lbbwest

Thanks to all! I have ben very busy and not able to post much. Crazy Mary and Chaz (the guy on the corner by Woody's Market that drinks warm corona) got in an ugly fight at the Wal-Mart over a box of Little Debbie Zingers....Its a long ugly tale...suffice it to say I have never seen a loaf of bread used that way before.

Now THAT'S what I'm talking about!

Have a very happy birthday. Miss your humor on this board.

Where is JB? Happy Bday JB! lbb

I have a partnership who made a profit but also had a section 1231 loss on sale of company assets. When the section 1231 losses flow to the partners individual returns the amount is not subtracted from amount subject self employment tax. Am I doing something wrong or do section 1231 losses not reduce ordinary income from the same partnership for self employment purposes.

Thanks

Instructions to the SE Tax Schedule Pg SE-4. Good luck, lbb

Client received K-1 from partnership that shows an amount in tentative allowable percentage depletion in the supplemental information attached to the K-1. Prior tax preparer showed this amount as separate line item on page 2 of Schedule E. When I show the amount on K-1 input sheet as depletion, the software created a new column for depletion but the number does not flow anywhere. Does anyone have any guidance to offer on this? Thanks!

I called ATX support regarding this issue, the software does not support depletion as an asset on the "normal" asset listing, we have to make a separate spread sheet for the depletion allowable. lbb

>>What happened to Jainen....I miss him, because if nobody else will set us straight, he will.<<

No, I won't. I appreciate your kind comment, but you will need to rely on my older posts as Eli does in his 3/15 thread, "Amending from HoH to MFJ." They cover a lot of topics and as you suggest are not always in agreement with the overall tone of this forum.

Hey buddy, I miss you! lbb

how muchwere these bonuses anyway. i know not technically correct but if they were small the irs will not care if they were on 1099. at least in my experience i never had it questioned [i know they could always pick up on it] i wouldn't lose any sleep over this, you advised the client, then followed his direction. in fact if you do have to fix this at this timeof year you should 2x your normal rates.

To clarify what michaelmars posted the IRS NEVER "cares." It's a humongous machine of computers. 1099s would fly through the system even if they were for MORE money than the W2s for the same employees. Human beings don't "look" at the papers. What has happened in this case is a savvy preparer correctly noted to the client an employee can not receive a 1099 and W2 from the same employer. If the savvy preparer files an SS8 the employer is sunk. The ONLY time the IRS enquires into anything is in a random audit (Very very very very rare) or someone "drops a dime." (Also rare.)

That's why so many preparers can give faulty and illegal advise to others with the satisfied statement "I've never had a problem."

Because none of us "have a problem" with anything we do, as long as the computer information is appropriately matched up, ..... until we get caught.

Fortunately there are preparers so incompetent that they don't have the knowledge to even match up the documentation appropriately.

To my knowledge there is no acceptable dollar level of fraud, I was not aware there was a materiality component to tax law. lbb

The buyer and seller will need to include the asset acquisition form with both of their returns, so they better pull out their contract or bill of sale or letter of agreement or whatever has the results of their negotiations re the purchase price, so your client can tell you what he bought for his money.

lion wins:

Instructions to Form 8594:

Who Must File target affiliates, whether or not actively Definitions Generally, both the purchaser and seller traded, other than actively traded stock must file Form 8594 and attach it to their Trade or business. A group of assets described in section 1504(a)(4). income tax returns (Forms 1040, 1041, makes up a trade or business if goodwill Examples of Class II assets include U.S. 1065, 1120, 1120S, etc.) when there is a or going concern value could under any government securities and publicly traded transfer of a group of assets that make up circumstances attach to such assets.

I believe no such cases exist.

Wayne Brasch

See Pub 535 de minimis fringe benefits for allowable 100% deduction.

Hope you are having a good tax year. lbb

Clients aging parents gave there 3 grown children thier working farm 5 years;

Were gift tax returns filed?

ago in the form of an LLC.

IF they gifted "in the form of an LLC" that would be the parents partnership shares. Later posting states LLC CREATED.

There has been a K-1 ever since.

Here is the kicker.

First the lawyer had each childs basis as $90,000.

parents die, now the accountant says "well actually the tital change document stat that there was a $1 exchange for the ranch.

The parents did live at the ranch until they died (last year).

NOW the K-1 for the sale of the farm showes a capital gain of $95000.

(Who calculated Gain and HOW?)

This was basicaly inheritance.

HOW can you say that this was basically (sic) an inheritance when your first sentance says that it's a gift?

If nothing else ther would have been $40,000 in gifts to each child and spouse at the time of transfer.

Again WHERE is this coming from?

WHERE did basis come from? This convoluted Hillbilly Estate Planning offers various options. True gift BASIS is donor's BASIS, but gift tax is based upon FMV date of gift. LLC adhere to partnership accounting which requires Inside LLC and outside (partner) basis.

What are your opinions are these taxpayers just as they say SOL.

Linda and buddy

The settlement was a class action that the taxpayer says is a result of how long he was at the employer (like discrimination). I haven't read sec. 62(a)(20), but I'll take a look and see. Thanks!!!

Charley

Many times (because the law keeps getting more convoluted) the issue of taxability is addressed directly in the settlement, especially in class actions suits. Have you read the settlement? lbb

Agree with Old Jack.

taxbilly

It's so boring when we all get along.

I haven't had any clients report any letters from IRS concerning EIC errors. Want to put up some figures to go by?

Hope you're having a good season!!

Eli

Eli, How is the family? I hope all are well. lbb

>>I'm a mess after a night on a bad mattress.<< ME TOO!!!!

z

I'm always a mess after a "bad night." A mattress may or may not be involved.

My understanding is that she has access to the funds to pay bills that she was left with. I know that prior to the divorce, she had to have signed permission from him to spend or sell anything (other than her wages.) I am waiting for someone to get me a copy of the divorce settlement. Her attorney promised to fax it to me, but he has not. I know that she had to pay both attorneys out of these funds. I so appreciate all of the interest and input I have received in this matter. The more I read about WI community property laws, the less inclined I am to think that she has an "out".

I agree with you. Using a cut and past from KC's cut and paste "in addition, if disqualified assets were transferred, relief can only be granted to the extent the income tax liability exceeds the value of those assets"

It sounds like your client had "constructive receipt of those funds." lbb

Yes and he may have a student loan deduction.

taxbilly

What is a student loan deduction? I was aware of a student loan INTEREST deduction for payments made after the fact, and I was aware of Tuition Deductions for the year of payment, what am I missing? Always looking to learn, lbb

lbb - great to see you! I was wondering where you were this year! I just saw you on here the last day or two. Now if Jainen would just 'reappear' we'd have the whole crew!

Hope your season is going well.

It's great to see all the familiar faces...errr names, Jainen gone? Shocked.

Agree with mgmea. Distributions received by an alternate payee under a QDRO coming from a qualified plan (NOT an IRA) that are 'distributions pursuant to divorce' are exempt from the penalty.

However, unfortunately, in this case it is pretty clear that the distributions are not pursuant to the QDRO and not paid to the alternate payee. Sorry, Marilyn. This one's ugly, but it looks like the penalty is not going to be avoidable.

Did the attorney specifically tell your client that the withdrawal would not be subject to the penalty?

Sorry, typed too fast. Thoughts not coherent. Let me rephrase.

IF QDRO was correctly done AND distribution was from Ex-husbands plan to wife NO PENALTY, if she rolled into her IRA no TAX.

IF QDRO not done correctly and distributed in EX-husband's name/social COULD BE subject to penalty as community property state could be on joint return.

Mea culpa mea culpa mea maxi culpa

My client (wife) was divorced in Feb 2009. 401K Distributions from husbands plan are reported on 1099-R, coded 1. Distibutions are $62900; 20% Fed tax withheld; no state tax withheld. Husband is incarcerated awaiting trial. Does the exception to the penalty apply in this case? They are supposed to file a joint return for 2009. I would have chosen to file her MFS, but delays in divorce.; and QDRO have negated this. Husband has been incarcerated since April 2008 on very serious charges. Can I protect my client from a $6290 Fed penalty and a $2076 WI penalty (under the law). Remember that this is a community property state. Of course, she is the primary breadwinner with 2 dependent children; except for this blasted 401K distribution. I am losing (more) sleep over this one. She is not only a client, but a friend which makes it worse. Spoke to her attorney last evening and he is being very defensive and patronizing. Obviously knows little about tax law. Please advise....anyone!

The way the QDRO works is that it's paid out to the recipient; the recipient has the right to roll it over into his/her own IRA, no tax, no penalty. IF spouse (wife) received the funds rather than rolling it over, she is subject (if applicable) to early distribution penalties. It doesn't matter where the ex-spouse is or why. One can not be the best advocate for the taxpayer if one is emotionally involved. We are talking tax law here, not good and evil. Calm down. Look at the facts, research the law and move forward. lbb

It is the clients tax return and the clients job to provide me with proper tax information. It is the IRS's job to audit that tax return. It is my job to prepare the tax return in accordance with the rules and regulations. Its not my job to ask, decide, or determine if a client is renting below fair market value.

OldJack, I do believe you are wise beyond your advanced age, but I disagree with you on this one; perhaps if only theoritically. It's the personal use issue that I couldn't get past, if the client dumped the issue on the original posters desk how can he ignore the information? Please note the materiality (KC's 20%) can't even be addressed due to lack of information. The correct answer in tax and accounting as you well know is always "it depends."

It's too early in the season to get testy. lbb

If a client rents a house all year at below FMV to a non family member (old family friend), does the client not report the income and take any interest or prop taxes on sch A? I assumed the client reported the income on sch E along with any expenses UP TO the income...no loss...

...but the instructions for sch E say that renting to anyone for less than FMV is personal use and if personal use is more than 14 days...and you "rented" it for less than 15 days...do not report income and do not take expenses.

It's late and I'm confused. Someone take me home.

Thanks for any input!

What is the MOTIVE for renting to the old family friend? IF the property remained vacant for a long period of time at $1,000 a month and you are renting to OFF (old family friend) for $750 perhaps FMV IS 750. Look at the facts and circumstances BEFORE you choose A or E, not after. IF FMV is $1,000 per month and you rent to OFF for $500 because he just got divorced and that's all he can afford is an entirely different scenario. Form follow function, not the other way around. lbb

Deductive reasoning- "based on deduction from accepted premises."

Inductive reasoning - " form of reason in which the conclusion, though supported by the premises , DOES NOT FOLLOW FROM THEM NECESSARILY."

The above definitions are from Webster's. I would encourage all tax professionals, or thinking individuals in general to reflect on the difference in the above two methods of reasoning. lbb

Hi all. I must have been out to lunch the day this forum was announced. I recognize many of the handles from the old ATX forum. Great to find again the group. Maybe it is good that I did not know about it last year as it was tough with ATX, quite a few problems and lots of grief with the company and the shiftings or responsibility plus the failure to advise that TKO research would not mount on Vista making all the CDs worthless. Hopefully this year it will go much smoother.

Anyways, hi all from sunny Toronto Canada.

Glad to "see you." Don't you DARE complain about the weather... (Northern MI) most people don't realize I am about five hours NORTH of you. lbb

Not to be disagreeable (but I am so DARN good at it) my experience with not-for-profits has been generally negative. Depending upon how large, and organized, I have experienced difficulties with everything from separation of duties, to basic disagreements about dual entry accounting systems. The MOST challenging aspects for me, has been the consistent belief by many individuals working in the "not-for profit" sector is that many tax laws are suspended especially having to do with compensation. You didn't mention what KIND of "not for profit" you are talking about, again, many urban myths regarding deductibility of donations etc. Even though you are NOT the attorney you need to verify Your state laws regarding type of entity etc. Warning Will Robinson Warning. lbb

"However, that loss is due to the shareholder deducting his "draws". He now shows that he withdrew 56,900 w/o any payroll taxes"

I am very confused (brain damage due to lifestyle choices)

How does one deduct "draws"?

So, are you saying that one should take a draw throughout the year to live on, then maintain that it is a return of capital?

Perhaps the Appeals officer that stated the IRS "likes" to have 50% of net income of S Corps as draws, hasn't read the same Tax Court cases that the rest of us have. lbb

I have just been informed that the third shareholder has not filed any returns since 2004. He is no longer with the company. He brought over his W-2 and other records and I entered the data into ATX. He will owe $20K for 2006 alone. He will also owe for 2005 and 2007. He claims his recent divorce has made him insolvent and will not be able to pay his taxes. He currently is unemployed and lives with his girl friend. He will not be able to pay his alimony and probably faces bankruptcy.

Should I prepare his return for 2006 for the audit or should I decline the business. How should I explain him to the auditor. He had been a client of the person from whom I purchased the accounts in 2007 but was not on the client list.

Thanks for your advice.

Warning Will Robinson Warning. Be afraid. Be very afraid. (Translation, stay away from this "client." If he is truly insolvent, he doesn't have the money to pay YOU. lbb