SaraEA

Catherine's original question was whether these travel expenses are estate expenses. As rfassett said, there is no estate until someone dies so these expenses can't possibly be charged to the estate. There is no reason why Mom, or whoever is handling her bills, can't reimburse her sons for their travel right now, right out of her checkbook. No code or regs citations needed. Like when I drove my mom across the state to a doctor, she'd give me some gas money. Pretty much the same thing. In this case, though, I'd be sure that receipts for the travel were given to whomever is handling the checkbook. It's sad how when there is money involved, even the closest families can get into feuds after a parent passes.

The first thing to determine, which the OP did not mention, is whether the debt was recourse or nonrecourse. If nonrecourse, there is no cancellation of debt income (CODI) but there is still a sale of the property. " For nonrecourse debt, the amount realized is the greater of the outstanding debt of all loans immediately before the foreclosure or fair market value of the property plus the proceeds received from the foreclosure (e.g., relocation payment from the lender). The adjusted basis immediately before the foreclosure is subtracted from the amount realized to determine the gain or loss." "IRC §7701(g) states that the sales price is the greater of the FMV or the outstanding loan balance for nonrecourse loans to determine the gain or loss." In your case, $50k - adjusted basis = gain on sale. The gain cannot be excluded on Form 982, which applies only to CODI. If recourse, then you have both CODI and the sale. In this case, "Cancellation of debt income is determined by the outstanding debt balance immediately before the foreclosure (minus debt liable after the foreclosure) minus the fair market value of the property equals the cancellation of debt income." In your case, this is zero because FMV was greater than the debt. For the sale, "The amount realized is the lesser of the fair market value of the property or outstanding debt balance." Thus, $45k - adjusted basis = gain on sale. All these quotes are from the Audit Techniques Guide http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Foreclosure-ATG-Chapter-2-Type-of-Debt The IRS has numerous pubs covering foreclosures and cancellation of debt. I'm giving you the distilled version. You might want to verity the FMV reported by the lender. If the lender sold the property shortly after foreclosing on it, you can certainly use the sales price as the FMV and attach a note to the return. (Only if it's in your client's favor, of course ) If a lender forecloses and cancels debt in the same year, they will usually only issue a 1099C. I have rarely seen both a 1099A and 1099C for the same property.

Do you have to take this NY education even if you are an EA or CPA?

IRS computerized correspondence is indeed wacky of late. I've had several clients bring in notices the day they received them and the date is two or three days later than the current date. The computers date correspondence to allow for mailing time. I just had one bring in a NOD when the date to respond to the 30-day letter had not passed. I wasn't sure if I should respond to the NOD or the 30-day. I chose the NOD because it is more threatening but still question my judgment. What would you do?

"Although, my client who's paying the most has huge returns all the time and has for years even when all my other clients had losses, so her manager is probably worth his fee." RED FLAG!!! Is her manager Bernie Madoff? The same thing has happened in lesser firms--fake statements showing gains, year after year. It's probably not your job, but someone has to look into this.

Income retains the same character to the beneficiary as it would have been to the deceased. Worker's comp would not be taxable to the parent and therefore is not taxable to whomever receives it.

What you're seeing here is a tension between the marina (which wants a big tax write-off) and the taxpayer (who wants a smaller tax bill). Just because the marina put $20k on the 1099 doesn't mean that number is right. We see it all the time with foreclosures--bank puts some low number in the FMV box and shows a big amount of cancelled debt. We look it up and find the bank sold the property two weeks later for much more, so we adjust the FMV and are prepared to argue it. IRS even says that's legit. In your case you will put $20k on Line 21 and on the same line add -$4k "adjustment to true FMV. I had a client who won a car and the 1099 showed list price. She wanted a different car and the dealer gave her a lower trade-in value, even though the first car never left the lot (and therefore never depreciated). I used the lower value as explained above and never heard from IRS. If marinas are like car dealers, they are using list price even though no one ever pays it. IRS employees buy cars too and should easily understand that gimmick.

CSA is a horrible, clunky program. I use Ultratax CS and think very highly of it (except the tax projections), but CSA doesn't earn the same praise. We ended our subscription to CSA this year and you know what--we can't use it to prepare late 1099s etc for 2014. But we PAID for 2014. Do be sure to back up everything. We are now using ATX for payroll and tax reporting documents--a world of difference in ease of use--for those clients who are not yet in Quickbooks. Quickbooks certainly has its flaws, especially the ever-increasing price--but we've recently tried QB in the cloud and are amazed. We can download bank statements, code entries the first time, and then every month download the statements and almost everything goes exactly where it's supposed to. What a time saver. Accuracy is increased when the bookkeeper doesn't have to enter numbers. Hope your conversion goes smoothly.

I agree that they need to find a better way. I have had lots of clients receive letters on this matter, most of whom didn't take any education credits either. The IRS instructions in the education pubs say you don't have to report anything. Yet when the 1098Ts show lower amounts than the Qs, the IRS computers get in gear. I believe that now that education credits are refundable and the expected fraud has ballooned, the whole education landscape is being targeted. Unlike NECPA, I had to provide account transcripts from the schools, but all of the 529 distributions were eventually allowed. I understand that you can request the 529 plan trustee to pay the school directly, but I don't know if that would help with the reporting discrepancies. Never had a client do it.

See, the program agrees with the IRC! Not being sarcastic here. Sometimes when you get into these esoteric situations you can't be completely confident in the software and have to check the law, as David did. We've all had cases where we knew how something was supposed to play out on a tax return but had to spend frustrating hours trying to convince the program. Other times you wonder what the software did and have to look up the rules. Nice to have this board to bounce these things around. I have clients who have a "rental" home in a warm climate. The supposedly rent it out for a few weeks a year and get "income" of $3500 or so. They visit for a couple of weeks over the Christmas holidays and again for a month in Feb for "maintenance and repairs." Yeah, right. They make way too much to qualify for any of the $25k active participation rental tax break so by now have a few hundred grand in suspended losses. Way more than their basis, so you have to wonder why they keep tempting fate and adding thousands in deductions year after year. Too bad the IRS doesn't have many auditors anymore.

If the property was sold to an unrelated party, prior passive activity losses are allowed in full (unless there are basis limitations). They can offset nonpassive income. Plug the numbers into the program and see how it comes out. Return here to verify the result.

I had a client who sent both his federal and state balance dues to the state (despite the fact that I had the payment instructions and payment vouchers clipped to separate envelopes. He "lost" them and hand wrote his own.) The state cashed both checks and sent him a refund, and the IRS of course sent him a bill. It was all my fault until he got his bank statement and realized what he did. I'm with Catherine. Why did the bank pay a check to the wrong payee? That's what happens when checks are machine read--only record the numbers I guess. Now if I tried to deposit a check made out to Catherine I'd probably be arrested.

I disagree. The Forms 4797 and 8949 will show the usual sales price, depreciation, basis info. That info carries to Sch D. Sch D Part II is where you subtract the long-term carryover loss. Be sure to mark in the program that this is a total disposition so the carryover is freed up and becomes usable. The exception is when the disallowed losses are because of at-risk limitations. Your client cannot deduct losses in excess of her investment in the property (the amount she had "at risk").

When President Clinton reformed welfare "as we know it," it was largely replaced by the EITC. The difference was that you had to have earned income to get it (as in EARNED Income Tax Credit). Welfare rolls dropped precipitously as former recipients went to work. Welfare office employees had to retool from determining eligibility for free money to getting people into jobs and training programs. For a while it worked out just as planned. Eventually electronic filing grew and DIY software came on the scene. Instead of filling out forms and pages of worksheets, people learned how to plug numbers into a computer. If they didn't like the result, they'd play with the numbers. Crooks came out of the woodwork, and we know where that's gotten us. The EITC is a godsend for many working families and each year lifts millions of children above poverty level. And I think it's a lot better than welfare when people got money for doing nothing. That said, it doesn't belong in the tax system. The welfare workers are trained in determining eligibility for various benefits and helping people gather the documentation needed for proof. Tax professionals have learned what questions to ask as part of due diligence but are not required to examine things like birth certificates and school records. We should do people's tax returns which they can then take to their local welfare office to apply for EITC. Let the real experts in that sort of thing do that job. Congress will never agree because they have worked so hard to separate "welfare" from the EITC. It plays better with voters that way.

Couldn't view the link, but I have to wonder about the logic of a cat door. Cats go outdoors and catch all sorts of things. Some cats eat them. I had a black cat who did just that but preferred the comfort of the carpet to devour the meal. I'd let him in and not always notice the mole/vole/bird/chipmunk/whatever hanging from his mouth against the black fur. Then I'd hear crunching under the dining room table. The last comfort on earth I would allow this cat would be easy access inside before a thorough inspection outside.

My understanding is that children's SS numbers fetch a lot more money on the underground websites than adults' numbers because they are useful for much longer. Someone opens a credit card under your name and number and you'll find out about it when you apply for a car loan and learn your credit is shot. A four year old isn't going to apply for a car loan or credit card for 15 years. Sounds like this crook got greedy and filed a tax return with that valuable info, ruining his or her chances of getting a mortgage, credit, health insurance, a job using the victim's info for years to come. Agree, your only choice is to file a paper return. Hopefully the ID theft unit will contact the taxpayer (someday). The parents should file a police report and a complaint with the FTC like adult victims of ID theft are supposed to.

I agree with jm. A service business doesn't usually sell goods. Think about an accounting office--sure we print off a copy of a tax return and put it in a nice folder, but what we really sell is the service of preparing the return. Paper and folders are just office expenses. If your client buys and then applies fertilizers, grub control, etc., and charges the client separately for it, I could see COGS. If not, I'd put those expenses under supplies. The labor is definitely W2, with the exception of the one contractor.

Agree, state rules will differ. Several do include gifts made within one year of death in the estate. Probate fees are based on the decedent's assets, so even if under the threshold for a 706 some money will be due on the gift. What bothers me is that the transfer was made when the mother was ill and about to die. To sign a legal document, a person has to be mentally competent. Honest attorneys will not take a signature from someone on their death bed. (I know first hand. My brother-in-law dragged a lawyer into the hospital so my sister could sign a will, leaving everything to him. The lawyer took one look at her and said no way. She died intestate.) Maybe the lawyer can be embarrassed into undoing the transfer. By the way, finished that gift tax return today. The sons are facing a gain of over a half million. Four days later and they would have gotten step-up basis. At least in this case she had all her mental faculties when she initiated the gift. Not sure if that's true with Illmas's clients.

The repayment will be reported in 2015. Since it is over $3k it can be taken as either a Misc Sch A deduction (not subject to 2%) or a Section 1341 Claim of Right. Here you recalculate the taxes for the previous year without the income that was later repaid, compare it to the current year's tax (without the deduction), and take a tax credit for the difference. See Pub 525. I had a client who had to repay so much leave time (employer kept paying her when paid leave ran out) that they had her repay it over 3 years. In two of those years the Claim of Right worked out better for them and they took the credit, the other year the Sch A deduction resulted in less tax.

Things have changed since we "seasoned" preparers first learned about gift/estate taxes. The look-back period now applies only to gifts made TO the decedent, retained life estates and interests, closely held businesses, and a few other oddballs. (See the 706 instructions, pp 26-27). Also, any gift taxes paid within the past three years get added back into the estate. I'm doing one of these right now. Mom gave her sons some stocks she had owned for 50 years; the stock certificates were retitled and legally transferred 4 days before she died. (The process had to start before then.) The step-up basis would have helped them avoid massive cap gains they now face. Thankfully she did not transfer her shares of ATT and its baby bells, and their babies, so the sons get step up on those. It has to be every preparer's nightmare to calculate basis of original ATT shares.

Are you sure they didn't say the opposite--they need the 1095A to reconcile with the 8962? We got one of those letters and it turned out to be our fault. The amounts on the A changed midway through the year but the preparer entered them all the same. Turns out the guy had gotten extra ACA credit when we filed his return and had to pay it back. Anyone else have the feeling that Congress and the Administration are now targeting the IRS with almost frivolous criticisms, still paying them back for going after tea party groups, or faulting them for trying to administer the ACA that some policymakers hate? Today there was a report critical of the IRS because it did not have the ACA info from the exchanges by Jan 20. How can that be the IRS's fault? In another decade the complaints might have been directed to the exchanges, or mitigated by the fact that this was a massive new undertaking bound to have some bumps and wrinkles. But in today's hostile environment, the IRS is to blame. Those policymakers who hate the ACA hate the IRS for trying to do the job those same policymakers mandated it to do. Guess their budget will get cut again, making it less likely they can fix the problems and opening them up for a new round of blame next year.

This complex scenario brings up a scary thought I had today--the IRS is so underfunded right now that none of this is going to get audited (unless for some reason it comes under the automated underreporter system). I know, many argue that they were wasting too much money anyway on expensive retreats and nonproductive employee bonuses, but I believe those days are over. They now have a lot less money to spend (in absolute dollars) than they did just a few years ago, a lot less employees (including at CI, the ones who bring in the big bucks), and customer and tax pro service is minimal. Even ID theft victims only got through on the phone 10% of the time this season. We professionals work hard to keep our clients in compliance. We insist they have records on everything from mileage to charitable contribs to day care to rental income and expenses. Let's not forget some reasonable basis determination of stocks, partnership interests, inherited property. Today I was working on a return for a brother and sister who jointly own a brokerage account that is reported in the brother's SS number. We put half on hers, but she told me every year her brother gets an IRS letter from the AUR. He puts together an explanation and that's the end of it. He does not issue her any 1099-int or -div statements, and I don't know how he could issue her a 1099B for the stock sales. Some of the years in question she did not report her half on her return, so it's not like the auditor checked out his story. It made me think that the IRS can no longer do the job it is mandated to do--collect tax revenues and fairly administer the tax laws. So why do we try so hard to keep our clients in compliance? The chances of Deo's return, or my sibling returns, being audited are nil. The computers won't notice that Deo reported more W2 income than they know about. The 2106 expenses likely won't be enough to trigger a DIF audit, and even if they are it will likely be bypassed for bigger buck returns. My client's brother will go on forever reporting half the brokerage account income and explaining it away to the computer, the IRS just trusting that a response--any response--is good enough. PS. I am recommending they form a partnership, title the account with the EIN, and let the partnership do the accounting and pass thru the results. Today I was wondering why since they seem to be getting away with their rudimentary reporting. In the same vein, Deo will spend a lot of time trying to get the client's expenses and reimbursements just right, which is what we tax pros do. If the IRS is no longer strong enough to care, it's tempting to wonder if we should.

This can be a piece of cake or it can be a criminal case that demands an attorney. The difference hinges on whether the taxpayer reported the income from his foreign assets on his US tax returns. If he did, you can go ahead and file the late FBARs (now FinCENs) on the BSA website. You have to register first, but it's not hard to do. http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures If he did not, you have a problem. The first thing I would do is apply for the Offshore Voluntary Disclosure Program by faxing the application. If the IRS doesn't already have the taxpayer's name from the foreign bank or brokerage, he should be accepted (but it can take months to be notified). At the same time tell your client to get a tax attorney who will call the shots from that point on. The attorney may hire you as a Kovel accountant, meaning you're working for the attorney and not the client so you won't have to testify against him ("Please understand, Mr X knew he had to file these forms but just didn't get around to it."). Set aside time to amend EIGHT years of tax returns. Form 8938 may also be required for the years it existed. There is a streamlined procedure to apply if your client qualifies. All this is explained at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR Let the attorney make all the decisions. Make sure your client knows this is going to be expensive--your fees, attorney fees, past due income taxes, failure to pay penalties (mandatory). I had a client who originally owed maybe $100k and settled through the voluntary program for multiple times that (plus the attorney, plus me). The alternative is paying half of the highest balance in the account for EACH YEAR, plus jail time. The stakes are high, but don't let it scare you. With a competent attorney in control, all you'll be doing is tax returns and FBARs, and you can do those. Charge a lot--you're worth it.

I had a client call just last week who got the call and was on his way to the Western Union office to wire the money when he had second thoughts and called me first. Guess Patel's arrest hasn't stopped the whole organized criminal gang. It's going to be like wacking moles--get one and another pops up. (Ronnie Deutsch all over again. They shut her and others down, but I still hear a half dozen commercials a day from "pennies on the dollar" places.) I saw a newscast in Maryland yesterday about the same exact scam targeting Dominion Electric Company customers--pay right now or we'll turn off the juice, send the cops, whatever. What's scary about this one is that people won't think to call their tax person to question it. At least we could warn them not to send money. In our practice we have had over 100 clients who contacted us about the IRS call. What scares me is the statement, "Patel and his co-conspirators also used several layers of wire transactions in order to conceal the destination and nature of the extorted payments...." These guys are too good at what they do.

Regarding the 1099 penalties, I have a client with scads of rental properties in a partnership. (The majority partner is a grantor trust, so it all ends up on his return anyway.) He pays people to manage some of the properties and also hires contractors to do repairs/renovations to some of them. Every single year I warn him that the IRS can disallow any payments for which he did not issue a 1099. Every single year I add the warning to the notes in our electronic file cabinet (so he can't blame me). Every single year I check yes for the box "were you required to issue 1099s?" and check no for the box "did you issue them?" Not a peep from the IRS yet. Maybe with the bigger bucks they can collect now their enforcement efforts will change. Think I'll email the client the relevant paragraphs from the original post. The irony is that if these properties weren't in a partnership, 1099s wouldn't be required. Oh, this guy also has a big Sch C business that pays lots of subcontractors (total $200k or so). He makes sure to get me the info to issue the 1099s on these folks. Guess he can't say he didn't know.... Another thing, this guy always goes on extension and even then is sometimes late. Last year he got around to filing Oct 20, and the IRS fined him all the way back to April 15. The fine is per partner (him and his trust, in other words him and himself), so he paid big time. Some people will never learn. I'd fire him except that we charge him megabucks so it's worth the aggravation. Still, I wish he'd go away.