BulldogTom

That is what I think should happen, but with banks just popping out 1099C's to everyone, I thought I would just wait and see what comes seeing as the deadline for 1099C's is Feb 28th. The client needs a few other pieces of information to complete the return, so it won't hurt to wait a little while. Thanks Jainen. Tom Lodi, CA

This has been a really good thread. I appreciate getting to "talk around the virtual water cooler" with all of you on a topic like this. When everyone adds a little bit of what we know (or don't know) it leads to some great discussions. Tom Lodi, CA

Thanks Eli.

Sorry if this sounds basic. Don't do many of these. TP is married to an illegal immigrant who has ITIN. 4 kids. I know they can elect to file MFJ, but they would lose the EIC. Can he file HOH, and claim 5 dependents (4 children and spouse)? Spouse does not work. Thanks Tom Lodi, CA

That ribeye wouldn't happen to be from a cow that is a casualty of the border wars, would it? Hope you are safe down there. Tom Lodi, CA

Taxpayers lost their home to the bank in Sept of 2009. 1099A issued. Non-recourse debt. Basis in home is 420K and loan is 330K. No 1099C issued yet. We are waiting a few weeks to see if the 1099C will come in this year before filing the return. How are you showing this on the return? I know that we have a sale or other disposition of a personal residence and the loss is not deductible. But I want to show it on the return. I used the Sale of Principal Residence worksheet on the D, but it does not flow to the D. So I put it in the input tab as a personal sale and it shows on the D as a non-deductble loss. I think I want it to look this way to prevent inquiry in the future. How are the rest of you handling the 1099A when it produces a loss? Are you just not showing it on the return or are you forcing it to the D like I did? Thanks for your opinions. Tom Lodi, CA

Pacun, I like your thinking. Not sure if it will fly because I have not researched it. The only caution I would give is - we don't know what the tax rates are going to be in the next two years. This administration and congress has been so wrapped up in the HC debate that tax law has been pushed to the side. The administration has indicated new tax increases, but has not made any firm proposals to congress. By this strategy, you are sending your clients into an unknown. I still like the idea of taking a tax deduction this year and paying it over the next two. Tom Lodi, CA

Just add that to the new fee for having a homeowners insurance policy. That one came from our wonderful governator.

No conformity yet. The only way to escape COD is bankruptcy or insolvency in CA. Perhaps we will get some conformity for 2010. Tom Lodi, CA

Crank, the code three would be used if the company that the employee worked for put him on Disability. I have seen this before. When an employee is hurt on the job and becomes totally disabled and the company grants them a disability pension. In that case, the company would be telling the IRS that they know that this employee is totally disabled under their plan and the penalty does not apply. Your situation is a standard tax transaction and appears to be reported properly, and the form is there to eliminate the penalty. I would have the documentation to support the disability claim if the IRS inquires, but it should be a pretty standard inquiry. Tom Lodi, CA

I am going to have to disagree with you Rita. This is a taxpayer who is already on the IRS radar as a non-filer and non-payer of taxes. I am assuming the agent who told Jack to file MFS was from the department that issued the intent to levy (in other words, he called the number on the letter). They know what they want to see when that return comes in. If they think the taxpayer and his representative are just going to ignore what they told him to do, it could get even worse for the taxpayer, as in "substantiate every line on your schedule C or we are disallowing every claimed deduction". If this taxpayer was not on the radar already, I think I would file it at the service center and roll the dice, but as Jack has already been told to file it MFS, I think it is pushing too hard to file MFJ. Just my humble opinion. Tom Lodi, CA

For the enhanced Hope Credit or American Opportunity Education Credit, can the taxpayer claim course materials (a second computer specifically) each year? I am not finding anything that prohibits this for 2010 tax planning. Tom Lodi, CA

Mike, I think they set it up as a separate Asset. You just add it as a new asset only allocated to the step up partner. It looks like Land - 754 PartnerX in the balance sheet. At least that is how I remember it when I was a young accountant and the company had a farming partnership that was passed from one generation to the next. Tom Lodi, CA

That was what I was planning to do. I was also thinking I would mark the box at the top of the input form for "Non-Standard - handwritten or altered" since I am altering and handwriting in the taxable amount. I am most concerned that this will trigger an audit. Not that I don't mind fighting an audit when I have good backup documentation, but the client is a (how should I say this) slightly disagreeable old man who is already pissed that the company will not change the 1099R. You know how older clients can get. Tom Lodi, CA

Good to see you back on the board OldJack. Is everything good with you and your family now? Tom Lodi, CA

I went back and took a look at §754 elections and it is coming back to me a little bit. What happens is the assets need to have two entries, one for the original partners and one for the stepped up partner. Assuming the House and Land are the only assets, and the adjusted basis to the partnership before the transfer is 100K for the home and 100K for the land. If at the date of transfer, the FMV of the home is 150K and the land is 150K, then the new partner actually has a basis of 75K for the house and 75K for the land, while the other partners retain their basis of 50K house and 50K land. The depreciation and gain or loss for the stepped up partner is then reported differently on the K-1. His depreciation is based on his adjusted basis of 75K, while the other partner's continue on with the current amounts. Assume the home is sold for 300K. The gain for the stepped up partner would be 0 (50% of sales price = 150K less adjusted basis of 150K) while the other partners would have a gain of 50K (50% of sales price = 150K less 100K adjusted basis). That is how it would need to flow to the K-1. Hope that helps a little. I think I have exhausted my knowledge (or lack of) on §754. Tom Lodi, CA

OK, I received the contracts from the client. They are variable annuities taken out for the benefit of his children. The annuity starting date was supposed to be 2040 and 2054. He surrendered the annuities and took the cash surrender value in a lump sum distribution. The actual investments were 16,500 and 11,100 respectively. He recieved 14,100 and 8,300 respectively. I have been reading on the subject, and it looks like there is no taxable income to him. The losses go on the Sch A. Now - how do I get this onto the return when the 1099R's show a taxable amount? What do I do about the Code 1? Any help out there for putting this into ATX? Thanks Tom Lodi, CA

Thinking back to my partnership classes several years ago, I believe it is called a §754 election. I didn't do too well in my partnership class and it was a long time ago, so do some research on this. Doesn't a partnership disolve when 50% of the partnership changes hands? Tom Lodi, CA

I appologize for not having all the pertinent facts. I am developing them as I can get the information from the client. Client is 87 years old. Purchased 2 annuities in 2000 for 11K each (verfiying that cost information). Last year, he surrendered the annuities. Recieved 2 1099R's from the company. First for 14K and second for 8K. Distribution code is 1 (early withdrawal, no known exceptions). Taxable amount in box 2 is full amount of distributions. I don't have the contract yet, so I don't know if there were surrender charges or not. Don't know if it was a variable annuity or not. Don't know what the anticipated annuity starting date was. Question 1 - where do I go from here. I think I can report the taxable amount based on the distribution less the cost. The one with 14K distributed would come out with 3K in taxable income (14K distribution less 11K cost of contract). Second one results in zero taxable income (8k distribution less 11K cost). Question 2 - can he deduct the loss (if one trully exists) on the second distribution? Where? Sch A not subject to 2% Question 3 - Can an 87 year old taxpayer have an early withdrawal penalty? I have never seen this before. Thanks in advance. Tom Lodi, CA

Sorry, never heard of it. I am anxious to hear about it. Keep bumping your post. I would like to learn something new. Tom Lodi, CA

You can send it to me if you don't like it. I was a bartender in college and I still make a mean margarita. On a hot day, there is nothing better to cool you off. It wouldn't happen to be Souza Commemerativo, would it? Tom Lodi, CA

I am claiming victory because jainen had to go back and clarify his post. I could call that cheating, but I will just say jainen mis-typed what he thought he was going to say. Now I can bask in the glory of knowing that I made jainen think twice about his position. I win, I win, I win, I win !!!! Tom Lodi, CA

OK, I can't resist. I know that we are entitled to take any credit we are otherwise eligible for in the year we die. But how do you answer the question "was your home in the US for at least 6 months?" on the questions tab when he died in May? Things that make you go hmmmmmmmm. Tom Lodi, CA

I am not sure how the IRA can have both sister's names on the account. I don't think you can title an IRA that way. Even spouses cannot put both names on an Individual Retirement Account. My guess is (and I am just guessing so be careful) that the IRA custodian has properly moved the IRA and it now says something like "Sister 1, decedent, for the benefit of Sister 2". This will indicate that it is an inherited IRA to the IRS. The beneficiary can move the IRA to a company of her choosing (like from Fidelity to T. Rowe Price). She just can't lose the identity as an inherited IRA. She can trade within the IRA, moving the funds or stocks that are held in the IRA as she pleases. It IS her money to do with as she pleases. She can withdraw the funds as she pleases as well. But she must take at least the minimum distribution based on the decedent's age using the annuity tables. If she misses the first payment, she has to withdraw all the funds from the IRA within 5 years. The whole concept here is that the decedent has never paid tax on the accumulation of wealth in the IRA. When she died, the IRS wants to start getting their taxes that have been deferred. That is why they want the title to remain in the name of the decedent so the IRA funds don't get mixed in with the beneficiary's IRA. It is a tracing thing. Hope this helps. Tom Lodi, CA

The problem with this solution Catherine is that we don't really have free elections. The rules have been rigged by those in power to limit the ability of the people to really choose a candidate. Repubs and Dems choose who they will run, and the loyalty of those candidates is first to the party, second to their donors, third to the people. Those who would stand up to their party find a serious challenge from their party in the next election. They cannot stay in office when their party doesn't want them anymore. They have to toe the party line or find that they are out of office. Even Sen. Brown ran as the 41st vote. 41st of what? Republicans, thats what. Think he won't get a serious challenge in the next election if he sits down with Obama and decides to vote for the HC bill? Until a serious third party comes in to play, the same old boys network in washington will continue. We can vote them out every time, but the game is still rigged when they get to Washington. Tom Lodi, CA