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I agree with calling the E&O to discuss. I'm curious which one of the owners signed the returns each year after Books spun his additional stories?

Abby, thanks for the info. I'd followed your earlier suggestions and avoided the updates for Win10, turned off notifications, and have had my Win update set to manual ever since your posts at the beginning of this year. I thought my machine was safe from the upgrade, I never saw the popups, but when I ran the Never 10, it said the upgrade was enabled! That is some stealth from Microsoft! I noticed that the Never 10 also has the option to remove Win 10 files from the system. I didn't do that. Have you read anything about using that function to remove the files, or is it best to leave them alone.

That would change part of what I posted about the date filed, but I don't think that fact changes any potential penalties and interest that may be assessed if you proceed with preparing amended returns for this couple. Off-topic explanation: Since I posted that link to sec 6013(b ) based on the OP's original information that has now changed, I want to clarify a point so that someone else isn't mislead. The IRS lost in tax court when it tried to argue that a return filed using HOH status fell under sec 6013(b ) as being filed "separate". The holding was that HOH is not considered as "separate" under the wording contained in 6013(b ) (1). A good article from the Journal of Accountancy (safe link) explains that case. Anyway, I don't think this will affect the OP's return because the husband hadn't received any notice. Now let's get back to the topic - So your ? They live together, right? Because I can't believe wife would be willing to file joint with estranged non-filing husband to get him out of a penalty situation that will expose her to that and more. These people sound like a mess that I'd most likely turn away too, depending on the story she tells about how her filing status was determined.

You didn't give specifics, but I interpret your question "...will this clear him of the penalty for not filing?" as him having income in excess of the exemption amount, and if that is the case, he can't cure his non- or late filing by now filing jointly with the wife. I agree with Jack that you need to consider that the wife will also become liable for his penalties and interest. You also didn't say if husband has received notices, but if I remember correctly, one can't do what you are attempting if the IRS has already created a SFR and then sent a notice of deficiency. If you want documentation for your file, the cite for when the returns are deemed as filed is sec 6013(b )(3). Safe link here: https://www.law.cornell.edu/uscode/text/26/6013

I think this could be handled by entering 100% of the transactions as reported on 1099-B on the husband's returns and then entering code "N" in col f to back out the portion of gain or loss attributable to the ex-wife. Include an explanation to accompany the return that includes a statement of why this was done, the ex-wife's name and SSN, and the amount of gain or loss she is including on her return. On ex-wife's return, report her share of the #s from the 1099B. She won't have a matching issue so this shouldn't generate an IRS letter. Attach a similar explanation to her return stating that amounts attributable to her were reported on the 1099B to the ex-husband, and be sure to include his name and SSN in that explanation. I could live with the suggestion made by Abby Normal and Danrvan also.

I do remember that from seminars and articles too. The problem is that unless we keep a separate file or backup that ends with each year's transactions, giving a more current file will include more activity for periods more current than just the year being audited. Also, unless years earlier than the audit period have been condensed, that allows the auditor access to that as well.

I wouldn't give the auditor that level of access to the company's books. You should control the access and flow of documentation requested and provide it in hard copy. The auditor wants to drill down into the transactions to see what else is to be found.

I agree with you both and am aware that this will all be taxed at the regular corporate rates. I realize that the covenant isn't part of this corporate sale, but I included in in the detail of my post so that Tom could see that it wasn't part of the figures I was discussing. I also included the details of goodwill to show that it realistically can't be attributed to the owners and will be part of the sale within the C corp. Inventory will be determined at the close of business immediately before settlement for the sale and will be plugged in to the final breakdown so that, because the sales price will not be increased for inventory and the class V asset allocations will have been decided on, the effect will be that using the residual method will cause the goodwill to be reduced by the amount of the inventory value. They're working on revising the figures for the class V assets after I sent the owner an email about F&F being allocated too high, and too low on improvements. I was just there this morning explaining all of this to the owner, and then came back to the office to find an email from the corp's attorney asking about the same issue.

Thank you. I really appreciate the input and I don't think you're argumentative at all. These are the things I'm not clearly thinking of being too close to the situation, and this is exactly the type of discussion I was looking for. I agree, the buyer will want that faster write off and is pushing as much to F&F as he can.

Tom, thanks for the reply. The total price is 1.12 million, covenant is carved out at $300K for personal reporting, and yes, it will be ordinary income. It's a sale of a family owned & run combo take-out/eat-in cafe with small bar area. No A/R. Inventory is perishable food, soft and hard beverages and won't be a large number in the total package. Yesterday was the first time I saw the numbers and breakdown, and was surprised at no inventory and have asked about that. Of the remaining sale price, tentatively it was F&F 400K, Improvs $100K, Goodwill $320K. Goodwill is mainly attributable to the name and reputation (not a chain or franchise), trained and stable work force, and stability of the business. It might have a stable customer base, but for this type of business I don't see that has having a value as other businesses might have. Goodwill wouldn't be attributable to the owners' involvement in the process or any kind of specialize knowledge. I didn't confuse the NBV and FMV. I only stated that to say that cost of assets has been depreciated down to the point that I know the value assigned will definitely create a gain in the corp. Many of the F&F assets are at -0- NBV because of either using sec 179 or their age and being fully depreciated. My point was that the original cost per books for these used assets was only ~ $350K and the sale price tentatively assigned to it is $400K for some of these old, used assets, so I kind of thought that might not be in the range of reasonableness. I hear what you are saying about the price assigned is between a willing buyer and seller, but doesn't it seem that the $400K might be too high considering their age and historical cost? That's why I asked, because I was really unsure on that point and thought that after dealing with some amount for inventory that less should go to fixed assets and more to goodwill.

Sara's first post is correct that the OP's client gifted the property to the cousin. Since the OP also brought the topic of loss into the discussion and the gain/loss issue was further expanded upon in Sara's immediate reply and by others, I'll add this to clarify: In general and not including properties acquired in like-kind exchanges and their dispositions where there are additional rules - the basis, and holding period, for gain or loss is determined by its acquisition and additional subsequent costs, (purchase, build, inherit, gift, exchange, etc) the character of the gain or loss at disposition is determined by the property owner's intent and reason for holding the property and by his or her use of it during the time of ownership, not by how it was acquired. (personal primary residence, 2nd residence, vacation rental, other income-producing use, 100% rental with no personal use, other income-producing use, investment property held for its appreciation, etc.) With respect to gifts of property, we're hopefully all familiar with what is commonly known as the carryover basis rule where the donee "steps into the shoes" of the donor with adjustments for gift and GST taxes paid. That is true except for those gifts whose basis has declined in value below the donor's cost, and those are the cases where we end up with dual basis triggered by code sec 1015(a). Sec 1015(a) is how the tax code places a limitation on the gifted basis so that a loss cannot be transferred by gift from donor to donee, and no one can ever deduct that portion of a loss. If and when the recipient disposes of the property and does incur a loss using the lower basis under the dual basis rule, the loss is limited to the the amount of loss beyond the reduced (dual) basis for computing the loss. In other words, the recipient would never get the benefit of the decline in value from the original donor's cost to its lower FMV at the time of the gift, but CAN take loss beyond that once in his or her ownership.

I have a c corp selling its business as an asset sale. The part of the purchase for the covenant not to compete has been carved out and being sold by the individual shareholders. Other than than, it's F&F, improvements, and goodwill. I don't know why nothing has been assigned to inventory, it would be a very small amount compared to the total, and I'll get an answer on that tomorrow. Goodwill isn't that of the individual shareholders, it's being sold by the corporation. The amount allocated to the sale of goodwill % is ~ 39% of the price of those 3 items being sold by the C corp, and would be 29% of the total including the covenant. The amounts allocated to F&F and improvements each exceed the net book value of those items on the c corp's books, but one problem I see with the allocations already is that the amount allocated to F&F exceeds the original purchase price of those assets on the corp's books, and in IRC sec 1060, the rules say that allocations to the items before arriving at goodwill can't exceed FMV. There's no way that these have appreciated, so that needs to be revised. Once that is resolved, from the seller's perspective, is there any reason to consider further tweaking the allocation among the categories of assets that will be sold by the corp?

From this IRS page: And then below that are the rules that define "disability".

I've never had that happen and there are hardly any (I found 2) posts about it on Drake's forum. One reason that may happen is if someone is processing with more than one computer. Sometimes it is resolved simply by processing the acks again within the program, and sometimes it requires Drake to rehang the ack or rebuild the EF database. That can happen with any of the tax software, and it has certainly happened with ATX. I don't see that as any big deal, and the difference with Drake is that if the user does have a problem, they answer the phone and will almost always be able to solve the problem quickly. If they can't find the solution quickly, they WILL further research it and make a follow-up call back to their customer.

It sure does. I only remember looking at those sticky notes from when I first got my computer with Win 7 and did the "tour" of what was new with that OS, and I didn't remember seeing those additional formatting options. I might have been inclined to use those notes had I realized I had the ability to make the font bigger and use strike through on them!

Yes, you are correct about allocating the debt and its related interest expense based on how the debt proceeds are used. It's in the interest tracing rules, and a general explanation can be found in Pub 535, chapter 4. It's been a few years but I've had to deal with the interest tracing rules in the past. My client actually had multiple properties that the proceeds were used for: an active rental, 2 separate pieces of raw land that remained undeveloped and were held as investments until sold, and there might have been a small amount of proceeds used personally, I don't remember. I had a spreadsheet to track it all, but luckily for me, this particular client hates to have any kind of debt, so he paid off the loan as soon as he was able and I didn't have your complication when he finally sold those pieces of raw land. What I think you should be looking at are the rules in Reg 1.163-8T. Start at the beginning, obviously, but I think your answers are specifically in paragraphs (j)(2) for the rules of reallocation that then reference back to paragraph (c)(4). Please also see example #2 under paragraph (j). (That's a lowercase J). If I'm interpreting paragraph (j) correctly (a big IF) it seems like you should have reallocated the remaining debt at the time of the second rental's sale in proportion to however its sale proceeds were used, and possibly some of that interest might have been deductible after all, IF the client used it for another rental property, or an investment...anything but personal. Read it and see what you make of it. I'd like to hear how you interpret it and how you'll handle it on the return. (the added link to reg is safe, goes to law.cornell.edu) If you want to read Notice 88-99, I googled that and found that it is a part of the Cumulative Bulletin 1988-2 that can be downloaded as a pdf at the U.S Govt Publishing Office at this website: https://www.gpo.gov/fdsys/granule/GOVPUB-T22-620cc5a588d849c91ff319f0315765f9/GOVPUB-T22-620cc5a588d849c91ff319f0315765f9-2/content-detail.html . That appears to be something to do with the Unicap rules. That would probably have been in reference to your statement about if the interest is "if building", and by that meaning "constructing" or construction period interest. I don't think that would be relevant unless that second rental had some element where the interest was capitalized for a period of time. Pub 535, ch 4 has a more generalized explanation the interest tracing rules, if you want to look at that. Also, in searching for "tracing" on this forum, I found this conversation between you and Jainen that might jog your memory of why you handled the interest in a particular manner. I hope some of my rambling is helpful.

I agree with Sara and would be suspicious of this also. A quick internet search and search of the IRS and SSA sites for that letter's number yielded -0- results. It may be a scam trying to get your information, but you might also consider calling the IRS Professional PTIN Information Line to make sure that your PTIN hasn't been compromised and to verify the number of returns that were filed with your PTIN. That information is available online to EAs but not yet for CPAs, but it may be worth checking.

I like the looks of the specs and features on the unit Terry purchased and would consider that, or something similar, when it's time to replace my current one. HP is always my first choice, and my first LaserJet lasted about 10 years, and my current one made it through its 12th season. It's still pretty speedy and switches easily to the envelopes, duplex, and other layout choices within its popup dialog box. Of course, going paperless has lightened its load tremendously, and printing in duplex is a big savings on paper usage. Prices for these surely have come down though. I paid ~ $650 for it back in 2005, and it's never had a hiccup until the tray 2 main pickup roller was worn. I started using the top tray which is faster anyway, but I'm going to spend a whopping $6 to replace that roller and continue using it until it has some other problem. If it needed the full maintenance kit, that would run around $200, so it would make sense to replace the printer at that point considering its age and the price of the unit Terry just purchased.

Other than changing the colors, there is some limited customizing that is available. The font can't be changed, but text can be formatted by selecting the text to format and then using the Ctrl-I, Ctrl-B, and Ctrl-U for italics, bold and underlining. Also, the size of the note can be made bigger by pointing at a vertical or horizontal edge and dragging it, just like resizing any other window that is open.

Thank you. I thought the question was an interesting one and was the reason I created a topic for it. I was hoping that someone else would join the discussion as I tried to reason this out. I think I might agree with what you are saying and realize that the blog a a form of advertising for another company's products. The blogger earns revenue from the number of views he or she receives. Is that correct? Would you capitalize the website costs with a 3-year life?

Thanks for sharing. It seems funny now, although I bet it was probably exasperating at the time.

I don't think you can go wrong with an HP, Terry, and it seems to be reasonably priced for the speed and features.

Well, this will take the thread further off-topic, and I apologize to the membership for doing that since that is what I was trying to avoid, but I will answer Lion here. I'm most certainly not smarter than some on here, and when I feel unsure or want to double check myself on something, especially in a topic with a lot of disagreement, I may look to reference materials before posting. I don't try to make pronouncements, but try to boil down the answers from only the facts that were given by the OP, in this case it was only 2 posts. My answers are usually short and have a matter-of-fact tone, or if I don't have a lot of time I'll try to at least post a link to something that may say it better than I could anyway. Ms Schiralli also said that she gets tears in her eyes each year she prepares these returns, so the accident and life-changing injuries were sustained some prior year. So yes, sometimes we have to extrapolate from the information actually given to get to the actual fact pattern and the correct answers. Truly my "huh?" was because I didn't understand what you were even getting at with that particular post of yours, and your next one was a list of questions that were mostly related to the OP's issues until you got to HOH and the filing status issue, and I answered each of those in a matter-of-fact tone until your last where I then asked that you not go into other scenarios in order to limit this discussion to answering the OP's question. If you took those answers to be anything other than matter-of-fact, then you read something into my tone that wasn't there. I'm simply trying to keep the discussions on our forum more on topic since there have been complaints in the past about many topics that wander off, and yet here we are again, even with these last posts that are trying to take it astray If you or anyone have other questions or scenarios unrelated to the OPs fact pattern regarding dependency exemptions, the EIC, or any other tax subject that you would like to learn more about, you are always able to start a new topic of your own. With that being said, we need to get this thread back on topic.

OMG, really? Again, please stop with the hypotheticals and reading things into this that no one said ever. First, the fact is that the OP said the older son made $11K in 2015. Take that as a fact that she (yes, the OP is a SHE) is asking about a 2015 return. And second, again, whether or not the older son a student is irrelevant. He can NOT be a qualifying child of the parents because he didn't live with the parents, and he can NOT be a qualifying relative because he exceeded the gross income limitation.

Thanks, I stand corrected. I hardly ever see returns with EIC.