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Twinkle, twinkle, our next star, How I wonder who you are! It's week #5 and you all know the routine by now. Who will have the best story this week?

Something for your file - Cornell Law's online code, sec 152(d)(1)(B) reads as "Qualifying Relative...whose gross income for the calendar year in which such taxable year begins is less than the exemption amount (as defined in sec 151(d))." Gross income had this pop up (can't link to that directly) that says this:

Congratulations to Rfassett, this week's winner!

Yes, and I can do that well enough without anyone's help!

That is not necessarily true. This topic is specific to S corps, and the S corp distribution rules and taxation of distributions depends on whether the company was formerly a C corp with E&P or if it was an S corp from inception. If formerly a C corp with E&P that convered to S status, the distribution might result in a taxable dividend. If it has been an S corp from inception, the distribution may well be a tax-free return of basis if it doesn't exceed existing basis, and of course, that includes taking into account the ordering rules of basis changes in the current year.

It's in the instructions for form 2441, line 12. Did you enter the $5,000 in your tax program so that it flows to line 12 on page 2 of the 2441? It will ultimately end up in the bottom section of pg 2 where it will offset the $6000 max.

Yes, it is a capital loss that is on Sch D. Holding period goes back to that of the original security. This usually results from a stock split or spin off where x number of shares are issued to existing shareholders for every existing share held, and a portion of the existing company's basis is assigned to the new company. Then, the shares that are issued for the new company are in whole numbers with the fractional share portion being paid in cash instead of issuing the fractional share. Example - person holds 1390.313 shs of company A that has a spin off of a division into company B and issues 1 sh of B for every 4 shares of A that is held. The spin off results in the person being due 347.57825 shs, but the person will receive only whole shares of 347 and cash in lieu of the fractional shares of .57825. The effect on the investor's tax return is like he received all of the shares and then sold the fractional ones back to the company in exchange for the cash. I don't know if you have a typo in the basis of 34054 (?) but this should be reported on D/8949 as: Proceeds $2.19, Basis $34.54, Cap Loss $32.35

I usually get a series of naps totaling 5 - 6 hours a night. Last night I was running a fever and was hit with an overwhelming need to sleep, so apparently I needed all of that rest. Being sick is the only time I sleep as soundly as I did last night. I managed to drive to a client's today, although I don't remember much of that, but no way I could have driven safely at all yesterday. Thanks for the well wishes.

Egg? I had scrambled eggs for brains yesterday. Lack of sleep, husband sharing his man-cold (tyvm, not!), nyquil and daytime cold medicine, and feeling lightheaded, I wasn't making much sense of anything. I reread an email that I sent to a client yesterday and I repeated myself in it. After sleeping for 12 hours, I am marginally functional again.

That describes most of my client's returns this year. Yesterday I called one for missing stock basis and he wanted to set up an appointment for me to connect to his computer via Skype so that I could watch on his screen while he searched for his information. No way.

@Max W I deleted the paystub because it contained the client's name and employee number at the top of the 2nd page.

Excellent answer, Tom, and I agree with you completely! One of the dangers of relying on any advice from others, here or elsewhere, is that it's entirely possible to give a correct answer to a question asked, but as we've seen in several topics very recently, after multiple queries from those trying to provide useful guidance and answers, the actual fact pattern was revealed to be vastly different than as originally presented to us! And that, my friends, is one reason we never help those from the general public that stumble in on occasion.

Yep, I noticed that message too, early on in the season because it is a new message for Delaware this year. For the Drake users, the program apparently assumes we consent and doesn't require anything like check boxes or sign anything, but it is including it in the preparers "notes" page of each return.

I love this. That is all.

YES! Did you read my mind? Today is almost like one of those Monday's when the phone never stops ringing, every project is interrupted, and nothing is accomplished. I feel like I've lived an entire week since a woke up this morning.

The snip below is a life or death story of taxes (yeah, right!) that is too funny and simply must be included here to put @rfassett in the running for a star. Ron is another long time member that always give great advice and doesn't post often enough. I remember one of Ron's other life or death stories of how his wife gave him a very thoughtful gift that had a very strong magnet in it right after having a pacemaker installed! This is Ron's latest post from the RitaB's topic "Come again?" that you can vote for here:

Yes, I believe you can. Since the casualty was before the conversion to rental, you would start with basis of the property and break out land. From there, concerning the casualty, this is what Pub 547 says about basis adjustment: I think you'll end up basically where you are intending with your question. The sum total of all of that should be the depreciable basis for the rental when it is put in service.

Yes, I saw that in your original post. The way I understand each of these, the addition to compensation is at the exercise date/price for the SARs and at vesting/market value for the RSUs, but that the sale doesn't have to necessarily be simultaneous and employee can continue to hold and sell at a later date. Is my thinking all wrong on this, or is there a specific requirement in this employer's plan that requires the immediate sale?

It sounds like the differences may be from a change in share price between when they were added to the W-2 as compensation and the share prices when sold.

Here's an older article from The Tax Advisor that covers the part of your original question about whether the legal fees are deductible or not. The article discusses the concept of "origin of the claim" test to determine whether legal fees are an above- or below-the-line item of expense, when they might be deductible, or if they must be added to basis. Under the heading "Capitalize or Expense", it says that If the legal fees have their origin in the ownership or protection of the property they should be capitalized. The first example that follows is similar to your scenario where a person had to defend title to his rental property, and this article says that legal expense should be added to basis, and it cites code sec 263. ETA - deduction is specifically disallowed under sec 1.212-1(k).

First nomination of the week is for @Lynn EA USTCP in Louisiana for this post that made my head swim and made me thankful that I don't deal with anything remotely this convoluted and confusing. Lynn may not post as often as some others of us, but when she does chime in her answers are always spot on!

Converted to personal use = withdrawn from service, but that is not a disposition of the activity. For a qualifying disposition that will trigger current and suspended losses to be currently deductible, three conditions must be met: (1) dispose of the entire activity, (2) in a fully taxable event, and (3) to an unrelated party. Unless there is other passive income enough to use up these losses, you will still have the suspended losses to track, so I would mark this as out of service but not delete it from the depreciation schedule, and the 8582 will continue to track the losses.

It's Bart for the win with 11 positive votes!

After reading Lynn's post, I may never complain about any of my returns ever again.

Terry, in Drake fill in the 1099R screen with the data from the form as issued, and then use the "Rollover" section at the bottom of that same screen to indicate that the amount was either partially or fully rolled over. It worked when I tried it with code "S" for "rolled into same type of plan". If fully rolled over, no entry is required in the box for the amount; only for a partial r/o. With those entries, the 1040 will print with "ROLLOVER" at the very left side of line 15, gross distrib in 15a, and zero or blank in 15b.