jainen

>>some of the distributions are in fact salary<< Here's some good excuses, though. 1 My wife doesn't draw a salary because she does this as a gift to me. 2 My company provides a public service so I can be considered a volunteer. 3 I have such a great product that it just sells itself. I don't really have to do anything! 4 My skill is so specialized there is no market. Nobody ever gets paid for it. 5 I pay myself at the federal minimum wage rate. 6 I only earn commissions and tips. 7 Since I'm still learning, I treat myself as an unpaid intern. 8 And my favorite (on so many levels): I'm willing to take a chance on being audited.

>>Lunch from 12-1PM<< Knock it off, you guys. This is a professional forum, not a dating club!

>>Am I missing something?<< Yes, you are missing Form SSA-1099 which would show the amount of his Social Security benefit that is qualifying income. See the answer to the question that starts, " I am filling out the special Form 1040A.." at http://www.irs.gov/newsroom/article/0,,id=179181,00.html

>>I have no authority to force a corporation to pay any salary<< There is no question of forcing the corporation to do anything. Your job is simply to fill out the tax return correctly, whatever they do. But you need to understand what they ACTUALLY do, rather than just what they say. If the distributions actually function as a salary, you must treat them as such. There is a good example of what I'm talking about in Reg 1.6694-1(e)(2). This is the authority we have to rely on taxpayer's statements without verification unless we know about an error. Even when the code requires specific documentation, such as meals & entertainment, we only need to be "reasonably satisfied by the taxpayer's representations" that the taxpayer has complied, i.e., that the records exist. We do NOT have to determine whether the records are accurate. In the same way, we do not have to determine whether a wage was reasonable, only that the taxpayer has made such a determination. If the taxpayer is unable or unwilling to provide you the information you need to prepare the return, then you can't prepare the return.

>>these clients pay me very nice monthly accounting fees<< No problem then--any penalties are already covered!

>>tax return preparer’s were exposed to penalty assertions if they prepared returns that reflected a “less-than-market” salary<< Circular 230 does not necessarily require the preparer to determine if a salary is "less than market." We must be careful not to bring such an obligation on ourself. Questions like "What were your job duties?" would be risky in that regard. Even something as innocent as "What would you have to pay someone else to do that job?" means we are endorsing a methodology for setting the wage. Of course, if there is NO wage or only an obviously token one we would have to consider the implications of that. Otherwise, stick to "How did you determine the proper amount of wage?" Document the answer in terms of the client having a reasonable procedure, rather than whether the amount was correct.

>>What should I do in order to protect my SSN from parents who report wrong amounts by using my SSN?<< Decline their business.

>>Does it fall under the "Qualified Real Property Business Indebtedness" clause<< If these properties were used in a rental activity reported on Schedule E they are not a trade or business and the cancellation of debt can not be excluded. If, for example, significant personal services were provided to the tenant or they were rented at a daily rate, they would have been reported on Schedule C.

>>offtimes methinks thou extends us credit overlymuch<< I only assume that you will read my words and form your own opinions. In the other thread I described specific actions to be taken, but I put a clear disclaimer in it. I don't feel I need a disclaimer in this thread because nowhere have I stated an opinion as to how the particular return should be filed.

>>what a funny statement that is<< Why, thank you! Do you really think so? I'm always amazed that more people don't challenge some of the nonsense I post.

>>effective Jan. 9, 2007<< Either you are misreading the notice or something else is going on that you haven't told us. The S-election is effective for the entire year. (That is, unless it was inadvertently TERMINATED on a specific date creating two short years.) Apparently it took the IRS a good while to accept the reasonable cause for the late election

>>Is it really "fair" that he can get taxed on any earnings from this sort of "investment" yet can't claim any losses?<< Of course it is. Totally fair. Nobody changed the rules on him after the fact. For spending $63,000 without investigating tax consequences, he has only himself to blame. If you don't care for the gambling comparison, think about party sales or volunteer work or any other personal activities that don't involve capital assets and aren't operated in a business-like manner. Income always goes on the tax return, losses never do. It's fine to be uncomfortable or sorry about the client's poor judgment, but I believe tax preparers should be committed to truth and accuracy. As I said, this is not the first taxpayer to get green-eyed over such promises. Can you point to ANY authority that supports the theory that investing in an illegal scheme can generate a Schedule A deduction under Section 165 (theft loss)? By the way, did you catch Attorney General Mukasey yesterday, saying "Not every wrong, or even every violation of the law, is a crime"?

>>Anyone know if he can claim some/all of this as a capital gains loss.. or perhaps a "casualty" loss?<< I put pyramid scheme into a search engine and got several dozen hits, mostly court cases. It's obvious the government is not too keen on the activity. No matter what the taxpayer's position, the rulings were always against it. If they made money, it was ordinary income not capital gain (with accuracy penalty). If they lost money, it wasn't a business deduction or theft (with accuracy penalty). One guy invested $145,000 and only got back $60,000--they said he couldn't deduct any theft, but had to pay tax on the $60,000 (with accuracy penalty). The luckiest taxpayer of the bunch WAS allowed to deduct his losses--as wagers not to exceed his gambling income! (Oh, yeah, with accuracy penalty.) So anyway there is some material to research. Hopefully your client has excellent records. I don't know how you define it as a theft if he willingly gave the money to his friend instead of the guys being charged. He knew or should have known it was an illegal plan (the IRS calls it tax evasion), the courts have repeatedly cited various technical theories to hold it is not a capital investment, and it was certainly not a bona fide business. Just a personal fling; maybe gambling is the best comparison after all.

>>If they were going to Alaska<< Well, I'm not a fisherman, but I must assume "black cod" doesn't mean the true black cod, which requires a trip to the south pole. No doubt he means sablefish, which is indeed regulated by that kind of limited permit. They used to hang out in the Bering Sea; maybe climate change is bringing them south.

>>Embezzlement... is my call.<< A somewhat dangerous call. Make sure you are actually taking your client's position and not inserting yourself too far into the marital dispute. Unless your client wants to pursue such an inflammatory charge, I suggest you treat the payout as a division of marital property, cash in exchange for stock rights. As you say, you can't treat it as a corporate expense. I suppose you could call it Box 3 Other Income, but that leaves the basic question unanswered and gives her the right to challenge it. For example, suppose she claims it was an authorized distribution constituting a second class of stock? A highly motivated and unscrupulous former secretary/treasurer just might be able to make that stick. How long does your client want to drag this out?

>>a commercial fishing license, for (I think) blackcod<< Okay, that's not California. He's talking about getting a federal permit to fish up around Alaska. They are limited, so he has to buy it from a private party.

>>discrimination claims qualifying for this new deduction<< What sort of "harassment" was it? Your client was not the direct victim of discrimination except in the sense of work environment. His evaluation apparently related to his involvement in a co-worker's issue. This is what I meant when I said that the original claim may not be what he agreed to in the end.

>>The likelihood that he will be fishing commercially in 15 years is not all that high.<< Not to worry! The lifetime license is only good for sport fishing anyway. He can't amortize it, because he can never place it into service for commercial use so it is not an ordinary and necessary business expense. Actually, at $30,000 he must be referring to some kind of private membership, not a license.

>>lifetime licenses<< As Section 197 property, a license is amortizable over 15 years starting the later of either the month of acquisition or the month placed in service

>>first determine that this is in fact taxable income<< There is really no substitute for reviewing the actual settlement papers. Clients often misunderstand the terminology or other aspects of the legal proceedings. Sometimes what they originally sue for is NOT what they agree to in settlement. And sometimes the costs are mixed up between taxable and non-taxable issues.

>>Today, 08:30 AM<< It's not unusual to wait more than an hour for a response. Legal fees can encompass various matters, so without knowing more about the settlement it is not possible to give a definitive answer. The general answer is that Pub 529 includes "Legal fees related to producing or collecting taxable income" as a miscellaneous deduction to take on Schedule A. http://www.irs.gov/pub/irs-pdf/p529.pdf

>>All you ever wanted to know about the "A-Team"...<< No, sir. You need this link instead. http://www.netflix.com/

>>3 equally good arguments<< I thought Jesus was a hobo. 1. He bathed in the river. 2. The cops were always hassling him. 3. He always found a way to get his wine.

>>print a single post<< You can highlight the specific text you want, then copy it into your word processor. This lets you combine different passages, add notes and formatting, run a spellcheck (!), and save for future work. For a quickie, you can highlight, hit CTRL-P, and choose "Selection" in the print range box of the pop-up window. Different systems may do these things in different ways, so experiment with it.

>>she did not have a case<< Like the A-Team, "I love it when a plan comes together."