jainen

>>a 10-day grace period<< The problem goes back to Creation. It seems things didn't fit exactly together, so the way the earth spins does not evenly match its orbit around the sun. It's not off by much, but it adds up. In 1582 His Grace Pope Gregory XIII bumped everything forward 10 days. It works out that if your baby was born during the first ten days on the Gregorian calendar, it was within the last ten days on the old calendar from Julius Caesar. The IRS is not allowed to favor one religion over the other, so if you file by April 5th you should be fine.

>>I see no restriction that he must "own" the home.<< Read the instructions to Form 5695: "your main home that you owned." Or read the tax code Section 25C, "a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence."

>>there was no audit<< CP2000 is an audit. Apparently the proposed tax has already been assessed, the time to appeal or file in tax court has passed, and the taxpayer has agreed in writing to pay it.. He can still file in District Court, but this is a difficult situation to resolve in the taxpayer's favor. The IRS can literally ignore anything you ask about. The MAY pay attention if he has a very compelling story, but he doesn't get much sympathy for using a lousy cheapo untrained preparer. If there is a lot of money at stake, I'd turn it over to one of the law firms that specialize in fighting the IRS. Otherwise, pay what he agreed to.

>>I thought tuition and Books, supplies also counted toward the life time learning credit<< According to Pub 970, "books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance." The American Opportunity Credit allows them even if they are not bought from the school itself, but the Lifetime Learning Credit still does not allow most books and supplies.

>>the foster child was taken out of that home<< If this child was actually in the system, he is probably an "eligible foster child," claimed as a qualifying child.

>>That is why the W-9 always had a box for C Corp and S Corp.<< Since I don't do payroll-type stuff, this is kind of a new question for me. I might be getting it wrong. But looking at the prior W-9 at http://www.irs.gov/pub/irs-prior/fw9--2007.pdf, there is NO box for S-Corp. Instructions to the latest version at http://www.irs.gov/pub/irs-pdf/iw9.pdf say what is new is the S-Corp checkbox because S-Corps are no longer exempt from backup withholding and will have new broker reporting requirements for stock sales. Something like that, anyway.

>>nothing was mentioned as far as S Corps being exempt<< How are you supposed to know whether a corporation has made a particular election on its income tax return? On the other hand, how are you supposed to know whether an LLC has made a particular election on its income tax return? You don't have to 1099 a corporation. But an LLC is not a corporation.

>>the Pub I mentioned earlier stated to use the 540 NR<< Yes, I got that wrong. I also was technically wrong in thinking the spouse's share of community income was California source. But you still must include it in Column E with California source income. That's the answer to your original question. You adjust for the service member's non-taxable half of military pay in Column E. There is no actual place on the form to enter the excluded amount. Just put whatever is taxable as California income in Column E. Again, do not subtract 1/2 the military pay in Column B. Military wages are taxed the same as federal under California law. That column is for things like Social Security, which California does not tax in any circumstances. See the explanation for Column B and C in the instructions to Schedule CA(540NR) at https://www.ftb.ca.g..._540nrcains.pdf

>>military pay is not California source income when a service member is permanently stationed outside of CA<< It is, however, community property income because the service member is domiciled in California and the spouse is a California resident. I didn't quite follow the data entry issue in the original post; I agree with Bulldog Tom that they should be filing CA540 instead of the 540NR. In any case, the spouse owes California tax on half that military pay whether a separate or joint return.

>>they had rec'd the funding thru the state... they should have been filing a 990 annually<< They can't have it both ways, taking public money while keeping their books secret. They are subject to audit by the funding agency, and their tax returns must be open to public inspection. File ALL required returns to start the statute of limitations, like any other taxpayer.

>>My client has not been fraudulent.<< That is why you must find out what the "fee" was for. All you have told us so far is that the state investigators determined the business owners were accountable for participation in a fraudulent scheme to cheat employees covered by the health plan, but they sold the business and dissolved the partnership before they were found out. Apparently without any documentation you have accepted their self-serving story that it was all somebody else's fault, although that argument obviously did not impress the investigators who DID have documentation. For some reason, your client decided to settle with the state rather than contest its position, and now he wants your help getting reimbursed from the rest of us taxpayers. At least, that's how I see it.

>>first it is assessing fees<< First, what are those fees for? Just because he paid some government agency in connection with a fraud investigation, doesn't mean it was an ordinary and necessary expense of running a nursing home. If it was, why weren't the buyers liable for the obligations of the business they took over? If he didn't tell the buyer about the shady practices--apparently the state considers all participants to be responsible, so he at least knew or should have known--then maybe the price was too high and this can be an adjustment to capital basis or sales price. Maybe it's a personal investment expense, or maybe it's just nothing. Make him prove it. I'm never very sympathetic to clients on the opposite side of fraud investigators. Anyway, even if UPE were right for an ordinary expense, would the tax effect be enough to risk attracting attention?. How good is the documentation, on this point and the rest of the return?

>>plus there is the whole question about the loss in value<< And did you ask him about the "identifiable event"? That might be an interesting story!

>>length of time the buisness has been in operation<< The only honest response is that you do not know whether the client has EVER been in business. You can't even guarantee that the IRS would agree he is self-employed, and you sure don't know what the bank's underwriting standards are, so why would you allow them to base lending decisions on YOUR signature? Simply say that you have prepared and e-filed tax returns which include Schedule C, the form normally used to report self-employment income. Period.

>>Dad cannot actively farm<< According to Pub 925, "You materially participated in a trade or business activity for a tax year if you... materially participated in the activity for any 5 (whether or not consecutive) of the 10 immediately preceding tax years."

>>That helps me on answering his question<< Well, fine, but I hope it doesn't convince you! Ordinary and necessary does not mean required. Presumably he is a small independent whose business model might very well call for being armed. Not his entire collection, but he probably has certain tools of the trade with de minimus non-business activity. Assuming all his records are in order, guns are seven year MACRS.

>>in over 30 years of practice, this is the *first* time<< Washington D.C. is not unique in this, but it is at the heart of the public hysteria to cut public spending while demanding more services. You Internet download notwithstanding, the problem might well be the post office and not the DC folks at all. But it probably is in the revenue office mail room--from Thanksgiving to the end of the year is local government's prime time for furloughs and other forms of clerical understaffing

>>send us a check which includes our fee and postage<< I paperclip a stamped return envelope to the 8879s and the invoice--no excuse for not getting it back to me right away.

>>a client that uses Fire Arms in his profession, He is a registered Maine Guide.<< According to this application form http://www.maine.gov/ifw/licenses_permits/pdfs/2012%20GuideLicense.pdf, Maine Guides are not even allowed to use firearms unless they have a regular hunting license. So it seems weapons are not an ordinary and necessary business expense for a Maine Guide, or at least carry a major element of personal recreation. Also, "firearms" is a big category in which some kinds of weapons would not have any reasonable purpose for a guide. Finally, the kind of weapon that might be appropriate if maintained would likely hold its resale value, triggering recapture of depreciation later.

>>daughter is not considered a dependent because she is 19 and earned more than 1/2 her support<< The question is not how much she earned but the amount of support, because she is a qualifying child unless she provided more than half her own support. Maybe she saved her earnings. Maybe the parent had other resources, or somebody else contributed too. Fill out the worksheet on page 20 of Pub 501, and remember that housing support is calculated as fair rental value, NOT actual costs.

>>what USERRA stand for<< There are special rules for salary deferrals for veterans and National Guard under the Uniformed Services Employment and Reemployment Rights Act. See the INSTRUCTIONS to Form W-2 for more information.

>>Not sure where to go with this.<< Why go anywhere? The rental management isn't your client, so they can't expect serious advice from you. Tell them to give it to the other guy. Of course, your client will report income/expenses that apply to her, presumably until August. After that, she was NOT the owner, even though recorded title had not been updated. If you really want to go somewhere with this, just for fun, ask her lawyer whether there was any assignment of INCOME in the divorce, other than the property division.

>>My students will now tell you that she should get a part time job and scrape in a couple bucks, so she can get a ridiculous EIC refund!<< Maybe you'd better hammer it through another 30 times, until they understand that a dependent can not get EIC. Also, we don't know if she is old enough to claim EIC. Most important, since tax benefits should never drive financial decisions that are otherwise untenable, we don't know if the child is old enough to avoid childcare costs exceeding income from the new job.

>>Is he responsible to repay the full amount $8000.00?<< Only if he stops using the house as a primary residence during the first 36 months. See Scenario S14 on the IRS website at http://www.irs.gov/newsroom/article/0,,id=206294,00.html

>>we DID provide a contemporaneous log<< Apparently the auditor determined the log was not credible, perhaps because it conflicted with information about the other job. Did your log or time sheets cover that? Beef up your documentation of the time spent (or not spent) on the other job, and support the contemporaneous log with receipts and phone bills and signed documents and whatever else he did during those 750 hours. So, you tried to take an assertive position for your client, and didn't get away with it this time. How is he damaged? No penalty. Interest is just for the low cost loan he got by delaying payments he would have had to pay anyway if you never tried. Time and cost of an audit, that's just an ordinary and expected part of the tax system. Once in a while they get somebody. Discount your fees for the audit in the interest of good client relations, but never pay the underlying tax.