Terry D EA

<<<<<<<only the earnings portion would be taxable>>>>> I beg to differ here. Any portion of the distribution that is NOT used for educational purposes is taxable. Not just the earnings. I agree there appears to be some missing information here regarding what the 529 funds were actually used for. Once that is determined, then the distribution in excess of the educational expenses is taxable.

I'm just wondering why discussions regarding the United States tax system are handled in a foreign country???? The last time I spoke to ATX support which was a number of years ago, after a certain hour, you got Bob and Susie from India answering the phone. Sorry and I mean no disrespect but I am not talking to citizens of another country about our tax system. That would be like me giving advice to someone in Portugal or wherever. Just one of the many reasons I left ATX.

Box 1 is the amount of the distribution and Box 2 is the taxable part of that distribution. If your client doesn't meet one of the exceptions and is under the age of 59 1/2 then he is subject to the 10% penalty and 20% Federal tax at the time the distribution was taken. Code 1 is premature distributions with no known exceptions and code 8 is excess contributions plus earnings/excess deferrals taxable in 2017. You are correct the tax and penalties are assessed on the amounts in box 2. What software are you using? That would be helpful to know to further assist you. Use form 8606 for the traditional and Roth IRA contributions.

Thanks everyone. My client does have the paperwork and her ins/broker will be faxing that paperwork to me on Monday. Thanks Judy and Lynn. I didn't see the information at the bottom of the 1099R screen. I guess it has just been a seriously long day. 8:00 PM here, still working and started at 9:00 AM this morning.

Please excuse the title as I couldn't come up with anything to describe this scenario. Client closed an IRA account with Scott Trade and Opened an IRA account with another insurance company in 2017. Scott Trade issued her a check for the total distribution with box 2 marked as the total amount taxable. Code 7 normal distribution no exceptions. My client did open the new IRA account well within the 60 day requirement. The distribution is 21K. What forms do I need to show the 21K was rolled into another similar account? What to do with the 1099R to let the IRS know these funds were rolled into a similar account. I think I remember reading other posts on this subject but can't remember for sure.

Okay I'll give this story a shot. I have been preparing taxes for an elderly couple that lives approximately 35 minutes away. The old guy I am told is terminal (been hearing this since 2008 and he is still here). Usually I make the trip to their home to pickup their documents, return to my office and make a return trip to obtain the signatures and deliver their copies to them. The elderly lady is just plain crazy and a hoarder. Every year she looses or can't find the documents and it has gotten worse as time goes on. Fast forward to this year. The old guy is now hospitalized and the crazy lady is now by herself. First call goes like this her: When can you come pick the documents up and which ones do you need? Me: I can come on Tuesday. Her: okay but you will tell me which documents I need cause you do this all the time so you know what I need. Me: Well I'll see what you have when I get there. I get there pick up what she has. Keep in mind there is only a very narrow path to move anywhere in this place. A week goes by, she calls. Her: When are you coming here to finish the return? Me: Remember I normally take drop offs in the order I get them so I am almost to yours. Her: Well this is important so you be sure to come and I want you to do the return here. After enough conversation, I grab the laptop, printer and off I go. I prepare the return from what she has. I ask about documents from the previous year that she did not give me. Her response: Can you go online and get them? I explain the need to setup accounts for access and I have no idea where to begin to look for stock transactions that may or may not exist (1099 Barter exchanges). Now she says, she gave me everything. So, I print the finished return, gather the signatures (she has POA to sign for her husband) leaver her with her copy. Two days go by and she calls and says: I found the papers you need when can you come get them? Me: Please mail them to me. Her: I'm sick and cannot leave the house so you have to come pick them up. Please call before you come to be sure I am here. With stupid looks on my face that she can't see, I'm thinking if you can't leave the house to mail the *&%^)))) document why should I call to be sure you're there? Okay, I'm a push over at times so I give in and now make the third trip to pick up whatever it is she has. I hate to say it but the additional information will cost her on her return but now I'm kinda enjoying that. Two days go by she calls: Are you coming today? I'm not sure but I thought you said you were coming here today. If you are and I'm sick you know but call to make sure I'm here before you come. What ??? Really??? Are you kidding me???? BTW- her return was never transmitted. I added the new information and am waiting for the next round. Some how I need to get the new 8879 signed and escape for the rest of the year. I think I will tell her that I am out of business when she calls next year.

I agree with Judy totally.

Drake provides a potential looksee for 2018 based on information from the 2017 tax year. The outcome is assuming the tax cuts and job act would be in place for 2017. What I have noticed is for folks to be careful how they use this. The child tax credit always shows the new increased value. But, if a child turns 17 during the 2018 tax year, the calculation does not take that into consideration. Everyone needs to advise their client that is a potential and explain the differences. Other words, don't take the bottom line as comfort zone of what next year looks like. I have been telling client's that I would need to do a full estimate to give them a more accurate picture.

Another way is to right click on the client's name from the personal client manager and then click on search EF database. I find this a bit quicker to do.

Thought of that but, if I amend 2016 to show the entire 9k loss, then there will be taxable income for 2017 for the 6K he received in 2017 correct?

Didn't recognize the episode but it is still Billy Mummy

It is Billy Mummy who played the part of Will Robinson. Now I'm dating myself.

Those expenses are fully deductible on Sch A subject to the threshold limits.

Client is not receiving a K-1 for 2017. The separation date to the best of my knowledge was around May of 2016. The separation agreement was signed on the day of separation. Yes, the restaurant is still in operation.

Just to clear things up a bit. This was and is a restaurant business that both parties entered into equally in 2015 and did not get opened for business until Jan 2016. So, no years of basis increase or decrease only one year. Each party contributed 9k cash. I am fully aware of the what comprises the basis. What I don't know is who determined the stock basis was equal to the 2475 when it should have been the 9K. He has records, receipts and copies of the original agreement and the departing agreement. The K-1 from 2016 was not marked as final. No he has not received a K-1 for 2017. The parting agreement was to repay him the 9k he invested. Yes, this is in writing. He only received 6K which leaves the 3k balance. My client was told he would not receive the 3K as the guy refused to pay him based on a rumor that he was talking poorly to someone about the business which was part of the departing agreement. So, he attempted to sue in small claims court. His attorney advised against it due to the fact it would cost more or just as much in attorney fees, filing fees and aggravation so he dropped the law suit. If I look at the whole picture. In 2016, the K-1 shows a loss of 13K for my client. Due to their basis calculations, he could only take the 2475 as a loss because that is all they reported as his basis on the basis worksheet. My client reported that loss on his 2016 tax return which leaves 6,525 that he should have been able to take in subsequent tax years until all loss had been used and had they reported his basis correctly. He received 6,000 which leaves a loss of 525. That amount is what I really feel is the loss. However, there is the departing agreement that states he was to receive the 9K. Also, if he would receive the full 9K, it would appear he would have 2475 to report as taxable income. What a mess! I don't know who did the accounting for this business and I don't want to know. Yes, the shareholder should track his basis which he did which is also why we have this discrepancy. For 525.00, I say cut your losses and move on. But, can I ignore the departing agreement.

From Pub 502. This would seem to suggest the non-related expenses are deductible regardless of what funds were used to pay them. Workers' compensation. If you received workers' compensation and you deducted medical expenses related to that injury, you must include the workers' compensation in income up to the amount you deducted. If you received workers' compensation, but didn't deduct medical expenses related to that injury, don't include the workers' compensation in your income.

Here is my take on calculating the basis: 1. Original contribution 9,000.00 2. Stock basis 2,475.00 (I do not know where this came from. This was reported on the basis worksheet with the K-1 for 2016 3. Total basis 11,475.00 4. Loss taken in 2016 2,475.00 (reduction in basis leaving the original 9k in basis. Shareholder voluntarily wants out. Agreement in place to return the remaining basis/capital. However, S-Corp never pays the full amount. S-Corp pays 6k leaving 3k that goes to form 4797 as an ordinary loss. Any suggestions???

Shareholder from an S-Corp decided to leave the S-Corp. The shareholder stock basis was 2475.00. The S-Corp experienced a loss of 13K in 2016. So, my client reported the 2475.00 loss on his 2016 tax return. No remaining basis to carry the loss backward or forward. The shareholder originally contributed 9k which should have been his cash basis in the S-Corp. I can't see the books of the S-Corp so I have no idea of how the S-Corp shareholder basis was tracked. The cash investment did not show on the shareholder's basis worksheet for 2016 just the stock basis. The separation agreement stated the shareholder (my client) was to receive the 9k from the S-Corp but only received 6k. My client attempted to collect the remaining 3k and was unsuccessful in doing so. So, can the loss of the 3k be claimed as an ordinary loss reported on form 4797? Any help will be appreciated.

Had a situation like this a few years ago. Same scenario as the OP. I agree with easytax. Domicile is the important thing to determine. Again HOR and domicile are two different things. Look into CA domicile requirements as well.

When reading your post, it does appear that mom gifted the house to the kids. If so, I agree with Lion EA that kids basis is mom's basis. I'm not sure about your calculations for mom's basis. If the house was joint owned at the time of death, why would mom receive a step up in basis? I fail to see how it would be considered an inheritance if it was joint owned. As I see it, mom's basis is 32,000

Yes, form 5329

I think you have to advise the client of the proper steps to take and insist they do so. That is, file the 8919, pay the tax and move on. I agree with Max W and don't like how this looks. I wouldn't touch the corp end unless I had full cooperation, understanding and well specified engagement agreement signed and in place. Your responsibility is to your client and not the corp. Just my 2 cents worth

I missed it too. Lynn's post is the way I have always thought correcting a return was done. Never heard of the IRS accepting a superseded return.

Thanks Max W for the information. It is very helpful. I have already decided to pass on the return. I just wanted to know a bit more. This client gave me the opportunity to look into this so I did. I am not sure that I cannot handle it but really don't want to cut my teeth on this and in all reality, I may not ever see another return like this.

I looked at all of those rules and nothing seems to fit. In my opinion and according to my past experience and the IRS rules, it is a commute. Just wondering if anyone might know something I missed. My explanation to the client was exactly as FDNY's explanation. If I get a fee more folks agreeing, I will tell this guy no deduction and if he insists on me including it anyway (already been suggested) I will send him on his way. Already explained the circular 230 consequences I will face for doing this while all he gets to do is pay back the tax. Well maybe a bit more if they determine it was willful intent. Thanks!!!!