jainen

>>we need a milk carton<< You mean that box eggnog comes in? Haven't seen one in months.

>>The gain is showing on K-1 as Ordinary Income.<< What else would it be? The land was inventory.

>>my insurance company has a sample letter<< I'm sure the insurance company had a team of lawyers approve every word, but I think those last two paragraphs are stupid. If I were on a jury and this was in evidence, I wouldn't give any credence to such a disclaimer. One can't evade responsibility for one's words or actions just by saying so. It sounds like, "Here's the information you needed. I'm giving it to you but I don't expect you to use it. Even if I know it's wrong, I'm not going to tell you." The main thing I like about the letter is that besides saying that I'm not going to say anything important, I don't actually say anything important. Stop after the third paragraph. And send it to the client. Why tell the broker that "we have not established with you any direct or indirect client, contractual or quasi-contractual relationship," when you could simply avoid any relationship at all?

>>it probably will not fly very well with the Underwriter<< Yep, that's the goal. Accountants have been successfully sued for making assertions that banks supposedly relied on in extending credit. Think about it. The reason the client needs the letter is that he can't prove his income. Because there's nothing to prove. And if he's lying to the bank, there's a good chance he lied to you and the IRS too. It's not unreasonable to identify the source of the information you are reporting. Of course, you want your customer to come back and lie to you again next tax season, so you have to soften the tone. But two rules are not negotiable. Only identify the actual forms used, without suggesting why they were used. And only address it to the client, never send anything directly to a mortgage company.

>>Nothing about how profitable he may or may not be, nothing about his solvency, etc. DEFINATELY nothing about how any loan may affect him or his ability to pay the loan, etc<< Nothing even to say he is self-employed. You are not in a position to know whether he is self-employed or not. All you know is that you prepared returns containing Schedule C for his signature, for whatever number of years. That's it. Include a disclaimer that your work is not intended for anything other than tax preparation and is based solely on the client's own unverified representations. Address the letter to your client and let HIM give it to the mortgage company. I charge nothing for such a letter, and I make sure it's worth it.

>>its all BS, nobody really does that. do they?<< I do.

>>he is NOT being forthcoming about any refund<< Fair enough. It's really none of your business anyway. File the amended return and THEN tell him to get lost.

>>>due to arrangements<< What were the arrangements? You didn't mention Form 8332 or equivalent. That's the only "arrangement" the IRS recognizes. Without that, the father can't claim the exemption anyway, and with it he would have no problem anyway (except having to paper file). Whatever is on her return should not affect HIS return in the least. Tell him to get lost.

>>Just kidding<< You wouldn't order your spring coat before you see what the fashion will be, would you? No point in buying a car until you know how much gas is going to cost. Don't support a war if you can't tell who's winning. Why pick a religion until you are dying? So how can anyone possibly decide which software to use before Congress adjourns at the end of the year?

>>after mergers and buy-outs, year by year we are down to a handful<< I can't tell from your post whether you like this fact. Personally, I think it's great. Tax preparers are a small user base with exacting standards, and we could never support thirty competitive products. Give me a big, powerful tax package by a company that can afford to do it right. And don't feel too sorry for the little guy. Most 1980's software developers were praying from the start that they could hang on long enough to GET bought out.

A rental house with a basis of $100,000 was destroyed in Hurricane Katrina. Insurance reimbursement was $200,000. The owner spent $50,000 in repairs and then set up a 1031 exchange for a new house with FMV of $300,000. Does the deferred gain from insurance decrease basis in either the old or new property?

>>I'll try to keep you away from my husband... wondering why I didn't do this three years ago<< Hmmm. Please tell us more.

>>the only area where I could see it even being an issue<< KC, you mean you didn't like ANY of my examples? Let me expand on them. The IRS might not allow a basis step up to a surviving spouse who had previously owned the property and simply added the now-deceased partner to title (i.e., even for MFJ it can make a difference). IRS might not allow an injured spouse to claim a share of community income derived from separate property in a business (another one for MFJ). IRS will not allow a foreign spouse to be added to title without gift tax implications. IRS will not allow a spouse to be identified as a separate property owner for certain partnership transactions. If that's not enough, I can give you lots of others. Sometimes it even works to taxpayer's advantage. IRS won't allow a spouse to become a joint owner during a 1031 exchange. IRS will not allow any additional exclusion under Section 121 for joint ownership compared to a spouse's separate property. IRS will not allow a co-owner of the same sex to take advantage of tax benefits as a spouse. Some of these are in statute; some are in regs and other IRS rulings. Some are new enough to perhaps be the issue at hand, if only we knew the context of Joel's advice.

>>IRS generally has no legal authority to define law<< In theoretical fairness, I'll point out that the original post didn't exactly say the law had changed. Most of tax administration is, well, administrative. The IRS can and does "allow" things not specifically expressed in the law. In fact, until a taxpayer works up to court the IRS can reject some legal rulings. Even in court, the IRS interpretation of a law is likely to carry a lot of weight. Besides, in general language IRS is a broad metaphor for the entire tax system spanning all three branches of government. So I wouldn't simply say Joel's source is wrong. I'd like to know more about the question. One thing I've noticed is that questions about marital assets are often really about breaking up the marriage.

>>you never know when one will turn into a good client<< Thank you. That is my point exactly, although I can see that sarcasm didn't express it very well. Congress did us a big favor with this stimulus rebate and I don't understand why tax preparers resent it. It may or may not stimulate the national economy, but it sure stimulates OUR economy by generating interest in our services. You couldn't get this many hot prospect calls with $10,000 of advertising.

>>Will I be able to make the rent? Is this thing gonna fly?<< http://www.museumoftalkingboards.com/WebOuija.html

>>"Is it OK if I have my son call you from FL?" Good grief.<< It shouldn't take more than three seconds to say, "Thank you, but I never accept referrals to new clients."

>>the IRS no longer allows joint (husband and wife) ownership of rental property<< Title to property is defined under the laws of the separate states, not federal law. The IRS (under Congressional authority) interprets ownership in various ways for purposes of taxation. For example, in certain circumstances you can ignore joint ownership and apply a 100% basis step up when one spouse dies. In other situations tax effects must be determined without regard to community property. Adding a foreign spouse to title can trigger gift tax where you might expect a marital exemption. Related party rules often supersede actual ownership. Saying you were "advised" suggests more than a casual rumor. If you could identify your source and the context of the advice, we might be able to make more sense of it.

>>46 * 15 = 690 minutes / 60 is 11.5 hours<< There is no reason in the world why he needs to spend 15 minutes per call. He can simply say he doesn't want them to contact him until they are ready for him to do the tax return, and hang up.

>>People are much quicker to believe their co-workers, bowling buddies, family members, what they heard on the TV, etc<< People in Ohio? I don't know about that. My clients seem to rely on me and accept my explanations. >>People are treating this rebate as money they are "entitled" to.<< No kidding? I mean, according to Congress they ARE entitled to it. In fact, Congress WANTS them to get the money as a matter of public policy. If your explanations are missing this key point, that may be why your clients are challenging you.

>>every answer I give is challenged<< Why do you think that is?

>>When you amend a corporate employer 1120 (such as a NOL carryback), you don't go back and recalculate employee SEP contributions.<< I suppose that's true. Corporations can't have SEPs so you must be talking about the $45000 limit for all of an employee's defined contribution plans. If I have two jobs and one company recalculates my compensation for some reason, I wouldn't go to the other company a year later and make them redo their 401(k). But this thread (or at least my posts) aren't about the $45000 max, but the 20% calculation. I don't think you can bump up your retirement fund by conveniently forgetting lots of ordinary and necessary expenses which you conveniently remember later, no matter how sincerely you smile.

>>this would not be the case if this was intentionally done as a plan to avoid taxes<< This statement punches a pretty big hole in the argument. Presumably the business owner knew or should have known about business expenses, so how could you say she was not tax-motivated if failing to report them generates a big tax break? I concede that for employees and even the owner in a complicated business, you sometimes don't find out about an excess contribution until after the books are closed at year end. That's why Form 1099-R has codes D and P. You aren't allowed to say "whoops" and still claim the deduction. You have to treat it as an excess contribution if you later learn that it was an excess contribution. To answer the questions in the original post, the instructions to Form 5329 (we do read instructions, don't we?) specifically includes SEPs in its definition of traditional IRA. Taxtoddnyc's reference to a "regular" IRA is not supported in that regard. The one positive interpretation I can offer is that, yes, an excess contribution can be applied to a later year rather than withdrawn, subject to the 6% penalty. I'm most troubled by the suggestion that we can amend selected parts of a tax return without carrying the results to all the related forms and lines. I can't figure out where that idea comes from.

>>What entity do you think works here and why?<< Although the client was concerned about liability protection, MJG's original question was about the tax effects. There really isn't enough info to answer either. In my opinion, the established case law history and formal structure of corporations generally offers greater liability protection. The strengths and weaknesses of limited liability companies have not been fully tested yet. That fact in itself could attract legal challenges, and we can't expect consumer-friendly courts to always give businesses the benefit of the doubt. You might think MJG's farmland has fairly low risk if there is no public access. My county was the location of that tainted spinach a few years ago, where business operations literally killed people across the country. This week a local organic farmer filed a very big suit about a neighbor's pesticide applications. Damages in cases like this far exceed insurance coverage, and I wouldn't count for protection on some standard form filed in the state capitol. It is best to be able to show that the business entity is clearly separate from the owners, with a life of its own. The tax question is the same as ever, when you consider that the LLC is a disregarded entity. Any partnership has the choice of being taxed as a corporation, and being an LLC changes that but a little. And now I'm going on vacation, and won't post anything else for a while.

>>Just ranting... << I must be missing something, because only about one out of ten posts on this topic make any sense at all to me. I wish ALL my clients would remember to call me after tax season and I don't even care why. Some of those calls would save me a whole lot of unbillable time next March, and occasionally some might generate a referral or some audit/collection work. And as to questions about the stimulus, what could be simpler? If you don't have time you just say, "irs.gov." But really, can't you just see the right answer at a glance? Gailtaxed nailed it without even the glance.