OldJack

Husband died and any trust he created becomes irrevocable.

>> the other 50% went into a trust with an income only benefit to W for her life and remainder interest to each of the children as 1/3 undivided interest in the land<< This is the 50% I am talking about. This trust got a step-up at creation and it is not in W's estate to pass to anyone with a step-up. W only has an income benefit.

>>The IRA & distribution were in his name<< That makes it a 1041 if required to file.

>>Trust held title to the land until W died and the children inherited<< The trust received a step-up at creation with the children as remainder beneficiaries. Thus, it appears to me that the children inherited with the trust tax step-up basis and would not get another step-up for distribution after W died.

>>Other then books, where do i show on tax return the 50k paid in cash and other 3 installment of 50k being paid annually? or should i just amortize based on the class of asset?<< The total purchase price would be booked and allocated to all items being purchased with the total also as a liability due the seller even if this is a cash basis. As payments are made it would reduce the liability.

On the ATX 1099MISC input form you select from a drop down tab for the amount to flow to Sch-C.

You file form 1041 tax return.

>> Is there anything else I should be aware of in this situation << Partnership tax returns may not be necessary to file or penalty waved if each partner has reported their share of the income/loss each year. See exceptions under Reg.1.761-2 as summarized in the 2009 small business quickfinder handbook, page B4.

>>Question 1. At what time does the step-up in basis occur? In 1982 when title passed to the trust or 2000 when effective ownership was passed to the children?<< All step-up for everyone on all property is on the date of death of husband in 1982.

>>Am i correct to understand that i have to amortize 200k for 15 years?<< That could not possibly be correct. You need to determine exactly what is being purchased.

Consideration should be given to the partial exclusion of gain on sale under code sec. 1202. If the stock qualifies 50% (75% for stock acquired from 2/18/09-12/31/10 sold after 5 yr holding period) of gain on sale can be excluded from income. A sale would give the son a step-up to fair market value for his ownership whereas gifting passes the givers low tax basis. For a summary of code sec. 1202 concept see the 2009 small business quickfinder handbook page C-7.

Someone has the documents needed to file a tax return and they should either give the documents to others or accept the obligation to sign the tax return.

The election is made by simply reporting the full sale as taxable.

>>The mortgage interest on a rental condo reads "for the estate of XXXXX". Should I be concerned?<< Someone should be concerned. It might be that assets of the "estate" have not been distributed and income of such assets would possible require the filing of form 1041 to report the income.

>> I haven't confirmed but I don't believe there is an estate<< There is always an estate even if it has no value or taxes due. If he is required to file a tax return that is part of his estate and someone that is handling his estate and should sign the tax return.

Well... a S-corp can certainly sell assets on the installment basis. However, assets sold that result in ordinary income gain must report the ordinary gain in the year of sale. Form 4797 page 2 determines such ordinary income gains. Any capital gain is reported as received. As an example, a machine fully depreciated sold for less than original cost would have to recognize any gain in the year of sale (Form 4797) even tho the proceeds from the sale are received in future years. But a capital investment asset (Sch-D), not depreciable, would recognize gain in the year the proceeds are received.

This sale is a sham transaction with no economic substance. The property should be shown on the final partnership tax return as a distribution of property (to partners) at cost basis with no gain or loss. The new partnership picks up the property (from partners) at the same basis as in the old partnership. Your clients are idiots.

I agree with gailtaxed.

It would appear to me that the taxpayer received the note in liquidation of his capital investment and is therefore now holding a note with a tax attribute as a capital investment. As such, I would suggest he is holding a non-business bad debt instrument only deductible on form 1040 Sch-D.

Converting to a paperless office should include the long term benefit as it does in your case Randall. A few years ago when I considered scanning all papers, scanners were slow and time was running out with just a few years for me to retire. I will be retiring at the end of this tax season, so no need to start something I will not benefit from. We all acknowledge that the main problem with paper is storage. The main problem with storage is not having a proper destruction method or program. Remember the old slogan, "the job is not done until the paperwork is done". In our business the paperwork is not done until is has been destroyed. Mine was not a large practice with only a few employees, but auditing along with tax work created lots of paper over the 37 years. With my good yearly destruction program, the resulting papers are in current used file cabinet storage space that would fit in most of your offices. Yet, with at least a couple of clients, I still have a few records that are more than 20 years old.

Well... I should have pointed out that my CPA practice gathers a lot of workpapers and copies that don't come from my computer so I have paper files unless I would take the time to scan all those detail documents. I have had many occasions where old workpapers were very valuable to a client. My practice is mostly corporate and business and I only do personal returns for my business clients. I can understand the paperless office concept for a purely personal income tax practice.

The IRS article implies the IRS reviewed a written document and states the long established requirements: >>The following are the three requirements for an accountable plan: There must be a business connection and the expense must be reasonable. There must be reasonable accounting for the expenses. All excess reimbursements must be repaid in a reasonable time.<< Taxbilly, what is your opinion?

Well... accountable would certainly result in a record/receipt/proof of the facts and amount, but a "plan" is a way of doing? Is an accountable document for a specific reimbursement (commonly called an expense report with receipts) qualified as paid under an accountable plan? Or, is some separate written plan document required, thus we ask the business do you have a "plan" or tell them you must get a plan? Although I have not see one, I understand there are written plans out there for sale. Is that a scam?

Since KC fully answered the question, I will use the post to pose a related question. Is an IRS "accountable reimbursement plan" required to be in written form? Any code cites?

>>took the note in exchange for its shareholder loans<< Is that your conclusion or was the note simply distributed in liquidation? You are the only one with all the facts, you must take a position on his holding status. Well anyway... remember the basics in your classification and status determinations. Business bad debts are generally deducted where business income is reported (not line 21). Non-business bad debts are deducted on Sch-D, subject to limitation. Well you knew that but maybe other readers need to be reminded. My best guess is that when you review everything this will end up on Sch-D.