OldJack

I think you are still missing my point. Its *not* about logic, the vast majority of ministers, or the rare situation, its about tax professionals classifying a taxpayer properly.. especially if the taxpayer is clearly stating that their classification is a 1099 self-employed person. You should not stick to your story and disregard the taxpayers claim unless you can clearly determine the taxpayer is wrong. It is not your tax return, it is that of the taxpayer. Your best advice would be to help the church determine if their clergy meets the requirements of an employee or is in fact not an employee. Its not your place to just tell them to issue a W2 because the vast majority of ministers are employees. That is not sticking to a story, rather it is like sticking your head in the sand.

I have never seen an IRS position statement that all ordained clergy are employees of a church. Your code cite would be most welcome. I have seen the IRS publication that clearly states that a Clergy that is an employee of a church should be reported on a W2. I have no disagreement with the IRS publication if the clergy is in fact, by IRS definition, an employee. I disagree with those tax professionals that automatically determine and declare that a clergy is an employee without following the definition of an employee for that specific clergy individual. Clergy tax situations are not all the same for all clergy just like you as a tax professional may be an employee when I am not. As to reporting clergy income on Sch-C being counterproductive, that is incorrectly assuming that any and all clergy expenses can or will be reimbursed by the church. That is not always possible and/or should be possible. Why should the church reimburse the clergy for such things as personal owned books, reference material, and/or privately owned business equipment. Do you not like for your clergy clients to only pay the minimum tax they should rightfully owe? If a clergy client is by IRS definition an independent contractor status under the rules why would you insist that the church issue a W2 when the clergy does not in fact qualify as an employee? edit: I would point out that in the original post it said "I have a friend who, with her husband, started a church some years ago." although not the controlling issue it would appear that these ordained ministers were not "hired as employees of a church" unless their status has changed over the years.

I don't know if there is any such instruction Jasdlm. Its just logical that a dead person cannot be the "taxpayer" and sign the joint tax return. In other words a dead person files a 1041. I expect that the IRS processing department is being a bit picky to send such a letter and that is why it is not up to the usual appearance.

The final joint 1040 tax return had the deceased taxpayer shown first as the "taxpayer" with the surviving spouse listed on the second line. A dead person should be the one listed as a spouse and the survivor should be shown as the taxpayer on the first line of the tax return and as such would have the survivor's social security number as the "primary" number on the tax return. Its just a preparer error, that is all this letter is about.

Part of being a tax professional is properly preparing and representing the taxpayers position. It is not the tax professionals place to oppose the taxpayers position unless it is in violation of the rules and regulations. Professional advice and opinion is appropriate but should not mislead the taxpayer into thinking such advice or opinion is law or regulation requiring the taxpayer to take a position that is not correct or justified. I am not aware of any "threat" by congress to diminish the special tax laws for clergy and a tax professional should not manufacture such a threat in the minds of the taxpayer. Tax returns should be prepared according to actual facts and deductions allowed under the tax laws. So called "Red flag" items should still be deducted if they are deductible under the laws since a tax professional should be ready for audit the moment (s)he signs a tax return. Clergy should take advantage of any and all tax rules without concern that if they so do they might shoot themselves in the foot. A clergy taxpayer has a right to claim any tax law the same as would any taxpayer where a particular law would apply in their favor. A tax professional could be subject to malpractice if (s)he advises clients to not follow tax laws because if following the law it would lead to a lower tax.

That is a ridiculous statement or tax position. I suppose you also encourage all self-employed taxpayers to go get themselves a job? :wacko:

I think Mike and I have disagreed before on this issue of pastors being issued W2's instead of 1099's. If the pastor agrees that he is an employee of the church, then I would issue a W2. However, many pastors do not count themselves as employees. I know the IRS publications read as though a W2 should be issued but that is not a requirement if the pastor does not meet the employee definition. I cite the famous case of James T. Alford and Freda Alford in the United States Court of Appeals FOR THE EIGHTH CIRCUIT, No. 96-3287. The Alfords were ordained ministers of the Assemblies of God Church. The IRS declared them employees and the 8th circuit court of appeals in 1997 determined they were not. This case was also because the Alfords had business expenses to deduct on Sch-C that the IRS was disallowing as a result of employee status.

>>I thought the premiums were deductible.<< No... the only time life insurance is deductible is by an employer business with a group policy as a fringe benefit and then W2 taxable to the individual if over $50,000 coverage. Key man insurance paid by a company with the company as beneficiary is still not deductible, but it is obviously not taxable to anyone either. Therefore, depending upon your client if he is an employer with a group policy cost he may have a deduction.

>>Should we expense instead of depreciating these items over a set period of time?<< "Expensing" is actually depreciation under code sec. 179. Yes, I would write off the entire amount that qualifies for sec 179 (under the theory a bird in the hand is worth two in the bush). The Sch-C would show a large loss and the full depreciation would be allowed as he has other greater business income that allows the deduction on form 4562 flowing to Sch-C. He should be aware that he must keep those assets until after the depreciation life has ended or he will have a big taxable gain the year of disposition.

I agree with MichaelMars but would add that I usually elect calender year to avoid all the confusion of a fiscal year. If the beneficiaries have not been determined and the estate is in probate you would have the estate pay the income tax per the 1041. Otherwise, the trustee could elect to pass the income to the beneficiaries for taxation which may be less tax.

>>depreciation for that period<< Depreciation does not stop just because there is no renter or rent income. It only stops when the asset ceases to be rental property as a result of disposition. Not sure about tomorrow is not disposition.

Well there is such a thing as due diligence for the current tax return you have been engaged to do, but digging into past tax years is not part of that. Unless the taxpayer brings up the subject of not file prior years why would you at a time like now? Now that you know you have to prepare those returns but only if the taxpayer request you to do so.

>>you can elect to file US gov't savings bond interest on the final return of the decedant.<< I don't think that is the correct way to report the estate income.

I agree with KC. Actually, depending upon the business, I would probably not change anything and consider the personal use as de minimis tax-free fringe benefit. Really, the difference in the amount of tax has got to be not worth the trouble to change or compute.

He was one of my heros. I remember when he was born.

Basically the assets with the survivor's (husband) social security belong to the survivor and go on the 1040. Survivor's assets are not normally in the estate of the deceased (wife). The deceased income before date of death goes on the joint 1040 return with the survivor, after death the form 1041.

I don't think the premiums go into the HSA for payment do they?

In ATX goto 1040 line 44 (tax) and jump to the worksheet. The bottom half is where ATX calculates capital gains tax.

Well... check with the partners again and ask them if they didn't mean that the partnership made the donation. I know... why didn't I say that in the beginning. I was just making a point that you have to have the client tell you what they did or intended to do and follow that. Just because they closed the doors would not keep the partnership from making a donations and incurring expenses to wind-up the business before filling out the partnership tax return. Of course the end result in dollars deduction is the same on the 1040 as donations are a pass thru. You could just take the list and attach to each partners 1040 with prorating it by percentage at the bottom of the page, but then if you efile that is a different problem. no big deal.

Tell them its not a good time as the IRS is investigating you and the tax returns you have prepared.

Well... are you implying that you are going to ignore the taxpayers statement that it was a donation by the individuals and just prepare the return as you want to do it? Are you really willing to accept the possible consquences of such an act? Do you have good malpractice insurance? Do you represent taxpayers before the IRS and do you want to continue? Then by all means go ahead and do it your way since the taxpayer will tell the truth on IRS audit.

>>She is incurring losses that are directly connected to a trade or business.<< Payments on a lease that is not being used by the taxpayer is hardly a trade or business. Such payments could however possible be considered as a business bad debt deductible on the same form where the type of income from the business that caused the debt would be reported.

>> just one pocket to the other<< Unless the LLC is being sued and has to show that it was being treated as a separate business entity in order to not lose its limited liability status in court. A separate Sch-C for the LLC would help with that determination. Also, if the rental business has a loss it is probably a passive loss that can only be deducted against passive income or carried forward for future deduction against passive income and the LLC appears to not be a passive activity.

Quote from http://www.iespell.com >>ieSpell - A Spell Checker for Internet Explorer Introduction ieSpell is a free Internet Explorer browser extension that spell checks text input boxes on a webpage. It should come in particularly handy for users who do a lot of web-based text entry (e.g. web mails, forums, blogs, diaries). Even if your web application already includes spell checking functionality, you might still want to install this utility because it is definitely much faster than a server-side solution. Plus you get to store and use your personal word list across all your applications, instead of maintaining separate ones on each application. The program installs as a new button in the IE toolbar (as well as a new menu item under "Tools") - after filling in a form, just hit the ieSpell button and it pops up a dialog, similar to the MS Word spell check. ieSpell also works (right-click menu only) on other IE based browsers such as SlimBrowser, CrazyBrowser, MSN, MyIE, etc. ieSpell is not spyware or adware. It's free for personal use only. All other use requires a commercial license. See Licensing for more information.<< --- OldJack has been using it for years since he can't spell worth a damn. :)

Sounds like he is renting personal property to the LLC and that goes on a 1040 Sch-C, subject to SE tax. If the rent is for real estate, that would go on a 1040 Sch-E not subject to SE tax. There should be 2 forms 1040 Sch-C, one for the LLC, subject to SE tax and one for the personal property rental business subject to SE tax. Two Sch-C's as the rental is probably passive and cannot be combined with the active LLC business especially if there is a passive loss. Depreciation is not allocated as it must be taken by the one designated as owner of the property and that could only be the one receiving proper rent income.