Corduroy Frog

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.

Ran into this from someone no doubt smarter than me, and referred to section 469(g)(2) as well as Pub 925.  If I understand this lawyers' language, upon death all the disallowed losses are released, except not to exceed stepped-up basis in the property.

As usual, the only way to get this into my pea-sized brain is to illustrate.

Assume rental property with original basis of $100,000, and disallowed losses built up to $45,000.  The FMV at time of death is $130,000.  If I read this correctly the "step up" is only $30,000, so the amount of losses released can only be $30,000, not $45,000.  I don't know what kind of basis is passed on to the beneficiaries.

Anyone care to chew on this one??

One interesting possibility might be to conjecture whether IRS will "forgive" excessive CTC payments which were not justified.

Agree with Abby Normal 100%.  They create the Pro Version, and use the same calculating engine to equip Turbo Tax, and then tell the customers its free.  They also tell consumers if they have Turbo Tax they'll be as smart as a CPA.  Is there no credibility left?

Thanks Lion.  The "collection hold" sounds like good strategy.  However, the collection hold must be communicated.  Calling the IRS at the number on the client's notice or the Practitioner Priority Line is not a viable strategy these days.

Your response is appreciated, as usual. 

The collection division at the IRS has not suffered the lack of funding and diversion of priorities which has plagued the rest of the IRS.  Historically, the audit division would propose adjustments, and if the taxpayer ignored repeated notices, then the adjustment would be turned over to the collection division for action.

The general position of the collection division would be that the taxpayer had ample opportunity to address the situation when it was tied up in the audit division, and that the taxpayer would simply have to pay up.  They would not refer the matter back to the audit division.  At least that was their general position.

Things have now changed, it seems like.  Taxpayers ARE responding to notices from the audit division, but the IRS is so bogged down with stimulus priorities, advance child credit priorities, and general lack of funding that they are simply not addressing correspondence or anything else from taxpayers.  But the delay does not stop the collection division from aggressively pursuing money, whether the taxpayer owes it or not.

Can anyone recommend a good strategy to deal with this on behalf of taxpayers who are legitimately trying to get their accounts settled while being beat up by the collection division?

Thanks Margaret.  The trust in question has no such provision.  In addition, it is not a simple trust, having no provision to distribute all income currently.

I've raised the issue about taxation of capital gains in Trusts, and have understood that the Trust pays the tax on Capital Gains rather than allocating the income to the beneficiaries.

However, Schedule D (Form 1041) has a Part III, which has a column allocating some or all of the capital gains to the beneficiaries. If the above is true, how is this possible?

I believe the big problem preventing passage is the Sept 15th deadline, as it collects money in advance of the Govt fiscal year ended Sept 30th.

On 6/28/2021 at 12:18 PM, Eric said:

The new version of the forum software introduced a new Points/Rank/Achievement/Badge system that's more complex than the previous system that gave points/ranks entirely based on the number of posts you've created.

 

Probably a good idear in my case.  Half of my posts are borne of ignorance, so there is no basis for awarding achievement based on sheer number of my posts.  Good luck on this - maybe some way to evaluate those of us who answer questions with good answers instead of bringing questions to the group...there are those of us who give lifesaving answers from time to time - won't list names, but we all know who they are.

Thanks to Lion and Abby - upon further investigation it appears that after 2017 the 2% Miscellaneous Category was eliminated, however the "Other" Itemized Deductions was retained and includes Gambling Losses to the extent of winnings.

Unless something changes, looks like the taxation is still one-sided.  Total amount of winnings are taxable and are NOT netted out against losses.  Losses become an itemized deduction which do not survive unless the taxpayer itemizes.

Look for lobbying on the part of the new gambling forums.  A typical gambler faces risk to begin with, and with the taxation the way it is, that would kill anyone's chances with any common sense.  The gambling forums represent a huge boost to the economy, so I would not be surprised if they bend some ears of legislators.

Thanks Lion, your suggestion is always appropriate.  I suspect that one of the advantages of these new gambling services is they will keep up with all details.

The conventional taxation of gambling has been quite one-sided - with a demand to report winnings, and no valid way to report losses and get around all the gatekeeping that comes with itemizing.  And now, no "miscellaneous" categories allowed anymore.

Enter new online gambling forums that are popping up in various states.  Tennessee, for one, has new forums that spend so much money on advertising that you've got to wonder whether any of the participants are making winnings.  The technology is so sophisticated that if you are in Georgia and go online, the forum will not respond.

Suppose a $1000 deposit is required.  Over the course of the year, the taxpayer wins $15,000 and loses $10,000.  The host sends him $4000 of the $5000 won, and keeps $1000 on deposit.

At the end of the year, taxpayer receives a 1099-G from the host.  Anyone have any idea what this thing is going to look like?

1. Winnings of $15,000 are reported.  Taxpayer pays on all of the $15,000 income.
2. Winnings of $5,000 are reported.  That is the amount of "net" winnings.
3. Winnings of $4,000 are reported.  That is what the taxpayer received.
4. None of the above.

The stuff is relatively new, and I haven't been immersed in it yet. 

Opinions?  Cites?

On 5/20/2021 at 8:56 AM, BulldogTom said:

But then again, the President and Congress could decide that this is still unprecedented times and forgive the payback on the tax credits and allow UI to go untaxed for another year.    We saw it before and we may see it again.

 

Tom, what if this really does happen?  (And you're right, it absolutely could).  So we advise our customers to opt out and not receive the advance child credit.

They are going to be furious when they realize they could have received the advance credit PLUS the full credit for 2021...

And guess who they are going to blame for this advice??

I would stick to Sch D and the 8949 series which feeds it. 

Hard to deal with this, but even paying for a $50 fillup with gasoline to a service station which accepts Bitcoin constitutes a separate transaction.  Hope there are reporting alternatives to reporting every single transaction.

And how is your crypto "portfolio" valued?  We get back to the ancient inventory lessons of FIFO, LIFO, Moving Average.  If a method chosen is other than Moving Average, a nightmare results because of multiple tiers of valuation.  Especially with LIFO.

Dealing with this is a nightmare to begin with.  No need to make it worse with LIFO or FIFO. 

9 minutes ago, jklcpa said:

Oh, I didn't say he couldn't ever borrow against the property, but it shouldn't be done simultaneously or very soon after the exchange. Borrowing is certainly allowed, but there shouldn't be the appearance of borrowing so soon as to seem like immediately pulling out more equity. 

Understand completely.  We want to avoid the appearance of "back door boot".  He has other rental property, and if he does this, it will probably be used to improve other rental property or maybe buy more.  If he waits a couple years, he will probably be off the radar, regardless of what the proceeds are used for.  Thanks again - you are absolutely magnificent in researching and answering these questions.

9 minutes ago, jklcpa said:

Ron, did the taxpayer receive some funds back from the QI?

No.  There is zero money except for the fee of an intermediary.  Sorry to mislead.

Thank you Judy - and equity is one thing that hasn't been considered.  I am guilty of ignoring this factor as well.   I apologize for presenting fictitious numbers because I wanted to focus on the invasion of Property 2 of $500,000.  The real numbers are as follows:

Value of Property #1 - $925,000 with $90,000 still owed.  Equity $835,000.  The $90,000 mortgage is NOT being transferred to the new buyer.

Value of Property #2 - $975,000 with $140,000 owed.  Equity #835,000.  Taxpayer has to borrow the $140,000 to keep from investing more cash.

I am on board with Judy's caution for borrowing another $500,000 against Property #2.  This creates a sort of "boot" which is back-door from the original transaction.  If he borrows this money soon after trading, he needs to spend it on improving Property #2, but he tells me he would use the money to buy adjacent rental property.  This might be OK too.  But if he uses the money to buy a boat or something else non-business for personal aggrandizement, I definitely think there is a problem.

Apologize for the misleading fictitious information.  Judy is correct about equity.

Thanks all.  I'll have to come back shortly with real numbers to properly paint the picture.

After a tax-free exchange, taxpayer invades equity to withdraw cash. Sorta defeats the "boot" definition.

Maybe an example can paint the picture, with simplified fictitious numbers.

Taxpayer owns Property 1 with a basis of $250,000, but FMV of $1,000,000 and existing mortgage of $85,000 which does not transfer to the buyer. He buys Property 2 for $1,000,000 and borrows $150,000 in the process. The sale/purchase goes through a qualified intermediary within the prescribed time limits, so BINGO! Tax free exchange!

Taxpayer sits on Property 2 for awhile, but six months later, he takes out a loan from the equity in the new property in the amount of $500,000, and doesn't use the money for improving Property 2 at all.

Does this scenario result in taxation?? Keep in mind that he had this same equity in the original property so it would appear he has the right to do this. But also, he is walking away from this tax-free transaction with a bunch of money...

On 6/4/2021 at 2:52 AM, Lynn EA USTCP in Louisiana said:

Corduroy Frog, online credit card vendors such as Square have no monthly processor fee though there may be an upfront charge for the swipe device.
 

Lynn, thank you.  I'll look into Square and other alternatives.

I have not gotten into accepting credit cards, and it has turned off a few people who want to pay everything by using their phone.  I've got to wonder how they were even alive before smart phones were invented.  They don't see the effect on recipients.  If presented with a bill for $100, they think all they have to do is pay $100 and everyone is deliriously happy.

I accept checks (and of course cash).  I prefer checks because it has the routing # and account # I can use to direct their refund deposit.  If they try to read off these numbers to me, they can leave out significant digits, and if I can actually LOOK at them, I have a safer feeling that it will be correct.

It's not just 4% or thereabouts you must add to the bill to cover the cost of a credit card network.  A credit card processor usually costs $75 per month in addition to the 3-5%.  And the $75/month is for 12 months of the year, not just end of January thru April.

For my 200 customers or so, it's just not worth the extra amount I would have to charge my clientele to cover this.  I'm with CBS on this - cash and checks.

Many of these are troubling, and I believe will backfire.  In particular, I am old enough to remember two previous attempts to eliminate preferential treatment for capital gains.  In both situations, these attempts to "soak the rich" resulted in a huge slow-down in real estate transactions.  When this happens, not only do the rich suffer, but also construction workers, materials suppliers, and everything associated.  Within a year, the legislature restored preferential treatment for capital gains.

Another of these is the possible elimination of "stepped-up" basis for sales of inherited property.  In these days of inflated housing and land values, even modest middle-income people have property whose FMV exceeds $1 MM.  Again, if buyers of real estate have their prices jacked up to pay increased taxes, they will back away.  Slow-down of real estate effects everyone, as described above.