kentucky website confirms the taxability of such a grant will follow the Federal. Thanks in advance.

Thank you sir. Looks like my calculations were correct.

I was told earlier this year that the COVID credit (on the 941) would be to cover employees missing work due to COVID plus the federal payroll taxes. All of this is subject to limits, but this discussion is meant to leave the limits out of our thought process. I've done a number of these things, and follow the 941 Worksheet. I can recover the amounts paid to employees who had COVID plus medicare. But I can't recover the FICA expense attached to the COVID pay if I follow the worksheet religiously. Can someone unravel this for me? Have I missed something on the worksheet? (There are more than one worksheet, but I have not dealt with the "Family Leave" worksheet) Does the credit cover FICA as well as Medicare?

Illegitimas, my opinion is that this very thing is what cash basis is all about. Report as revenue in the year received, rare issues not withstanding. Same thing would apply in reverse. A large deposit paid for unfulfilled performance would be deductible. There may be exceptions, but in general I think this is what you get when you choose cash basis.

Good conversation. The biggest potential pitfall apparently occurs when a Traditional IRA already exists. If basis in the Traditional, taxpayer cannot pick and choose when to relinquish the basis. Basis must be eliminated pro rata.

Talk about unnecessary complications in the tax code. Incomes over a certain level do not qualify for a Roth IRA. So those in the high income bracket simply open up a conventional IRA, deduct it, and then recharacterize the thing into a Roth in a couple days or so. So why doesn't the tax code simply allow for a Roth to begin with, regardless of income level? Does it have anything to do with not allowing the conventional to be deducted at high levels? Doesn't seem to matter, the taxpayer can designate the whole thing to be non-deductible, and then he (she) will have a basis when recharacterization occurs.

Hi Max - Since we have posted per above, I have had two more business clients who have received threats to levy from the IRS, each of them claiming the IRS has "previously" contacted them regarding unpaid taxes. Knowing these two, I seriously doubt they were contacted previously, but according to your protocol above, the liability was first calculated in the audit division before being sent to collections. The liability is also something cryptic (doesn't make sense) on one of these, and the other liability is for a 941 and could be valid. Some of the CP notices (I've had about 10 this summer) also don't add up, even by IRS own calculations. Max, I will direct this to your attention, but will post for all to read. Maybe other members of the board will tell they have had similar experiences. I need to know whether I'm going crazy and need to quit.

Thank you Lion. Excellent information.

What is the penalty (per partner) on a 1065 for late filing nowadays? Since there is usually no tax, any such penalty would have to be assessed based on # of partners as opposed to tax liability.

Indeed they do. So much, in fact, that I would spend the rest of the evening reading about it. And the internet is full of articles which don't necessarily give the answers desired. I'm wondering if the wages for an employee to get tested for antibodies is a legitimate reason to accumulate such a credit.

At least thru the 3rd quarter, Employers get a credit for employees who miss work because: They have COVID They leave work to go get vaccinated They have a reaction to the vaccination They take another family member to get vaccinated. They cannot come to work because they are under COVID quarantine. Specifically, what about missing because they go get tested for antibodies? Any other reasons we can think of?

Max, thanks for your corrections, if indeed they are as you say. I don't mind admitting when I'm wrong, and it sounds like I am wrong in a number of assumptions. However, I do have a client who took exception to an audit finding via correspondence, and two weeks later received a collection notice to levy or seize assets. Correspondence is slow, snail paced, but there is indeed a problem communicating with the examination division. You cannot call them via phone, get their attention with a fax, or communicate with them in any other fashion. If you have a suggestion based on your extensive knowledge, my client and I would appreciate some advice.

Good article that explains it very well. Thanks, Judy.