BulldogTom

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

At the risk of sounding like a whacko, and in no way justifying what the man did, I can on a certain level understand his anger and frustrations. Our government, instead of serving the peoples best interest, has become as dictitorial as any facist country. The beaurocrats have invaded every liberty that we have. Try to open a bank account. They need to know everything about you (patriot act). Try to not have a bank account - you can't exist in our society. Try to open a business. There are at least 4 levels of permission that you need (fed, state, county, city, and then any other beaurocracy that those governments have put over you). Try to drive - not without a license. Look at your DMV fees in CA - 6 separate taxes besides the license fee. Own a business - the government can come in and take charge of all your records at any time (ask me about my CA BOE audit). Want to become a corporation - not until you tell the government every personal detail about yourself. Want to work in any city in CA - not without a license, and the license requires that you give the city all your personal information. Get hosed by any level of government - good luck getting any satisfaction in court - they have special rules that protect themselves. Want to buy a gun - a constitutional right - not without approval from the government. Try to remodel your kitchen without the approval of your government and see if they won't throw you out of your home for not asking their permission (all in the name of your safety). Want to add on to your home, not without paying a bribe (permit fees, impact fees, filing fees, inspection fees) to the government for permission. Let your kid ride a bike without a helmet and they will take the child from you (all in the name of the child's safety). Pull your kid from school so they can get a better education and watch the government look over your shoulder for teaching them that God created everything. Want to peacefully assemble in a public place (another constitutional right)- not without a permit. This guy got as fed up with the lie that is American freedom. The only difference between him and a large portion of this country is he devalued life to the point that he was willing to sacrafice his and take out innocents in his anger. Until our government gets it, I fear more and more of these incidents will occur. The beaurocracy has decided to rule us, not serve us. A constitutional convention is the only peaceful remedy we have left, but our society is so fractured that it would probably end our country. I still love my country - just not my government. And like most americans, I am too fat, lazy and pampered to fight it. I am part of the problem. We all are. We need to take back our government, but we don't have the stomach to do it. OK - off my soapbox. Back to work filing the required information notices for all the levels of government that want to crawl up our company colon and demand to see what we do. Tom Lodi, CA

Dang, jainen got me again. How does he always make the right assumptions. I thought I had him for a change. OH well, I am not as good at reading between the lines as he is. Tom Lodi, CA

Don't yell at me for bringing it up. I just found it interesting. The path to wealth in this country is still the same, business ownership or capital investment. It is also the road to ruin, so be careful what lane you are in. Tom Lodi, CA

Oh man. That is some letter. Tom Lodi, CA

The most interesting thing to me was that wages were the least of their earnings. Their income comes from capital. They are investing in businesses and reaping the profits. The data come from the period just before the bust in the market. I wonder what the next report will look like. Tom Lodi, CA

Your point is very well taken jainen. We don't know all the facts and circumstances. However, if the property was purchased as a rental, and they never refinanced, and they intended to make a profit, and they had a plan to make a profit, and they operated the rental with a market rate of rent that covered the costs of the venture, then I stand by my assertion that the exception applies. You are also making some assumptions jainen. I don't see where it was purchased as a family home. I made different assumptions that it was a purchase for a rental and the tenant happened to be a relative. Note the post where it says the rent was way above FMV for the area. If your assumptions are correct and mine incorrect, I would concede your treatment. Tom Lodi, CA

Just to add another point, if the beneficiary does not start taking the RMD's based on the annuity table, they must take all the money out of the IRA within 5 years. Depending on the value of the IRA, it could cause a tax problem in the 5th year if they do nothing. Assume the IRA has a million bucks in it and the beneficiary just lets it sit. In year 5 they will have a million to add to thier 1040. Another comment on the post. The IRA company should have known that they cannot roll an inherited IRA into the beneficiary's name. If they did this, it should be corrected. Most IRA managers are familiar with this rule and would not make the mistate. Double check. I am assuming that Dan has not gotten the full story from the client and needs to inteview him a little more and make sure what is done. If they did in fact roll the IRA to his name, he has a distribution of the entire amount and a non qualified contribution to an IRA that must be removed from his IRA. What we don't know is the age of the sister, the age of the brother, or the balance of the IRA. I can assume (very dangerous) that after the transfer the IRA lost value and that is what the taxpayer is trying to capture. That will not fly. Tom Lodi, CA

the second week in May I am traveling to AZ for a personal matter, then going to Fla on a business trip for another 4 days. That is why Super Seminar in Las Vegas is out. In June, I am taking my son's to the Boise State Football camp for 1 week. I still have to do all the work I would normally get done at my day job and I am going to be out of the office for nearly 3 weeks out of 6 in mid-may to mid june. That also knocks out Super Seminar in Reno first week in June. Looking for something the last week in April or the first week in May where I can take a 4 or 5 day weekend. Anyone else have an idea. My wife will be very appreciative if I find a nice place to take her. Tom Lodi, CA

KC, Keep reading. Page 7 in the pub there is an exception for real estate used in business. There is an example of a store owner who gets a loan modification and keeps his store, but reduces his basis in the building. Files form 982 and reduces tax attributes (basis). There is some debate over rental real estate being a trade or business. I fall in the camp that it does. It is a profit motivated venture. I say the example in the pub fits Deb's situation based on her limited information posted. Tom Lodi, CA

So my wife and I both have our birthdays and our anniversary during tax season. I would like to go someplace nice for a few days in late April or early May to make up for missing these events. But this year, I have some serious conflicts with my schedule this year and will not be able to make the Super Seminar in either Las Vegas or Reno, so I need some CPE too. Is there anyone out there who knows of an EA society or Tax institute in a real nice place (Florida Keys, Aspen, Hawaii, San Diego, etc) where I can pick up at least 16 hours of CPE and have a couple days to relax with my wife as well? A nice tax deductible trip to get my CPE. KC - I have always wanted to see Arkansas. Anything coming up in your neck of the woods during that time? Thanks for the suggestions. Tom Lodi, CA

Does the IRA have basis? The only way to know is to pull the deceased's returns and look for 8606's for non-deductible contributions. The taxpayer who inherited the IRA cannot roll the IRA into their own IRA account. They can only make a rollover to an account in the name of the decedent. They are required to take the Minimum Required Distributions. When taking distributions from the Inherited IRA, if the IRA had basis, the taxable amount of the distribution is calculated using the rules for annuities. There are no gains or losses attributable to an inherited IRA. Tom Lodi, CA

Pay very close attention to the limitations and make sure you have all the FMV numbers correct. Tom Lodi, CA

Client brings me a letter from FTB with 1500 due. Nothing special about his return. Lives with his girlfriend and his child. GF does not work. Files HOH. Sch. A. No big deal. No audit flags. Apparently, the FTB sent him an HOH questionaire. Of course, he says he never recieved it. FTB changed filing status from HOH to Single. He says never got a proposed notice of the change. The letter he gave me is indicates assessment is final and due. I know the client and his record keeping is not good. How would you approach the FTB. (I know, he should have just filled out the dang form, but that is not what happened). I just got the POA and will start by calling the FTB and seeing if I can get somewhere with a representative. Tom Lodi, cA

Margaret, We as professional tax preparers must keep an objective point of view. Our clients may want us to advocate for social change, but that is not our job. There may very well be a preparer out there who will take this position and give the client what she is asking for, which in my opinion is marital status on her tax return. She wants you to recognize her position as a married individual and apply the tax law as such. Unfortunately for her, it is not how the tax law is written. So she is trying to make the tax law fit her circumstances. Don't fall into that trap. There are a ton of tax laws that we don't like (see the post on the kiddie tax and the passionate feelings some have regarding that tax). But, while we can rail about these things to each other, we have a standard of practice to uphold. We must apply the tax law how it is written and interpreted by the court. You are not an advocate for change in the tax code when you are preparing a return. If your client does not get that, they don't understand the service you provide. Stay strong and quit beating yourself up. Think about it this way. If you do what they want, the upside is a happy client and the downside is you lose your livelyhood if the IRS determines you intentionally disregarded the rules of practice. Is the client going to pay that much for your services? Tom Lodi, CA

Why do you think you will lose the client? You have considered their tax situation and have applied the law as you see it should be applied. If your clients are not satisfied with the results of your analysis (which I think is right on by the way) shouldn't they fire the writers of the law and not the preparer of the return. If they want to blame you for the result they got, you are better off without them. Explain that you cannot make foster child fly on a federal return. It just does not fit the federal definition. But the taxpayer does get to claim the dependency exemption based on qualifying relative. Tom Lodi, CA

I like KC's approach to this. Let the trust or estate take the refund into cash and then distribute it to the beneficiaries. Clean. Tom Lodi, CA

How interesting. How long have you had these clients Margaret? Are they new to you? This is kinda fascinating to me. I don't know what state you are in, so I won't assume that I know anything about your state's laws concerning a child/parent or child/foster parent relationship. It seems to me though that a parent gets custody and the custody is permanent unless changed by the court. And it seems to me that a foster parent gets guardianship and it is a temporary arrangement until changed by the court. Now here comes your client. One is clearly the parent and has custody of the child. That person is granted all the benefits of the tax law related to children by right of birthing the child. No question about that. The other member of the household is trying to also gain those benefits of parenthood for the same child. But this taxpayer wants to go the fosterchild route. If in fact the court has granted the other spouse "joint custody" of the child, then it would seem to me that the child is hers just as any other child who a court has deemed to be a custodial parent. If the court in fact did this, the child is a child of the second taxpayer. But the taxpayer is not saying that, now is she? She is saying that this child is her foster child. HMMMMMMMMMMMMmmmmmmm - something does not add up. I know for sure that if I was in a relationship and I wanted to know the status of my partner's child in relation to me, I would has someone spell it out pretty plain. And I am not talking about a measly $1000 tax credit. If I went to all the trouble to go to court, I would surely understand what rights and responsibilities that I came out of court with. Hmmmmmmmmmm - Just not sure about this one. Tom Lodi, CA