jainen

>>administrated<< Interesting marketing strategy--linking your name to an FBI investigation! Well, at least look up the definition of that five-syllable jawbreaker before you brag about your professional chops. According to Circular 230, "Examples of acceptable descriptions for enrolled agents are 'enrolled to represent taxpayers before the Internal Revenue Servicce,' 'enrolled to practice before the Internal Revenue Service,' and 'admitted to practice before the Internal Revenue Service.'"

>>reserving to Eloise XXX a right of possession<< Assuming Eloise continued to occupy the home subject to the rights and responsibilities of an owner, it was still included in her taxable estate (even if below the exemption amount). Basis for the heirs is Fair Market Value on the date of death. (Do additional research if she died in 2010--I've already forgotten the special rules.)

>>An elderly client... " Call your county district attorney elder abuse office. They will be interested in this story. Did you say "shareholder," as in limited liability corporation? Call the Secretary of State in your capitol, and find out what the history of this corporation is, including the names of the officers and whatever filings are public information (unfortunately, there may be a charge for copying). Turn it all over to the D.A. Then call the IRS practioner line and be completely honest. I doubt your client has a tax problem that can't be easily resolved. Her so-called friend, now--boo hoo indeed!

>>I read the related code<< kc, please give your citation for what you read. As far as I know, there is only Section 162(l), which says, "The deduction allowable by reason of this subsection shall not be taken into account in determining an individual's net earnings from self-employment." That is why Schedule SE makes you subtract it out. If ATX ignores the wording on Line 3 of either Section A or B, they made a programming error. Cathy, you are misreading the instructions, which are written in non-technical terms without any authority. All they are saying is that if you use one of the optional methods to calculate SE income, you can use the same figure to further calculate the health insurance deduction. As for "can," that is why the IRS phone clerk (who also speaks in non-technical terms without any authority) says it's optional. You DO get to choose, but it's still a package deal. You can't just pick out the part you like. Note that the very next sentence says, "Be sure to subtract this amount," meaning that's part of the deal.

>>my state adjusted income on both states to be the same as my federal adjusted income<< As rfassett advises, multi-state returns are an advanced topic best referred to a tax professional. Your software can not work properly if you don't know how to apply the various tax laws, and you obviously have not even understood the basic instructions. Here are some general principles for working with your preparer. The actual laws are very detailed, but they are fair unless you cheat yourself. California and Conneticut have similar but not identical laws. Each taxes its own residents on world-wide income. In your case, that means California taxes your Conneticut income exactly the same as if it were earned in California. It then allows a credit for CT taxes. There are two important implications to this. First, although you are not double-taxed, you don't save any money by working in a state with a lower tax rate. Your total California tax is the same. You just pay part of it to Conneticut instead. Second, since the CT income is added to CA you may end up in a higher tax bracket, just like if you earned the extra income at home. Now, according to the Conneticut instructions for non-residents at http://www.ct.gov/dr...nrpybooklet.pdf, "You must calculate the tax in the same manner as a resident individual. Then, prorate the tax based upon the percentage of your Connecticut adjusted gross income derived from or connected with Connecticut sources." This means that CT also sets your tax rate based on world-wide income including what you earned in CA. After determining the total tax their own residents would have to pay, it then calculates how much your CT wages contribute to that. In other words, nobody gives you any breaks. Both states use the federal AGI, adjusted only for differences between state and federal law. I don't know your specific circumstances; that's why you need a professional. For example, state tax refunds are sometimes included in federal AGI but would be subtracted out for Conneticut or California AGI. Get some help.

>>"he has been self-employed (owner of name of business)..."<< That is the problem, tilt. You do NOT know that he is self-employed, except from hearsay in the form of his representations to you. All you know for sure is that he files Schedule C. Period. Let the bank underwriters determine the implications of that for themselves. That's what they get paid for. Otherwise if he defaults on his loan they can blame YOU for misleading them about his source of income. Of course you have had "no trouble with the mortgage companies accepting this letter." You are giving them exactly what they want. They don't need specific numbers from you, just your confirmation of his business standing. Why do you think the bank wants your statement anyway? They know that all you have is what the guy told you, and they've already got the same information directly from him. Ahh, but the bank wants to shift the responsibility to an outside professional, that's why. Do not allow them to get away with this. Read my previous post, and especially note that "the lender must determine the tax return's value in its sole discretion and responsibility." This is not theoretical. It has already happened. Banks have successfully held accountants liable for failed loans based on letters the banks requested. Do not confirm what you do not know.

>>the IRA is the owner.... they are on the hook for expenses<< They have no obligation to pay expenses on property owned by a separate entity. At best they could call this investment expense on Schedule A (2% AGI). Unless, on the other hand, there happens to be a mortgage! In that case the IRA has been completely distributed, with tax and penalty owing. But at least they would then be able to file Schedule E.

>>do you know if it was even not allowed in the 90's?<< Yes, that provision has not changed since the current tax code was adopted in 1954. However, you can't change an accounting method (even one that is not allowed) without IRS approval, so the best you can do now is look up the procedures for disposing of an installment obligation.

>>Form 4549<< That is the examination report for "agreed" changes! As a minimum, you should immediately file an appeal. It's a bit Big Brotherly that tax returns are being cross-checked with immigration files, but that's life in the 21st century. Nevertheless, illegal aliens have to follow the same rules. If they are in this country for a certain number of days, they meet the Substantial Presence test and are treated as residents. File the appeal and work on it after the 17th. You can't change to MFS after the due date of the original return.

>>Thinking this through...< How about looking it up instead? Installment method is not allowed for a sale of depreciable property to related parties! Otherwise, Pub 537 has a worksheet to recalculate the gross profit percentage for remaining payments.

>>what would be your approach to properly record this transaction<< A net basis reduction of $400.

>>I think it is more realistic to figure loss or gain through this route... excess money they received to get its value back to original shape<< Personally, I think it is more realistic to follow the tax code. I'm flattered your IRS agent agrees with me. And besides, where in the original post does it say that $4500 got the property back to its "original shape"? Nowhere.

>>would I include income or gain of $ 4,900.00, yes only in circumstance where taxpayer might have got money from insurance company and pocketed without spending for repairs.<< Here is how the IRS says to figure gain, on page 10 of Pub 547 at http://www.irs.gov/pub/irs-pdf/p547.pdf. "The amount you receive [insurance], minus your adjusted basis." Where does it say anything about repairs? In other words, insurance is treated as a basis adjustment, and ONLY counts as income after basis is reduced to zero. Then, money spent (if any) on repairs or replacement, whether from insurance or any other source, adds back new basis.

>>when I say replacement cost, it would be cost to repair.<< You said, "replacement cost $4500." That assumes more than was stated in the original post. Apparently the insurance company determined that the cost to repair was $4900. Perhaps the actual expenditure was less because they used less skillful labor or cheaper materials. Suppose they didn't spend ANY of the insurance proceeds. Suppose the damage was cosmetic and the roof still didn't leak, so they just decided to live with a less attractive house. Would you include the $4900 in taxable income? Of course not, because it still represents the loss in value which is what insurance covers.

>>insurance proceeds $ 4,900.00 minus replacement cost $ 4,500.00 leaves you with $ 400.00 gain<< It's a rare policy that will pay you MORE than your actual loss. Cost of repair is commonly used as a measure of the loss, but who says you have to completely repair it?

>>as more money is put in to finish up the 2nd fl., 1/3 or 33% will decrease<< That's not a normal ownership pattern for real estate. What does the DEED say? You may have to think of this as a partnership developing the property. Or perhaps the relative has and will retain 1/3 equity in the existing property with improvements, but no equity in any later improvements forming a separate asset in the manner of the rental house. This situation has too many technicalities for you to accept or even understand the client's description. You must read the actual contract of sale and deed. Any terms that are not explicitly spelled out can not be applied for any purpose. The law in every state requires a written contract for the sale of real estate. Meanwhile, you still need to determine FMV to calculate gain or loss on whatever fee or partial rights were legally transferred.

>>that's under the purview of the lender<< Questions #2 and 3 are outrageous. The lender is getting paid thousands of dollars for underwriting the loan. You are getting paid nothing. What does "adversely" mean in terms of the lender's risk? I don't have a clue--do you? Don't say anything besides that you have prepared the returns for so many years, using Schedule C which is typically filed by self-employed taxpayers. Unless you actually do act as a business analyst, state that your work was intended only for the completion of the tax return, and for that you use the client's own representations without verification or audit. State that (with client's permission) you can provide a copy of the tax return, but you offer no assurance of its usefulness for the lender's purposes or even its accuracy. State that the lender must determine the tax return's value in its sole discretion and responsibility. Of course you want to help your client get the loan. You'd like to help her win the lottery too. But you can't.

>>just take 300K out of the 1st floor against the sales price of 300K<< Assuming the transaction was at fair market value (which can't be assumed when the owner claims no change in real estate values over eight years), and that the sales agreement did not allocate the $300,000 to any separate asset, no. The land, rental, and second floor all get counted too. For example, since the first floor is only 48% of the total value, only $144,000 goes to it. You must calculate gain/loss on the 27% interest in each asset, and reduce basis accordingly. I would guess there is about $10,000 in capital gain on the rental, since its basis has already been reduced 1/5 by depreciation.

>>He hoped to sell/rent it out.<< That seems unlikely to me. I find it hard to believe that anyone anywhere in the country anytime in the last five years had a genuine business purpose in tearing down a house and rebuilding it as rental property. The profit potential is completely absent. He might have had a misinformed intent to resell, but did he ever actually list it for sale (other than facing foreclosure)? Can he show that he paid a higher interest rate because he told the lender he would not occupy it as his own home?

>>if the Service rejects my client's Form 8888, I yet don't see that it would have a lawful reason to do so<< The IRS has broad authority to administer the tax system. Don't waste your time trying to get them to pay in a way they don't want. No harm in filing the form. You just can't do anything about it when they mail the joint check.

>>Several clients this year have had Roth conversions<< Your question should not be how to elect the two-year carryover for this client, because that is automatic under the law. Your question should be how (or if) you elected OUT of that treatment for the other clients.

>>I agree with walters, that sch c needs to be filed when the daughter claims child care credit<< I do not agree with this. The question is how to treat it on the payee's return. The payor can not determine that, and doesn't care. As long as she properly reports on her own return, she can claim the credit regardless of what the care provider does with it. In the same way, how the grandmother treats it does not depend on whether the payments qualify for a credit. The two returns are separate. In fact, if the daughter is also a client it would probably be an ethics violation to tell the grandmother she has to use Schedule C because of the credit.

>>taxpayer received $40,000 from the bankruptcy trustee.<< As this is a hypothetical question, the answer can be as theoretical as you like. In my opinion, the scenario does not provide enough information. Did the $40,000 constitute a return on investment, corporate earnings, interest on a settlement amount, or what?

>>Fraudulent tax reimbursements to prisoners<< I wouldn't call tax fraud "silly." Hey, news flash! The financial press takes the criminal's side, and blames the victim.

>>does the Form 3115 have to be filed<< Yes, it does in every case. Start by determining if the taxpayer is eligible for one of the Automatic Consent Procedures. According to the instructions to Schedule A, Form 3115, numbers 32, 33, 34, 122, 123, 126, 127, and 128 are the ones to look at first.