jainen

>> punitive damages are only granted for acts that are not within the scope of normal activities for the business<< That sounds right. I don't think it applies here, though. In most states punitive damages only happen in personal injury cases. This looks like a Small Claims property case awarding actual damages to the $7000 max. It would not have any allocation as to the type of damages.

>>if any of it was punitive damages, those can not be deducted<< Can you cite some authority for that, kc? Penalties paid to a government agency for violation of law are a different matter, but payments related to a contractual relationship, even if due to non-performance, are generally deductible. Margaret, be sure to 1099 the homeowner because that is taxable income to her. In fact even punitive damages related to a physical injury are taxable income, so you know that everything he paid is a legitimate business expense. But tell the guy to find another line of work. Obviously he is not a very good roofer.

>>the gains and losses would be considered SE income or loss<< That's certainly true, but it doesn't mean Box 1 and 14 should be the same. For example, Section 179 is a common deduction that must be stated separately. Assuming the K-1s were issued timely, it's not fair to wait until now to ask accounting questions. Have the partnerships even signed authorization for release of information? How would YOU respond if a client phoned today and said some other tax guy is questioning your work?

>>loss is not carried down to Box 14 SE Earnings loss<< Perhaps she did not have an SE earnings loss. Box 14 should not necessarily be the same as Box 1. It's a bit unreasonable to expect the accountant to set aside his other business right before April 15. Put your client on extension until you have time to get your explanations.

>>You should have known what I thought I meant<< Wouldn't make any difference, Tom. I'm in the mood to whine about whatever gets posted tonight.

>>Do I have to use a 2106 << Oh please! Since my first days reading tax books I've heard professionals warn that O.I.H. is a big audit flag. And indeed the IRS seems to be pretty interested in the topic. Its use has expanded over the years, but each step had to be hard fought in Congress or court. So why are we so casual about it? The IRS even wrote a 35-page manual all about business use of home. Pub 587--ignore it at your risk (or rather, your client's risk). It explains that a partner calculates the deduction on the worksheet and reports it as Unreimbursed Partnership Expenses (see the instructions to Schedule E). But you can ONLY do that "if you were required to pay these expenses under the partnership agreement." Sorry, lj. In my opinion "this is legit" just doesn't cut it.

>>Does not have a filing requirement this year<< Here we go again. According to the INSTRUCTIONS to Form 1040, on page 9, Chart C titled Other Situations When You Must File, "...Recapture of first-time homebuyer credit..."

>>he does this out of genuine care for the dogs << ... and the expectation of a hefty government subsidy through the tax system. Well, this is why America will never adopt a flat tax. Everybody has their own little benefit to defend with capital letters.

>>can I go back three years << No. Right or wrong, after two years she had already established an accounting method. It can only be changed by permission of the IRS using Form 3115. Unfortunately, this type of correction is not eligible for the automatic consent procedures, so it requires a substantial user fee. Anyway, I would not be too quick in second-guessing the tax professional who apparently determined that the taxpayer could not support any basis.

>>does that disqualify her from claiming her own exemption amount<< The student can not claim her own exemption in this situation. However, if the parents do not (that is, nobody claims the exemption) the student CAN claim either the AOC or LLC as otherwise eligible. This rule is the same for both credits. The student can not get the refundable credit on her own return if she is under age 24.

>>Have not dived into this return yet<< Which tax year does your engagement letter specify?

>>each sufferred a 25,000 loss<< You mean in two years the property lost 75% of its value so they each agreed to cash out less than $9,000 in an arms-length transaction? Well, the brother at least was able to double his cash. Apparently he had $25000 in short term capital gains in the 33% bracket.

>> something is better then nothing<< So, is McDonalds going to raise prices to support a 7% increase in payroll, or cut stockholder dividens? I'm sure they wouldn't make this big publicity announcement if they were just going to divide up the same work schedule among more part-time employees.

>> it says "may" be tax deductible<< EVERYTHING is deductible. If it isn't a direct business expense, it is marketing. If it is not related at all to a business, it's a charitable contribution. Didn't you know that? All my clients tell me so.

>> if the employees bought them, they would not be<< Why would not similar standards apply? Can a self-employed person deduct clothing that an employee can not? If the company provides free clothing suitable for everyday wear it might be a taxable fringe benefit. Note to michaelmars: If a cop wore his uniform to a movie, other than on official business, I would deduct it as a medical expense because it would prove he is totally insane.

>>Can the balance due on the state return from last year be taken evenly this year << That's how I would do it -- but I live in a community property state. You East Coast folks still follow the what's-mine-is-mine theory of marital bliss, so you will have to recalculate the prior year return allocating income, deductions, and taxation to one side or the other.

>>use form 1040NR for 2010 because he was here only 178 days<< Are you saying he left the United States on January 10th of 2011, and was not here at all in 2008 or 2009?

>>the 1231 rules allowing them an ordinary loss<< Yes, 1231 offers capital gains and ordinary losses. But I don't think this was 1231 property. Apparently it was never placed into service as a rental or any other kind of business. The fact that it was held in one form of entity or another is not relevant. It might make a difference whether the investors transferred the note into the partnership, or the actual apartments after foreclosure. Either way, you will want to focus your research on how to determine the basis of property acquired by foreclosure--maybe it's FMV, allowing a non-business bad debt on the worthless loan. One thing I don't recommend is deciding the correct tax treatment according to who needs what kind of benefit. That's called tax planning, and doesn't work very well after the fact.

>>process by HQ in South America<< I don't think it matters where the bookkeeping was done. He worked for a U.S. subsidiary and is still here more than six months later. The company itself obviously believes the wages are taxable in the United States. Tell him to pay his fair share, and welcome to America!

>>What would you do?<< I would report gain or loss on the sale in 2009, as applicable. Apparently the borrower is still obligated on the debt he promised to pay, so there is nothing to do about that except make sure YOU get paid.

>>Couldn't find this info anywhere<< On Side 2 of Form 541, under Other Information, #8 is in boldface, "Attach a copy of 2010 federal Form 1041, pages 1 and 2."

>> he can write off the 10K << You must know we're going to say, "It depends...." What was the money for? Why did he agree to pay it? You call it a "judgement;" does that mean he was sued? Was he acting as an individual, a corporate officer/employee, an agent of the corporation, a shareholder? (Apparently not the latter, since the much-vaunted liability shield didn't help him this time!) You say the company closed its doors during this process--so what happened to the assets? Well, I have to admit that even if you told me all this stuff I probably wouldn't know the answer. Better wait for OldJack to weigh in here.

>> an inexpensive (!) little school << My recent experience is that those private schools are CHEAPER than the state universities. First of all, they have a whole lot more financial aid available--even the government BEOG and PELL grants are calculated higher! Even more important, you can actually get into all the classes you need in the right order, so it doesn't take an extra two years to graduate, And they offer a lifetime of free enrollment to keep current. Most important of all, the Good Ol' Boy system will deliver upscale job offers at or before graduation.

>>amending a current year << Use Form 1040X, but an amendment filed prior to the original due date is treated as an original return as of the due date, for statute of limitations, elections, and other purposes in which it makes a difference. Still takes months to process, though.

>>1099-R should have been issued with code G<< The 1099-R was correct--Code G is only for a trustee-to-trustee transfer, not a 60-day rollover. I mean, how could the issuer know what happened to the money after they paid it out?. Mark the rollover according to your software instructions, and the 1040 should show a marginal entry on line 15 or 16. Certainly if the IRS has a question about it, or anything else, they must ask for documentation. That's the way the IRS itself has set things up.