jainen

>>Get a new system with the fastest quad-core processor, at least 8GB of RAM, and a 1GB video card<< Yeah, but don't forget to also upgrade your pencil. Dixon Ticonderoga, no ka oi.

>>She decided it is a hobby<< I wish there were a better word for activities that have a profit motive but don't rise to the level of business activity. At least now that she understands the issues, did you make an appointment for May to discuss forming an LLC or other structure to operate as a bona fide business? Just takes a bit of horse-sense!

>>without the balance sheet being entered it is not showing up on the K1<< This is a problem with your data entry or other software issue, so you should contact TurboTax. I apologize for my passionate colleagues on this board, jsmith7412. Normally we are all very sweet to new members. You just happened to wander into another software problem here this week.

>>I'm trying to keep my personal view limited<< The view you describe already sounds more professional than personal. You say it is based on her having another full-time job, some winnings but less than expenses, very good records, element of pleasure--all appropriate considerations for a professional view. Now read about those and others in Pub 535. See if her very good records include separate business bank account and credit card, market research and a business plan, license and insurance. If you are still uncomfortable, there are some interesting court cases to research. Usually the taxpayer lost, whether racing animals or machines, but sometimes the court commented on the determining factors. If you are STILL uncomfortable, just file Form 5213 and relax for seven years.

>>I want to be sure of the legality, tax code wise,<< With all the screwball ideas we suggest on this forum, why stumble on reporting a Social Security number? Well don't worry--if you get caught we'll all send e-mails to the judge!

>>I am unable to find anything from IRS about this.<< Pub 596 is written in very simple terms, so it doesn't carry much weight. But it does quite clearly explain that if you don't have an SSN, you can still get EIC later. "If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return, to claim the EIC. " This assumes, of course, that you are eligible for an SSN, so it's really only talking about the current year. I don't know how the IRS would look at prior years, because an ITIN is only supposed to be used by people not eligible for an SSN.

>>a couple of months later a new agents sends out an IDR to examine 2007 & 2008<< Yeah,it seems like a cheap shot. But why did they take it? Hopefully they just want to pressure the taxpayer into a settlement, "months" being longer than scheduled. Or maybe his appeal generated a better look at the guy, whereupon they decided he deserves an even more better look! I recommend you call 'em up and ask what's going on.

>>quit complaining about getting what you wished for and paid for.<< Thanks, Frannie. I appreciate your attitude. I use Lacerte because someone else tells me to. But I used to open with a Roar, and I still love this forum where everyone is so smart and conscientious about applying tax law. That's why I'm confused that so many get tripped up by the process. ATX is low-end for professionals, so you have to be flexible about its limitations. This year was particularly difficult, but cheap annual updates are always a challenge. If it makes you guys feel better, Lacerte just issued an update for 2011!

>>certain retention of control would allow the grantor to report the sale of house and use the Sec 121 exclusion<< Well, yes, but that may be more complicated than you want to get into. First of all, you are going to have to READ the trust document and see exactly what the relationship between grantor and trust actually is. Here's how Quickfinder describes one common scenario, as interpreted by Letter Ruling 200104005. "A married couple originally set up a revocable trust that included their primary residence. Upon the death of one spouse, the residence was transferred into an irrevocable trust that provided the surviving spouse a withdrawal power up to the greater of $5000 or 5% of the trust principal each year (five-or-five power). When the trust sold the house, the taxpayer (surviving spouse) could only exclude gain to the extent that he was deemed to own a portion of the residence through the annual five-or-five power."

>>Can an irrevocable trust be a grantor trust?<< Obviously all trusts have a grantor. It's only called a grantor trust if the grantor retains control over the trustee, including the right to amend or terminate the trust.

>>both could / should claim their portions<< On a different issue, whether married or not they can only deduct interest on TOTAL acquisition mortgage of $1,000,000 plus total equity mortgage of $100,000. That's per residence regardless of the number of separate taxpayers.

>>not much you can do at this point<< I don't agree with this. There is plenty to do when you get out of personality mode. (I don't mean that personality mode won't be perfect for your next audit!) If the auditor's purpose is to upset you so you can't think straight, she's good at her job. But you can make it backfire, because her bottom line is closing the case as soon as possible. So, you know, extra detail takes extra time to respond. And when you do get back in, either the client was right all along or it's just a minor detail that you can argue Cohan rule or even concede with little damage. Every line? Nonsense. Most lines are blank, right? That's because (maybe you can say) the taxpayer didn't load up on deductions for everything under the sun. Only claimed the ordinary and necessary stuff, and overall conducted business in a prudent and thrifty way. I don't have a problem with 40%. I've seen higher--artist studios for example. It's usually easy to prove with photos, but also usually easy to concede without much tax effect. Pick your battles carefully. Dig in on one or two larger issues of tax theory rather than documentation, so the auditor knows you are prepared to appeal. But also bring the client in with a checkbook and offer to close immediately, agreed and paid.

>>the Prometric RTRP fees that people paid to schedule and take the test<< Gee, I guess people can't deduct those fees for an illegal program! Not ordinary and necessary. Please, can you all just settle down? There's going to be registration in the end, and it's going to be worse next time. The first thing Congress will ask is, why only $63? They'll probably require a $10,000 bond and 20 hours CPE like California does. And no corporations or partnerships until the new test is developed. Then you all can be upset.

>>Can we ask, or demand, a different auditor and supervisor?<< You can ask--I don't recommend trying to demand something from IRS. Your chances are lousy unless you have some pretty solid evidence. Pub 556 explains the audit procedures they are supposed to follow, and your rights to appeal or call the Taxpayer Advocate. But "being extremely intense about every single detail of every line" is a common audit technique. It doesn't necessarily mean they are picking on you. These guys are federal bureaucrats; they have plenty of office politics without bringing in their own private lives. I'd guess it more likely that your client is actually in trouble on Schedule C, so I recommend you focus on that. Whatever the result, you can take it to Appeals which has a different supervisor.

>>There are a few paths that may be taken: Congress may pass a law and give the IRS the authority and/or The IRS will appeal to the D.C. Circuit Court<< I can think of another way. IRS could simply ignore the ruling, leave everything in place except have registration be voluntary. That's how it is with enrolled agents. By next year, H&R Block and other large employers would have ads that emphasize how trained and tested their preparers all are. Then how could an unregistered preparer answer the clients' obvious question?

>>I just did not see how it was possible for a family of 4 to live on this income<< Maybe you can't see it, but 46 million Americans live in poverty (less than $23,000 for a family of four). That's one in six, so obviously it can be done. At least the gentleman is earning significantly more than minimum wage. All you have to do is fill out the worksheet and answer the questions. If you have reason to think his housing costs, for example, are too high for his income, you can inquire further. Perhaps he has some non-taxable arrangement for help. But remember, there is NO support requirement for claiming EIC.

>>living as man and wife via appearances if not declaration<< Sure, why can't you claim the "substance over form doctrine"? Well, in my opinion of 37 years, for marriage the declaration is fundamental to the substance. Your mileage may vary. As for the child, I believe that someone who is not a parent is different from someone who is a parent. In the old days you could claim a foster child for "one who is in your care that you care for as your own child." But a couple of years before federal law implemented uniform definition of child, California Franchise Tax Board began disallowing Head of Household based on an unmarried partner's child. Despite a reputation for being tolerant of casual family relationships, California said that when a natural parent is present, it is not possible to care for an unrelated child as your own. In my observation, that is true.

>>What's wrong with HRB to advertise that they can prepare returns with paycheck stubs?<< Why ask me? I'm just going to tell you to do it the way IRS says. As for HRB, you aren't citing an actual ad so I don't believe they are making such an offer. We can all prepare a draft so the client knows what to expect when the W-2 comes, and we can all use the new pdf w-2s if available, and we can all use Form 4852 if required conditions are met. If that's not good enough, I'm not going to bother. Do it the way the IRS says.

>>an independent contractor will be able to use it without detailed recordkeeping<< You mean cleaning and repair receipts? That's usually about all there is besides utility bills, 1098, and tax bills. The real benefit accrues to the IRS, which now has a simplified audit for one of the biggest red flags.

>>pray the House goes Democrat<< I think it is a stupid ruling that will not stand. Lawyers of course love to play word games, and the judge makes a big deal about what "case" means and so on. But whenever I see "flip-flop," I know it is just political posturing. It's so much fun to stick it to the IRS! IRS will prevail on its basic argument that it has inherent authority to administer its own business. Courts have interpreted this very broadly for decades. IRS will also ask Congress for support--and will get it. Republicans rail about over-regulation, but they don't actually vote that way. In particular, they have come down incredibly hard on the financial services industry. Gramm, Leach, and Bliley are all Republicans. Besides, RTRP targets tax prep mills that churn out low income returns for independent contractors, EIC, dependents, and other problem areas that nobody in Congress is comfortable with. It has little effect on campaign-contributing corporations and investors who typically use a CPA or EA. So when the new law goes through, it's going to mean a lot more than just 15 hours a year.

>>what can be disclosed, and what kind of client permission is needed<< Everything, and nothing. Unless the client challenges the subpoena in court, it's impossible for the tax preparer to refuse. Even an attorney can not claim client privilege, because tax returns are intended for a third party (the IRS). An attorney can protect tax planning, but nothing that went into the tax return itself. CPAs and EAs can also protect planning, but only within IRS. The best you can do is charge a reasonable copy fee, like 25 cents a page (and keep their dirty mitts off the originals). So notify your client that you intend to comply by the due date, and tell him to call his lawyer immediately. Then call your own lawyer or E&O insurance. Divorce---aargh!

>>she has been offered the opportunity to add her fiance's son and daughter as stepchildren to her coverage<< Apparently she is not waiting for marriage. If she has shacked up for more than a year, that qualifies as domestic partner (and children) in many states that have changed their insurance laws to allow coverage. This is just for insurance, not all the rights registered domestic partners have. It's pretty common in big corporations and certain industries that offer comprehensive benefits. It can be confusing, but fortunately our tax dollars are helping us find the way--http://www.hhs.gov/news/press/2012pres/02/20120207b.html

Sounds like we're all ready for tax season--at least we've got healthy attitudes!

>>reasonable and easily verified requirements<< Because it can be used for recreational purposes, a cat is listed property. No deduction allowed unless you keep a contemporaneous log book of time spent playing with a string.

>><costing her a few hundred dollars to go visit and fill up that jail commisary account for personal needs.< And why not? In my opinion, incarceration shouldn't count in the dependency calculation, because the fair market rental value of such housing is almost zero, due to low tenant demand.