JohnH

Tom: I've never dealt with a Self Directed IRA directly. However several clients have come to me with schemes to use one for a rental property, or even to invest in a franchise business. It seemed really popular among some franchising companies a decade or so ago - the franchising company would ally with a S/D IRA administrator to promote this as a way to buy into the franchise. (Maybe they still do). After reading a little about the rules, and studying a few stories about how these schemes failed, primarily over "prohibited transactions" as you mentioned, I decided to never touch one. I learned just enough about them to avoid them like the plague. I'd just tell the client that if they moved ahead with the plan they would need to find another accountant. Furthermore, I knew someone who was scammed by a financial advisor who set up a promissory note in a S/D IRA that even their family didn't know anything about until it blew up in their face. So I have a strong bias against these contrivances. Not saying they never work or there isn't a place for them, but there's too much room to get tripped up by seemingly minor mistakes as well as lots of room for outright abuse.

I’m beginning to wonder whether the client knows more than they are telling you, but they’re already aware that the whole story is going to cost them money and they’re hoping to somehow slide by. is it possible this is rental property (or some other business asset) held in a self directed IRA and they titled it back to themselves because it couldn’t self-fund maintenance or repairs?

This MIGHT be a self-directed IRA, and I’ve seen a couple of those who had some very weird transactions reported. Especially since they were actually self-directed in name only.

Parents earnings do phase out everything in terms of credits. But they live a relatively modest middle-class lifestyle, nice home but not a McMansion, drive used vehicles until the wheels fall off, don’t buy boats, motorcycles, RVs, or other frills. Son doesn’t save much, if any, at this point in his life. I’m going to do a support calculation just to be sure, but I’m pretty sure he’s ok claiming himself.

I think we will do a workup on support just to be sure. But given what I already know of their family size & lifestyle (not extravagant), think the $32k is going easily add up to more than half his support. I appreciate all the replies.

Client's 22-year-old single son living at home earned $32K and is a full-time student with $8K of tuition expense. Mom & dad's earnings cause dependent exemption and education credits to completely phase out so no reason to claim him as a qualifying child, especially given his income. Seems logical for son to file single and claim the AOC credit. I don't run into this very often since my client base is generally much older, so I'd like to ask for input. Anyone care to comment?

Yes, the performance of the post office is less than stellar. But when it must be mailed, Certified Mail is still the gold standard for proof of mailing. Just be sure to keep the receipt. And online tracking is a good backup for those times when the green card never makes it back.

When mailing, I assume you're going to use Certified Mail with Return Receipt. That way you'll have proof of mailing and the tracking system allows you to verify when the envelope is received by IRS. Of course, there's no way to know how long they will take to actually process it.

A relative of a client has posed this question to me. - this is a real situation, not a hypothetical. Person #1 has assets and is financially very stable. They are contemplating marriage to Person#2 who has an outstanding Federal tax liability of around $100K (no problems with state tax liabilities). Long story, and somewhat understandable, as to how the tax liability of Person#2 came to be, but nevertheless it exists. There a repayment plan under way with liens in place. The repayment plan is scheduled for about 6 years so this will be with them for quite a while. Person#2 is current in tax filings for the current and previous year (aside from the older tax liability). I''m not asking for opinions about the undesirability of Person#2 being in this position - that's clearly understood in this group. Question is, if they marry, does the prior tax liability pose any financial risk to Person#1? The only thing I can think of would be seizure of any refunds due on jointly-filed returns (possibly partially recoverable using 8379 Injured Spouse allocations, or careful management of withholdings at the outset). The other option of course would be MFS, but that would be evaluated on a year-by-year basis. Due to incomes, EIC would not be a major issue with MFS. The only other thing I can think of would be the inability to borrow money jointly due to the existence of the lien, which isn't likely to be a problem for them. Aside from that, NC is not a community property state (although it is a "marital property" state, so ownership of any property acquired after the marriage would be affected by the lien, but not previously owned property, I think). Would appreciate any additional thoughts or cautions on this.

Thanks for that link. I approached the research the hard way. Sure would have liked to have this about a month ago. Guess I should have asked on this forum, eh? Will certainly save the link just in case I ever run across one myself.

I've never done this, but recently walked through the process with a colleague (they did the work - I only looked up instructions and made suggestions). At first glance it looks complicated, but the process is fairly straightforward once you get the "allowable" depreciation calculation finished and determine the exact codes to use on the Form 3115. IMO, you should charge the client well for this work - if you haven't done this before it will require some intensive study, but the client will benefit greatly from your extra effort.

Splashtop

I only respond to surveys when I know my response is going to affect outcomes or future actions. You know, things like political surveys, Medicare Supplement signups, car warranty advisories, bank customer service follow-ups. All those things that really have an impact…

Since they're not on my known caller list, they will reach my voice email. They're free to speak to it as long as they wish.

I’ve been using 1099Express for several years (after a client began to exceed 250 forms per year). Their combined package (e-file plus Print & Mail) is outstanding, although it’s also possible to choose only the e-file option if you like stuffing envelopes and mailing by hand Their eVerify service is also reasonably priced. A great resource for avoiding the hassle of B notices. Fine company with great customer service. Here’s their link if you want to check them out https://1099express.com/

Too bad they don't let us use emojis in the password. I think I'd use (unless the various hand emojis were permitted).

Mine only has 8 characters. I tried it today and it worked fine. But maybe they’re rolling this out slowly.

I’ve been using ID.me with no problems. The only hitch is that you have to scroll down to click a “Continue” button which appears off the bottom of the screen after selecting a rather large box for text or email. (It defaults to text). I dont think they used the available real estate very efficiently. Have probably used it a dozen times since this MFA business began.

I think this was your operative comment: —-> “client cannot find paperwork to determine which and how much payroll was used for PPP…<— That’s my signal to hand everything back to the client and say “Let me know when you find it. Otherwise I can’t help with this issue. “

I was interested in the answers to this question because I had a similar situation about 8 years ago. It was nice to get confirmation that my handling of the step up in basis was correct. Lately I've been playing around with ChatGPT. Out of curiosity, I decided today to submit a slight variation of the original question to ChatGPT just to see what it would respond. (I simply said that the property was fully depreciated when the spouse died in order to simplify the question a bit). In case anyone is interested, here is the reply from ChatGPT. ---> When a person inherits a rental property, the tax treatment of the property's depreciation depends on several factors, including the tax basis of the property and whether it was held in a single-owner or joint ownership situation. Here are some key points to consider: Step-up in Basis: When someone inherits a property, the tax basis of the property is typically "stepped up" to its fair market value as of the date of the decedent's death. This means the beneficiary's new tax basis for the property is the fair market value on the date of death, not the original cost of the property. Single Ownership: If the spouse owned the rental property in their name alone and the property's basis is stepped up to its fair market value upon their death, the surviving spouse can start depreciating the property again based on the new stepped-up basis. The depreciation is calculated over the useful life of the property, which is determined by the IRS based on the property type (residential, commercial, etc.). Joint Ownership: If the rental property was owned jointly with the spouse, the basis adjustment upon the death of one spouse depends on the ownership structure. In a joint tenancy with the right of survivorship or tenancy by the entirety, the surviving spouse typically receives a full step-up in basis for their share of the property. The surviving spouse can start depreciating their share of the property based on the new stepped-up basis. <--- It ended with a boilerplate statement to consult your tax pro, etc. All in all, I'm awarding ChatGPT an A+ on this one.

And eventually everything purchased before 2011 will be inherited (with basis step-up). So there's that....

The MFA code is sent to the phone of the person signing in through ID.me or Login.gov prior to gaining access for purposes of logging into EFTPS. The entire process is designed to identify the individual signing in to EFTPS. It's easy to understand if you just sign in to an EFTPS account a few times. But the first thing you must have is a validated Login.gov or ID.me account. That's the key to the whole process.

Bart: If you have any clients for whom you enter the EFTPS info, you can log into each one individually with the same ID.me or Login.gov account. You'll just have to add the MFA step before accessing the EFTPS login for each client. Not really a big deal, PROVIDED you have a Login.gov or ID.me account already set up. But for those clients who do their own EFTPS, they need a "heads up" email, text, or phone call. Each of those clients needs to register with Login.gov or ID.me before attempting their next EFTPS transaction. (They can also do at payroll tax deposit by phone, but I'm betting the phone lines will be jammed since so many people didn't know this was coming.)

I would do some cursory research to find out if JohnH had access to any piece of paperwork that might get us started on a basis reconstruction. It might take some effort on his part, but that’s on him. If he came up with something then I’d try to do a basis reconstruction if there were sufficient info. I’d also make it clear to the lazy bum that it’s going to cost him a lot for the research. If there’s absolutely nothing he can obtain then I’d tell him we’re going to have to go with a cost basis of -0-, which might cost him a lot of tax, especially if he actually had a loss due to reinvested CG and dividends. Either way, he’s going to pay. But he can afford it - he has an extra $15k (unless he’s already blown it on a boat, motorcycle, cruise, etc)

The existing login information for EFTPS still works as usual. The only difference is that you can't get access to EFTPS login until you identify yourself with ID.me or Login.gov. They just want to know who is logging into EFTPS before granting you access. As long as you have ID.me or Login.gov, you're fine. If you don't have one of those, then you'll need to sign up for one or the other of them before you try to access EFTPS at any time in the future.