jainen

>>I am going to grow up to be just like you!!!!!<< You mean, old? I was born Sep. 20, 1948.

>>I need to collect my fees either with for the 2007 tax returns or up front<< I think you should do this one pro bono. The poor guy has enough problems already.

>>then he take his third and exchange it<< Sure--if he HOLDS it for business or investment use over a couple of years first. Or the partnership can (if they are very careful) do the exchange now and hold the replacement property for a couple of years, and then distribute it. But he can't use Section 1031 with a partnership interest, and he can't change ownership in the middle of an exchange.

>>I am not touching this with a ten foot pole<< You can beat this one with a short stick, Tom. The stick is called "partnership." Anytime you see that word, you don't have a 1031 exchange.

>>Oray would have a recognized gain to report of $ 30,000<< In most cases the tax code restricts transactions that are primarily motivated by tax avoidance. Section 1031 is a remarkable exception in that tax avoidance is the ONLY motivation. It seems to me that Oray and Ardel have substantial other reasons for this trade, including providing permanent housing for a family member, and may do it regardless of the tax effect. You sound comfortable with the numbers, but truly they can only be evaluated in the context of the personal goals. For example, if Oray wants to maximize Section 121 the tax-free exchange may interfere. He is trading $370,000 property for $215,000 cash & property. Since the house is 1/3 of the value, about $75,000 of the acquisition value must be allocated to the personal side, a gain of only $25,000, not $90,000. Meanwhile, the large gift element refutes the investment purposes necessary for a successful 1031 exchange. The role of an attorney is not simply to fill out a form (and by the way, none would ever agree to set this up as "a single legal document"). To get this right, you need your client's attorney BEFORE you decide how to do it.

>>What specific problems do you see with this approach?<< The main problem I see in your description is the total absence of the expert's personal guidance that I mentioned.

>> is it always required that the properties exchanged be of equal FMV? << Section 1031 is extremely flexible. You can "trade up" by getting a loan or adding other money or property, and you can "trade down" by taking out cash, loan, or property boot for any purpose whatsoever. A common variation is to trade into multiple properties that can be sold off separately. Form 8824 is a horribly difficult worksheet, but it will strip out all the non-qualifying parts of the transaction and still give tax deferral. As to whether you can gift a part of the taxable exchange values--the answer is yes, but it is a complex process that requires an expert's personal guidance. Such an advisor might be an EXPERIENCED Realtor, an attorney or accountant who SPECIALIZES in real estate taxation, or (for more general answers only) the Qualified Intermediary. Although the portion of the property allocated to a personal residence is not of like kind for the transferor, it can still be 1031 property for the new owner if he will use it as rental, business, or investment property.

>>I never heard of someone keeping homes/houses as inventory<< What else would you call buying something specifically to sell at a markup in the ordinary course of business?

>>She would have to change a bunch of them if they were all wrong<< Subpoenas often have technical flaws; no doubt many are intentional. What exactly is your goal in all this? Surely you aren't committed to protecting your deadbeat former clients. Why would you not comply with a lawful order and help these people stop the jerk from hurting anyone else?

>>Those instructions came directly from the IRS<< It may have come from an IRS employee but it directly contradicts official IRS policy. Section 10.27 of Circular 230 (at http://www.irs.gov/pub/irs-utl/pcir230.pdf) is quite specific that if you have already given the client his tax return, the fact that he didn't pay is irrelevant. In any case, I wouldn't suggest you ignore a subpoena or reply in such a contemptuous way without advice from an attorney.

>>So the bankruptcy may not cover all assets.<< I don't understand how that works. If I were a lender, I would object mightily to a plan that extinguished my debt while letting the debtor keep the assets he bought with my money.

>>any loss arising from theft is allowable as a deduction<< A new case gives some perspective on this question. In TC Memo 2008-212, the taxpayer put money in an investment that soon went bust. The SEC waded in slinging subpoenas around and charging "massive fraud," and at least one of the perps actually copped to doing the dirty. But this was a CIVIL enforcement, while theft is a CRIMINAL matter. Nobody proved criminal knowledge or intent, so it could not be called a theft and was only deductible as a capital loss. Another factor was that the middleman was the one who misrepresented the investment, but the money was given to the principals.

>>insolvency to escape cancellation of debt income<< Insolvency is not relevant when the debts are discharged in bankruptcy. He may have other issues, however--a basis adjustment may trigger capital gains. Also the referee may not let him walk away if he still has substantial assets, especially if the lenders can show he did not act in good faith by pulling out equity prior to filing the BK.

>>attch an explanation to the tax return<< Penalty for late filing can be abated for reasonable cause.

>>remember he did that and closed the corp 2 years before the irs made this assessment<< I didn't forget that. Nor the fact that one reason he was able to score thirty grand plus equipment was that his OWN books did not correctly reflect income and expense. Nor the fact that another reason is that he filed his tax return claiming deductions he knew or should have known he could not support. Nor the fact that even he agreed with the IRS on the first point and offered no evidence against the second. Take it to Appeals, and good luck.

>>is the shareholder judgement proof<< According to Wikipedia, http://en.wikipedia.org/wiki/Judgment_proof , the term means that collection is impossible even with a judgment because the person is flat broke. It doesn't mean they are not liable. You still haven't explained whether the owner took any assets out of the closed business, or chose to pay off other creditors instead of taxes. The IRS doesn't like either of those scenarios.

>>asking once if we had any documentation<< If you answered anything other than "certainly!' then there wouldn't be anything else to discuss on the matter. Look at Bulldog Tom's post this morning, "Gomez Case." When the law requires specific documentation, it is not enough to merely have a bona fide expense. On the other hand, I would be hopeful that Appeals can accept reconstructed records even this late, as long as they are not obviously bogus.

>>the letter did not have the required language<< The taxpayer's church, the Apostolic Assembly of the Faith in Christ Jesus, believes that God is "inconceivable in His way of being, and indescribable in essence." So how is anyone supposed to get a danged receipt?

>>obviously he had to go to japan to shoot scenes of japan, right?<< Ah, the "Cohen" rule--a reasonable estimate should be used if he proves that some expense was incurred. Unfortunately, it isn't allowed for travel expenses because the tax code calls for specific documentation. I presume you tried to reconstruct records from available information. That sometimes works, but usually not if the taxpayer is otherwise uncooperative.

>>the company honestly closed<< Since honesty is the controlling factor, then of course the owner wouldn't want to take any assets personally while leaving legitimate debts unpaid, or even favor certain creditors over others. And plainly an honest person wouldn't want to hide behind an accounting error. I don't know what the problem about travel is, but the regs for that are so specific that it is generally easy to prove. (Obviously if one chose NOT to follow the regs, e.g., keep good contemporaneous records, then an honest person would not wish to have it both ways.) There are undoubtedly situations when an honest person would refuse to cooperate with the IRS, but they are always a matter of principle for which one must sacrifice the financial position. So I honestly think it best for your client to pay the tax bill.

>>i can't get the deduction on the 4562<< The election is to EXPENSE up to $5000 of organizational costs. You only amortize amounts exceeding that. The election is only available on corporate returns, not Form 1040.

>>I don't see where there is a problem << Suppose you really get into what your relative is doing and decide to fund him for the whole year! He looks great totin' that book at two large a month, until he gets in country where a Blackwater recruiter shows him how to make five times the scratch totin' an AK-47. Are you going to get your money back? Of course not, because you made an unrestricted gift to the missionary society and they can do anything they darn well please with it, specifically, cover admin expenses (that is, their own salaries) for training up a replacement. And, you know, that's a pretty common scenario; I didn't just make it up. So check out the organization in Pub 78, and then move on to something really important like is the taxpayer donating underwear to Goodwill.

>>Rich Boyfriend 1.0 is uninstalled<< I believe Rich Boyfriend is a stand-alone program that doesn't require support. I've tried to register several times, but I always end up as an NPC.

>>it's only for a primary residence<< This law only applies to recourse loans. Many mortgages used to purchase a primary residence are non-recourse in their terms or by state law. Furthermore, any excluded debt relief reduces the basis of the property. This may cause the taxpayer to realize capital gain, especially if the property had been depreciated as a rental or office in home.

>>IF ITS JUST the returns they want they can get them just as easily from the irs<< I'm not sure that's true. The IRS is probably not subject to the subpoena power of a local court. Note that this is NOT the client requesting copies, but somebody who is suing the client and has reason to consider necpa a material witness or in possession of evidence. We have no clue about the case--for all we know it might involve the client filing a tax return other than what the preparer signed. There are no new privacy rules for this, necpa. Tax returns are intended to be distributed to a third party (the IRS), so not even an attorney can claim such documents are privileged work product. If you don't make them available you may be jailed for contempt of court. So call your client and find out what the story is and whether he will formally challenge the subpoena. Remind him you can't assist his side until he pays the outstanding bill. Then call the other guy and tell him when it will be convenient for you to have him pick up the forms, with $25 in cash.