BulldogTom

I would file the return for the child.   IRS is not good at picking up cost basis on stock sales.   I think we have all seen the letter from the IRS with gross proceeds and no basis added to a return when a client "forgot" to tell us about stock trades that produced no income or a loss.

IMHO, you will be doing the clients a favor by filing the return.  You may be dealing with a letter in a year or so if you don't.   And it may come back as a letter to the parents on why they did not include the gross income as kiddie tax on the parents return.

I would also only charge a very minimal fee for filing the return and add it to the parents invoice.   But that is just me.

Tom
Longview, TX

Are you all waiting on the business returns or are you filing and then amend?  Bonus depreciation is what I am running into most.   I can't hold out forever, I need to earn a living as well and I don't get paid until the returns are done.

I am extending the one that has R&D costs.   

Tom
Longview, TX

Inherited IRA Rules.pdf

Here is the section of the seminar (now that I am in my office I can actually look stuff up).   I don't think Spidell will sue me for putting this out here.

Hope this helps

Tom
Longview, TX

@Tax Prep by Deb   Did you go to a Spidell update seminar?   If so, look in the book on pages 1-42 and 1-43 and especially the caution box on page 1-43.   The employer has the right to force you into the 10 year rule.

Tom
Longview, TX

I stopped using organizers.   I have a link on my website that tells them the documents that I may need to prepare the return.   

Organizers are just too frustrating.

Tom
Longview, TX

@Catherine, they will make great targets!   Especially the 2012 disks.   I bet you can hit them at 150 yards...

Tom
Longview, TX

12 hours ago, Lee B said:

My reading now that I have more time says, that,  according to SECURE 1.0 an eligible designated beneficiary who is less than ten years younger than the account holder of the 401 k who dies before the required beginning date of their RMD is exempt from the so called "ten year rule" and can use their own life expectancy to calculate their RMDs.

You have until 12/31 of the year following the year of their death to begin taking you distributions.

Frankly it took me quite a bit of reading to arrive at that conclusion. It shouldn't have to be that complicated !

@Lee B  But Secure Act 2.0 changed the Secure Act 1.0 rules for deaths occurring after 12/31/2019 and the OP states that her brother passed in 2020.  I think the result is the same for the OP under both sets of rules, but the 2.0 rules are in effect in this case.

Tom
Longview, TX

I "Think" you have to start taking them now.   IRS just finalized this rule, and I "think" they are automatically waiving the penalties for 2021 & 2022.   And I "think" if you take the RMD this year before the due date of your return and then by 12/31 for your 2024 RMD you will be OK.   I "Think" the rule for the inherited 401K for you is the same for any first year RMD requirement.

As an aside, I am pretty sure you can roll this into an inherited IRA, and I would recommend that you do so, because I "think" the 401K provider does not have to allow you to do what the law says you can do.   The 401K plan rules may not be updated.   If it was me, I would get it into an inherited IRA and start taking the RMDs over my life expectancy.

Lots of "thinking" but nothing concrete from me.   Sorry.

Tom
Longview, TX

I would guess that your client "believed" he was paying the credit card company for the debts and the actual paperwork says he paid the debt relief company for their "services" of getting the debt discharged.    

Just my opinion, but I think your client is on the hook for the taxes on the discharged debt.

Tom
Longview, TX

This is really cloudy right now because the rules have changed a bunch.

If I understand it correctly, as an eligible beneficiary (because you are not more than 10 years younger than the decedent), you may take the RMDs based you life expectancy.   

Below is an excerpt from the IRS website:

Non-spouse beneficiary options

In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary." An eligible designated beneficiary is

      Spouse or minor child of the deceased account holder

     Disabled or chronically ill individual

     Individual who is not more than 10 years younger than the IRA owner or plan participant

An eligible designated beneficiary may

      Take distributions over the longer of their own life expectancy and the employee's remaining life expectancy, or

     Follow the 10-year rule (if the account owner died before that owner's required beginning date)

Tom
Longview, TX

15 hours ago, Patti in Upstate NY said:

I am declining preparation of both returns.   Perhaps they'll end up in one of your offices........

Thank you all for your comments/advice.

@Patti in Upstate NY I hope I did not scare you into dumping your clients.   That was not my intent.

I think how I would handle this is just have a conversation with each, explain that you have a conflict between the two, ask each what it is that they want to do, document in your engagement letter, and do the returns per their wishes if they agree.    If they cannot agree, decline the engagement.   

I want to thank you for bringing this up.   It was a very good discussion and it made me think about how I would go about it.

Tom
Longview, TX

14 hours ago, Patti in Upstate NY said:

That's not my job.  Or if it is?  

I think Circular 230 says it is.   Circular 230 says you cannot ignore the facts that you know when preparing a return.   For example, if you know someone is married and they come to you and say they want to file HOH, you cannot ignore what you know to be a fact and file them as HOH.  

And I am not trying to be a jerk or a smarta$$.   I am just pointing out that you are in a position that I would not want to be in.   I am not sure how I would handle this.   

Tom
Longview, TX

2 hours ago, DANRVAN said:

For 2023 it looks like mom is clearly the custodial parent (unless there is some special rule for the deceased taxpayer).

I think the special rule is that the parents of the child can agree to put them on either return so long as they agree.   

If there is a disagreement, the tie breaker would go to the mom.   

I think Patti has an ethical issue on her hands about telling the mom about the situation.   She cannot discuss the dad's return with the mom, but she is obligated to do so to properly inform her of the tax ramifications to the mom's return.   Sticky situation.

Tom
Longview, TX

I did a quick google search and I see what you are saying.   It is a sweet deal, but it appears that it can only be distributions from a 403(b) account.

So, in theory, if I have a senior citizen minister (I do) who is very close to retirement (he is) who has a 401K (he does) and he can convince his church to set up a 403(b), he could roll his 401K into the new 403(b) and when he retires he can take tax free housing allowance distributions?

Thanks for the education.   I love this board.

Tom
Longview, TX

On 2/12/2024 at 12:09 PM, Margaret CPA in OH said:

And he just retired as a minister so pension is designated housing allowance

At the risk of showing my ignorance....You can do that?   Never had a retired minister so I am just wondering how one can get a pension and have it designated as Housing Allowance.    Do all the same rules apply?   How does one notify the fiduciary on an annual basis to tell them what portion of the pension is designated for housing.   Could a retired minister take a distribution from a 401K or IRA and designate it as housing?

Wow, never ever thought this was possible.   Can someone fill me in on how this works?

Tom
Longview, TX

IRS Pub 4694 says they are not.   Pubs are not authority as you well know.

Tom
Longview, TX

11 hours ago, Sara EA said:

Since the child did not live with Dad half the year, better use Form 8332,

Not to disagree, but in the year of death, doesn't the taxpayer get "deemed" to have lived the whole year and get the credits and deductions as if they lived the whole year?   I am not in a place to look this up, but my first take was the same as Gail's.  

I don't think the IRS is going to go looking at a decedent tax return that claims a child if no other person claims that child.

Tom
Longview, TX

What Judy says ^^^.   Something doesn't pass the smell test....but I see conspiracies everywhere I look.

Tom
Longview, TX

Taxpayer has 5 box 12 entries.   The company gave him 2 W2s, the second only had the DD code on it.   I entered both W2s but ATX says it will not transmit the 2nd one because there are no wages.   I am not terribly worried, it is only a DD entry.   Never encountered this before.

Tom
Longview, TX

41 minutes ago, mcb39 said:

We have filed several already and alerted all clients.  Until they give us some guidance, we are not letting our clients wait for legislation and then updates to software before they can file.

What are you doing about R&D amortization?   I am probably going to extend my one corp that has this issue.

Tom
Longview, TX

Passed the house.   Senate has not voted yet.

Tom
Longview, TX

26 minutes ago, Sara EA said:

The premiums paid are not the cost basis.  The policy holder is paying for insurance, don't forget, plus some administrative costs.  In other words, he bought something with a portion of those annual payments.

I am aware that there are commissions and admin fees included in the cost he paid that are not premiums for insurance and do not increase the cash value of the policy.  

The thing that has me stumped is this client is pretty meticulous in his recordkeeping, especially for someone 81.   He does not have any records of anything coming back to him as dividends.   He remembers they sent him a letter telling him he did not need to make payments anymore, but he says he never got a dividend check.   As soon as he decides to cash out the surrender value of the policy is nearly equal to the face value of the policy and 100% of all contributions have been returned as non-taxed distributions of premium.   Something does not add up.  Or maybe it does and I just see conspiracies everywhere I look.

Tom
Longview, TX

No taxable dividends since I have been doing his returns (5 years).   1099INT from the insurer this year in addition to the 1099R.   Cash value was a little higher than the face value of the policy.

Tom
Longview, TX

1 hour ago, Lee B said:

Check and see if he had a Universal Life Policy that generated Dividends and Interest

I am thinking that is the case.   Client tells me that a couple of years ago (? how many) the Insurer told him to stop making payments because the earnings took care of the premiums.   I am inclined to believe the calculation of the Insurance company on the surrender.

Tom
Longview, TX

Facts and Circumstances.   Document, document, document.   Be ready to defend at audit.  You can distinguish the BS from a person who really wanted to start a business and make a profit.

IF the expenses were things like filing fees for SOS, software, letterhead, accounting and legal, things that are really business expenses that have receipts and cannot be used personally after the closing of the business, then I say you have a good argument.

If the startup expenses are a new iPhone, awesome computer and trips to resorts to hear about an awesome opportunity in a MLM company, then I would be very, very leery.

Tom
Longview, TX