jainen

>>Can an LLC become a shareholder of an S-Corporation?<< IRS has been tolerant in letting S-corps correct an inadvertent termination when an LLC became a shareholder. In a few cases they have even let the LLC continue to be a shareholder, treated as a disregarded entity not separate from its members. You need a compelling argument and a Private Letter Ruling, however, so don't take this as a green light.

>>two rounds of rebates<< I don't think it's possible because, according to an email I got from a client on extension, "I heard the Fed ran out of stimulus money so we are out of luck on that." (I replied that it didn't matter because unless he can come up with another 200,000 in deductions, his income is too high anyway.)

>>How do we expect the client to make a winning Pro Se presentation without denying her disability??<< The disability status refers to her inability to hold gainful employment, not that she is unable to function at all. If she is properly coached, perhaps she can page through the presentation. She can have a personal assistant, and it might even be possible to call the tax preparer as a witness to the factors used in filing the return. And if she CAN'T make the presentation, the judge will be able to correlate the medical records with what is before his eyes. Come on, guys. You know IRS is bluffing. They just want to keep as big a backlog as possible so they can put off dealing with all the banks and brokerages collapsing.

>>S Case procedures work out better for a Pro Se taxpayer<< Well, your client IS pro se unless you happen to be admitted to practice before the court. Since your whole problem is that the IRS refuses your evidence, the relaxed rules in an S-case might benefit you. For example, your doctors' statements and the Social Security ruling are technically hearsay because the authors are not present for cross-examination. Besides, the IRS knows you will accept the tax court decision as final. By the way, you want to document all your IRS contacts and compliance so the legal burden of proof shifts to the IRS in court. Tactfully remind the Appeals officer that you won't have to prove disability, he will have to prove non-disability.

>>I really thought this was a slam dunk for my client<< Nothing is a slam dunk because the IRS likes to play "chicken" (and they are really good at it). Probably they know they can't win if this gets as far as court but are betting that you aren't really prepared to handle a lawsuit. If you can present a coherent case, Appeals may back down. Possibly the greatest weakness in your case is that she took the money out BEFORE she was ruled to be disabled. You need to get on top of the dates of actual diagnosis, including the onset of the disability. The IRS will stand firm on this--you must address it in great detail (unless of course the details don't support your position!) Another issue the IRS succeeds with is the definition of "indefinite." You won't find any authority for your position until you turn to the definitions used for "temporary" employment away from home. That takes sophisticated analysis which is another thing the IRS is really good at. With luck the Social Security ruling will be enough because the IRS knows she went to appeals there also. Hit hard with that judge's description and hope the IRS doesn't think it was too narrow. A case from two years ago might be helpful in the Appeals office. Unfortunately it's hard or impossible to cite in tax court because it's only a summary opinion, although you can copy its reasoning and language. In Rideaux v. Commissioner, TC Summary Opinion 2006-74, the taxpayer received a 1099-R with no known exception. The court interpreted Sec. 1.72-17A(f)(1) to mean "the impairment must be evaluated in terms of whether it does, in fact, prevent the individual from engaging in his customary, or any comparable, substantial gainful activity considering the individual's education, training, and work experience." It concluded that, "despite the distribution classification on the Form 1099-R, petitioner has provided sufficient evidence to show that he was disabled at the time of the distribution." You might think this ruling is right on, but actually the 1099 is a red herring. The IRS WANTS you to focus on that because they know you can't get it fixed. In reality, the direct evidence of the taxpayer's own physician is far more important than the hearsay evidence of a payroll clerk.

>>it is available to both of them 24/7, therefore it's 50% business and 50% personal<< Available? I'm not sure which code section that comes from, but I like it! My car is available for business use 24/7, so it must be 50% deductible too.

>>I stand corrected<< Our first posts overlapped, mchampine. Originally I called it 15-year property, but when I saw your post I edited mine to read 15-year recovery. Land improvements are 20-year property with a GDS recovery period of 15 years. >>what happens to allowed or allowable if he sells the property and has not taken the deduction.?<< In that case, we say the principal purpose of the road is for the home. De minimus usage by the tenant does not convert it to business property!

>>Am I being too strict?<< Yes. "Necessary" does not mean the business would fail without it, just that it is an appropriate expense that contributes to the business operations. In this case, providing four-season access for the tenant probably is required anyway. Assuming the cost is reasonable in proportion to the income, you would reduce the basis to the percent of business use. Land improvements have 15-year recovery. Although this is what the client has asked for, it could affect the Section 121 exclusion if he sells his home.

>>donating time and product for "advertising" and being connected to these "green" projects<< Any receipt issued by your client would need to identify advertising and referrals as goods or services received in exchange for the donations.

>>the only info I could find was on overcontributions due to highly compensated employees, and not in regards to a solo K<< The definition of highly compensated employee includes ownership as well as compensation.

>>sale to the LLC<< It would be hard to structure this in any way that was not a sham transaction, especially if the "sellers" carried or guaranteed a mortgage for the "buyer." Anyway, since the partnership would hold the property as a rental the partners would recognize ordinary income, not "gain," so there would be nothing to exclude.

>>this doesn’t happen every day<< Email from staff member to spouse: We just heard a rumor that the boss's son disappeared right before lunch. He only went out for two minutes to park the new car. There was supposedly a memo but we don't see that very often. Anyway, the boss is mad because it's costing a lot of money, so we all have to play it safe for now. I'm probably not going to get out of here until ten or eleven tonight.

>>Life is the coffee, and the jobs, money and position in society are the cups.<< Well, that explains a lot. I've been getting this exactly backwards all these years.

>>new preparer penalties<< Follow Tom's advice and you won't have to worry.

>>It seems like I should file a 1040x<< No, it goes on the current year as either a deduction or a credit. See "repayments" on page 33 of Pub 525 http://www.irs.gov/pub/irs-pdf/p525.pdf

>>I had 3 this season alone. << Wow. I wonder if there is something confusing about your filing instructions or the way you package client copies.

>>he got divorced last year and "just left."<< Document your advice that he must amend the prior years. Although you are not required to prepare the amendments, don't even take on 2007 unless he is ready to get serious about it. Tactfully remind him that there is at least one person with very adverse interests who knows he cheats on his taxes. (It's none of my business, but that's probably one of the reasons she kicked the bum out!) Speaking of financial malfeasance, it's a good idea to charge this new client up front. Tell him "purely cash" is acceptable. In my opinion, he needs a whole lot more than "low-end reasonable estimates." It is not too much work to remember who his clients are, what dates he worked, and how much he charges. He also knows exactly what equipment he bought and what it cost. Have him reconstruct it on a calendar and then compile it in a proper P&L statement. Only meals and transportation require specific records, but don't take any other expenses he can't support like telephone, gifts, or supplies. And remember that most of his DJ stuff is listed property, so he needs to account for any personal use. By the way, have you thought about how you are going to handle the community property issues?

>>opinions from fellow preparers<< I'm not clear if you are seeking more than one opinion per fellow. To be safe, I'll give you another which you may ignore if I have exceeded my limit. Although it is an election year so everybody of course is very expressive that government handouts are bad, it is my observation that privately everyone wants as much as they can finagle from the public purse. If your client is of that preference, I would not feel uncomfortable allowing the $900 as the tax basis for the abandoned property. That number would not be too hard to defend either as FMV or as additional capital investment. (I admit this is merely a variation of kc's opinion, but I didn't want to put much effort into a new idea that I already told you to ignore.)

>>the mobile home park informed her that it was too old<< It would seem she never could have had a realistic expectation of renting it. And honestly, a thousand bucks wouldn't be enough for more than cleanup and minor cosmetic repairs. Since it obviously had only a de minimus FMV and she failed to establish a basis anyway, I don't think she has anything to report on her tax return.

>>It was sitting there just waiting for the letter to arrive.<< That should have been obvious to you from the start, Tom. I mean, you can't expect them to just GUESS that the taxpayer wants his refund.

>>The final regulation also defines the terms "custody" and "custodial parent" for purposes of Code Sec. 152(e)<< Be careful with this. It only applies to section (e), not (c ) qualifying child or (d) qualifying relative. There are no regs for QC and QR yet, so we can't say, for example, that counting nights determines the "principal place of abode." Form 8332 only works when one or both parents have both legal and physical custody, which usually means Qualifying Child, but I expect we will have some conflicts. For one thing, it only applies if the parents themselves are supporting the child--when Grandma or Social Security or welfare is paying the bills, the 8332 is not valid. Many other interesting matters to consider here, like nights don't count after child turns 18.

>>How do I get the money back from FTB?<< Send 'em a letter.

>>but arms length, written transactions are a good piece of evidence<< I agree. If you can get the buyer to accept the business property with minimal basis, you might have something. Of course, the lender's appraiser and the county assessor might have an opinion too.

>>he certainly can exclude all portions that were not so used<< I wouldn't be too aggressive with that position. The 80 acres were acquired as a unit in a separate transaction. There may be parts that are not directly used for farm activities such as planting, livestock, maintenance, or storage. But open space used as a buffer, watershed, or even viewscapes are part of the farm too. Unless there was some positive action to convert the acknowledged farmland to a home, I wouldn't include it under Section 121. The kind of positive actions I am speaking of include physical things like fencing, landscaping, and non-farm outbuildings, but also intangible evidence of intent like filing for lot splits with appropriate reassessment, financing as residential property, and basis adjustment for depreciation.

>>post a link or a referral to the reg<< Sorry, I should have, but it's exactly where you would expect it, Section 1.152-4(e). "(ii) Form designated by IRS. A written declaration may be made on Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or successor form designated by the IRS. A written declaration not on the form designated by the IRS must conform to the substance of that form and must be a document executed for the sole purpose of serving as a written declaration under this section. A court order or decree or a separation agreement may not serve as a written declaration. " If you can find Tax Decisions, TD-9408 has the background. It's worth reading because it also explains "counting nights" to determine who is the custodial parent. Effective date: 7/2/08