BulldogTom

If a company hires an independent contractor, and the FTB audits and reclassifies the contractor to an employee, what are the ramifications for the contractor? I know what will happen to the company (back PR taxes, fines, amend 941's). I don't see anything that indicates what the consequences are for the "new employee". Tom Longview, TX

I have been looking for guidance because I remember a couple years ago that some of the rules changed just before the percentage dropped. If I remember correctly, the IRS was letting people who started installs to get the 30% even if it wasn't installed all the way because of Covid. That may have expired, but I am not finding what I was looking for. Anyone else remember those rules and if they are still in force? Tom Longview, TX

That is how I read it too, but I am just hoping someone else can point me to something that would bring this credit into 2022. Tax laws can and do create definitions that are not at all common sense. I am hoping this might be one of those times for the benefit of my client. Tom Longview, TX

Taxpayer has solar installed on her home. The company who sold and installed the panels completed the work, and the work was paid for, before 12/31/2022. However, the permits have not been finalized. Per The Tax Book, the credit can only be taken "when the original installation of the item is completed". If they are not permitted yet, is the installation completed? In other words, what is the tax definition of completed. Thanks in advance. Tom Longview, TX

Thanks @TexTaxToo I knew about the disaster loss, forgot about the Distribution rules. Appreciate you. Tom Longview, TX

I don't think so. Because the preparation is sited to NY, their domicile, that is where the customer received the benefit of your services. I would think it would be the same for a company that you prepared Sales Tax Returns for a limited amount of sales via internet in the state. The benefit would be in the home state of the company. I have played with the idea of aggressively pushing back by taking only the portion of my fee that relates to CA fees (I include the resident state in my Federal fee and only charge for NR state returns), but I think that fails under the way the FTB interprets the regulations. A CA resident who has a Federal filing requirement in their domicile state received the benefit of the federal filing as well in their domicile state. If CA ever got so aggressive as to come after you for the filing of the NR returns, I think you would be able to say that only the CA portion of the fee relates to the benefit received in the state. That is how I see it at this point. What I have been told at seminars is that FTB will be looking for 1099NECs from CA companies to trigger the first few rounds of inquiries. But, since we sign the tax returns, our information is on the bottom of the return, and it would not be hard for FTB to collect that information if they wanted to go after tax firms. Tom Longview, TX

I have a number of clients in the flooded areas of CA. I have not had much exposure to disaster areas in my career. Are there any tips that you would like to share if you have had experience with clients affected by a major disaster? I just want to be prepared for any help I can provide to make the tax prep part of their lives as smooth as possible as they deal with more important things in their lives. Thanks in advance. Tom Longview, TX

Unless you see the daughter's info you cannot get the correct information to make a correct return. If the mother will not get the info to you, and she does not know if the child is a student or not, you should prepare the return accordingly. Tom Longview, TX

It is malpractice on the part of the ERC company to tell a client not to file a return that will show a balance due. The ERC company does not want the client to see the "true" cost of the ERC because they will know that the fee they paid as a percentage of the net they got is not what was advertised. Your client should report this to the IRS. They won't, but they should. Tom Longview, TX

@mircpa CA has moved to a new scheme of revenue sourcing regardless of the old nexus rules. Nexus rules still apply in some circumstances, but in the case of service based business, the location of the benefit of the service takes precedence now. Tom Longview, TX

As I have gone through my updates and CPE this year, I think the consensus of the "experts" is to just include the K2/K3 and reduce your liability. There is too much outside of your control to use the exceptions. That is what I am going to do. Paper is cheaper than the hassle. Tom Longview, TX

This is from Spidell Tax seminar I took last week. It is pretty clear. A Tennessee sole proprietor who provided consulting services to a California insurance agency had California-source income that was taxable by California, even though the sole proprietor performed all his services in Tennessee and was never physically present in California. (Appeal of Bass, 2022-OTA-145) All of the trainings and consulting services conducted by the sole proprietor for his California customer and its employees were conducted from Tennessee via Skype or personal phone calls, or physically in Tennessee. Under the OTA’s precedential decision in Appeal of Bindley, 2019-OTA-179P, physical presence is not required to tax the income received by a nonresident sole proprietor if their customer receives the benefit of the services in California. In addition, California’s nonresident sourcing regulation (18 Cal. Code Regs. §17951-4) incorporates California’s corporate apportionment rules (R&TC §25120 et seq.), including the market-based sourcing rules (R&TC §21536; 18 Cal. Code Regs. §25136-2) if a nonresident sole proprietor conducts a unitary business both inside and outside California. Under the reasoning adopted by the OTA in Bindley, a sole proprietor conducts a unitary business if they are in a single line of business, in this case “consulting.” Furthermore, because the taxpayer operated in Tennessee but had customers in California, he was conducting business both inside and outside California and therefore was subject to California’s corporate apportionment rules. Tom Longview, TX

Yes. Your information is at the bottom of the tax return, so they know who prepared the return. Tom Longview, TX

CA is starting to look at challenging PL 86-272. But that was not the point of the original post. This was services provided to an end customer in CA. There is a whole discussion of "doing business in CA" on the FTB website that gets into your situation @cbslee www.ftb.ca.gov Search "doing business in CA". Tom Longview, TX

CA taxes revenue to the end customer location. So if your friend is providing a service to a customer in CA, that revenue is sourced to CA. There is no de minimis exception that I am aware of. From the FTB website - "We consider you to be “doing business” if you meet any of the following: Engage in any transaction for the purpose of financial gain within California" Then you have to look at what type of entity they are. Corps, S Corps, Partnerships and LLC all have a $800 minimum tax that needs to be paid yearly. In order to pay the tax, you need a state tax ID number. To get a state tax ID number, you need to register with the SOS. The SOS has an annual filing fee of $25 (last time I checked). If your client is a Sole Proprietor, they can just file a 540NR showing the CA profits from their business. Hope this customer of your friend is generating enough revenue to cover the cost of doing business in CA. Tom Longview, TX

Best payment ever!!!! Tom Longview, TX

I think you are. When I have replaced computers (not servers) in my practice over the years I have had to install the software for each year onto the new machine. It makes sense to me that the programs need to be installed and the installation keys need to be entered for each year. I am not a techie type person, so I could be wrong. Are you copying any other software onto your server without having to re-install? Is it only ATX that you are having this problem with? Tom Longview, TX

Correct. Tom Longview, TX

I just read the instructions for form 8832. The rules for late relief are in the instructions. @michaelmars Thanks @mircpa for the info. I learned something new today. Tom Longview, TX

I need some help understanding the new law as it pertains to ROTH SEP. I think I understand if the employer has a SEP plan and the employees can now make elective Roth contributions. I also understand that any match or contribution by the employer on behalf of the employee into a Roth SEP is taxable compensation. What I am not seeing in the material I have is an explanation of how this affects a Sole Proprietor with no employee who makes SEP contributions based on their income. Can they be Roth? Are the limitations calculated the same way as traditional SEP? What about converting balances already in a traditional SEP to a Roth SEP when the owner is the only taxpayer in the SEP? Thanks Tom Longview, TX

1099s are for payments made regardless of accounting method of payer or recipient. Tom Longview, TX

@cbslee Not arguing, for discussion purposes. If they are disregarded, they are already a SP. That is the default for a disregarded SMLLC. I made the assumption that the LLC was formed as a SMLLC prior to 2022 (bad assumption?) and they filed a tax return as disregarded in previous year(s). After reading the OP again, that may not be the case. IF the LLC was formed in 2022, then I think you are correct that they can still file as an S corp this year by filing the 2553 with the first return. However, I stand by what I said if the LLC was formed and filed prior to 2022. But I could be wrong.... Tom Longview, TX

I think you have to get to corp before you can get to S corp. Since the LLC was operating as a disregarded entity (sole prop), I think you have to convert the sole prop to a corp and then make the election to be an S. I don't think you can make a late conversion from a sole prop to a corp, and if I am correct then there is no way to get to S retroactively. This is unresearched, just me thinking through how I would approach your issue. Beware that I may be wrong. Tom Longview, TX

I have never used the forfeited funds for employee match. Suggest you make sure that is allowed in the plan doc like cbslee says. If it is, I would guess that you need 2 entries. #1 is to record the forfeiture and would be a debit to an asset account and a credit to the same expense account you use for the match. #2 is when you use the forfeiture, reverse the entry above. I used to do a lot of these. Forfeits were only used for plan expenses. We had a cash account for the plan administrator to deposit the forfeitures into. At the time of the forfeiture we debited that cash account and credited 401K ER Expense. When we used the cash to pay the plan expenses at the end of the year when the administrator prepared the statements, testing and 5500 we debited the expense 401K ER Expense and credited the cash account. Tom Longview, TX

I need to call one of my clients and see if they got their money? Tom Longview, TX