BulldogTom

Back in early February, a potential new client calls me and wants to see if I would be a good fit for him to prepare his taxes. We talked a little and it turns out they have a small s-corp. We set up a meeting and he and his wife come in to interview me. OK, so far so good. They tell me the company books are in good shape and it is a small little business that she runs. CPA is charging them too much. He works, they have a sched A, nothing sounds like it is going to be too difficult. We set up an appointment for her to bring in her books and prior year tax returns the next week so I can get this going. She calls the day she is supposed to come in and says she has something to take care of for her business and won't be able to make it. No problem, just drop off your stuff and I will get started. She agrees to bring it in that week. Then nothing. A whole month passes and nothing. I figure they went back to the CPA. And last night I come into the office and here is a stack of papers from her. The S-Corp return is due on Monday. A sweet little note says she is so sorry this is late, but it should be no problem. The books are a mess. They show negative AR, there are notations that expenses were not really paid until Jan 2010. The equity section of the balance sheet is a mess with loans and draws (s-corp - draws). The company has lost money every year. Then I pull out last year's individual return. They are carrying forward NOL's, they have capital loss carryforwards and credit for AMT paid in prior years (from the Dot Com bust). He is using an office in the home for his work. They are depreciating travel trailers for his work on sch A, and they are pulling cash out of the retirement accounts to float the business. It looks like three loans on the home, but one may be on the S-corp books. Simple little return. Yeah - right. No, I am not going to tell them to go elsewhere. I am going to stay up every night and work through the weekend if I have to, but I will get this done. I need the clients. And yes, I will charge them less than the CPA so they come back. Thanks for letting me vent. Tom Lodi, CA

I should know this - but I don't. I have always paper filed my entities because I didn't do any when I first started, and I don't do many right now. But I am starting to get more and I think I need to start e-filing these returns as well. When I became an ERO, they did not even allow you to e-file partnerships, corps, and s-corps. I think they had a period of time where you needed to add those entities to your ERO number to file them, but I never updated my ERO application. Is that still the case? How do you do it? Any help is appreciated. Tom Lodi, CA

The decedent is not my client, and her husband is the executor and sole beneficiary of the decedents estate. He is located in Texas. I don't think he will be coming to me to file his gift tax returns. Thanks for your confirmation. Tom Lodi, CA

That is true. But the way I see this, my client recieved a gift of 150K (no taxable income, no gift return on that transaction). She then gave more than the 13K excludable amount to others, hense she is now the donor and has a gift tax return filing requirement. Tom Lodi, CA

I have done the class tracking in QB to separate divisions of the income statement that need to be reported separately to outside entities. It is not real easy to manage the reporting on it, but it can be done. I don't know how you would divide the Balance sheet using classes? That would take some time to figure out. They need a bookkeeper. A good one. That costs money. Keep raising your fee. Maybe you can get them high enought that they see the value of a bookkeeper. Tom Lodi, CA

Client's sister was dying and wanted to give some cash to her 6 sisters. Did not believe her husband would carry out her wishes, so before she died she gave my client a check for 150K and asked her to distribute evenly between siblings (25K each). Notation on the check was to distribute to my sisters. Client cashed the check before her sister passed (believing her B-I-L might stop payment on the check). A few weeks later the sister passed and my client distributed 25K each to each of her 5 sisters. I believe my client (single, darn it) has to file a gift tax return because she accepted the gift in full from her sister and then distributed it. Anyone disagree. I would love for this to be a conduit type transaction where I could say it was a gift of 25K each from the deceedent straight to each sister and my client was merely acting as a conduit. I don't think that would fly. Any opinions? Thanks Tom Lodi, CA

Well, yes you can if it is a revokable living trust. In effect, the trust does not really exist until it becomes irrevokable. So, I could put all my assets into a revokable living trust, and all the income would still go on my 1040. NO 1041, NO K-1. Tom Lodi, CA

I just did one exactly like that last night. Took me 20 minutes to figure out what I was doing wrong. Both 8889's were checked for filer. That little box is hidden in plain sight pretty well. Tom Lodi, CA

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