jainen

>>a 30 day letter<< Do NOT pursue this any more with the examiner or supervisor, except to demand the workpapers. They will stall you past your deadline with all sorts of promises. These are the IRS instructions, and if you don't follow them exactly you will probably lose the right for anything else, including tax court. Watch your time limits closely. "If, after receiving the 30-day letter, the taxpayer wishes to appeal, the taxpayer must send a written protest to the Area Manager within 30 days from the date of the letter. The protest must include a full and detailed statement of the facts, law, and argument in support of the taxpayer's position and, if desired, a request for a conference at the Appeals office. Deficient protests will be returned to the taxpayer with an explanation why the protest cannot be accepted." Protest and Conference Procedures

>> 5329 is to reduce or zero out the 10% penalty<< There is no 10% penalty with Distribution Codes of 2 and 3.

>>over two weeks ago<< Watch your time limits closely. You may be able to see results by requesting the agent's workpapers (which you have an absolute right to see). They will presumably identify "the law" being referred to. Ask to speak to a supervisor if that is appropriate. If the taxpayer has received a letter, formally respond to it. If it is a Notice of Deficiency, file the Tax Court petition (which will automatically kick the case back into the Appeals office). Watch your time limits closely.

>>According to IRS agent<< Apparently there is some miscommunication, not any regulation involved. Each exemption must be evaluated on its own merits. I would expect you can clear this up with a single phone call (assuming you are eligible to represent your client before the IRS in this matter). Be prepared to fax a power of attorney signed by client, new wife, and yourself.

>>Higher IRS Due Diligence Standards<< As usual, I am not much excited about the doom & gloom attitude of financial writers. Section 10.34 of Circ. 230 has been rewritten to say we can't sign a return or give advice we know or should know lacks a reasonable basis or understates the tax. It particularly concerns disclosure of unreasonable positions and tax shelters. Big deal--it only applies if we act willfully, recklessly or through gross incompetence. Apparently the author thinks we should tell our clients to go back to school so that the IRS can't come back on US for being reckless or grossly incompetent. I am confident of my interview skills, but that discussion would be mighty difficult indeed! Bottom line--this is still a lower standard than what the tax code itself already imposes in Section 6694. The important change is that it now covers unlicensed preparers too, in case they start promoting tax shelters.

>> you're dating yourself<< Sometimes that's the only date I can get! As for a Neil Young concert in 1965--I don't think so. Although he had local fans in Canadian coffee houses, he didn't come to the United States until 1966. He didn't get published until two years later, and Horse With No Name wasn't recorded until even more years went by.

>>another way << Since you are thinking of filing Schedule SE anyway, I recommend you follow the instructions. It's right there on the front page at Schedule SE.

>> I would rather imagine that 99+% of those of us with a home office would fail then<< Bingo! That seems to be the position of the IRS as well. So why are we even having this discussion? Personally, I have never pretended I use my home office like that. This business is crazy enough without getting into what we might "imagine."

>> there still is de minimus personal use, isn't there?<< I am not aware that there EVER was. It must be exclusively business, period. The only de minimum rule that I know of is that "incidental activities" will not disqualify the home office--but that means doing minor administrative tasks at a different location, not doing personal stuff in the office. As for "precious little business now," if he is not using the office regularly as well as exclusively, it doesn't qualify anyway.

>>a 481 election is for spreading the tax over 4 years when changing accounting methods<< Yes, that's exactly what she needs to do (although she will have a NEGATIVE adjustment that is deducted in a single year.) The reason she can take this deduction is because Section 481 allows it! Your "simple way to correct a depreciation error" has a name: Section 481(a) adjustment. It is calculated on Form 3115 when you use the automatic consent procedure to change from an impermissable to a permissable accounting method, such as changing from the wrong depreciation to the right one.

>> It is a simple depreciation correction that you need. << It is by definition a change in accounting method, since it affects the timing of the deduction. Correcting depreciation falls under the automatic consent procedures so there is no user fee, but it still requires Form 3115. Schirallicpa is on the right track but nearly a decade out of date. The current instructions are in Revenue Procedure 2011-14.

>>as you can see, the HUD has points of $1,409.01<< I DON'T see that! I see yet another number, $1900.50. And I also see that I still don't see the full HUD-1--the numbers on this page are more than $4800 out of balance.

>>the boat operator us not receiving, actually or constructively, 100%<< Yes, he is. He has directed the fisherie to route the payment through the seller, who acts as his agent in receiving and forwarding it. We don't have to call that "laundering" because facilitating his payment (which varies each month) is a valid business purpose. But it doesn't change the fact that he actually earned 100% and used part to pay his own legitimate debt. This is a good example of the doctrine of economic substance over form, which the IRS is really pushing hard these days.

>>show that he got the money and then paid out<< If the fisherie 1099d him, it wouldn't be pretty. He should at least keep a little logbook or journal.

>> set up this way so my client would get his payment<< I don't see that as a problem for your client, although the buyer is cheating. Your client is receiving payment as an agent for the boat operator. Your client should report the 25% as payment on the installment, allocated first to interest and the balance to Form 6252 subject to the gross profit percentage of the original sale. Nobody's asking, but the boat operator should report 100% of the income, not 75%.

>>points of $1,409.01<< This is not the actual HUD-1, but appears to be an estimate or summary of only the buyer. The term origination fee is a synonym for points, but the statement's figure doesn't match the 1098 so presumably the seller or somebody paid it as I suggested earlier. Note that the $1409.01 was offset with a higher interest rate, so it is not deductible.

>>wouldn't the $500K (MFJ) exclusion still apply?<< Potentially yes, but ONLY if the rest of the property including the principal residence were sold within two years.

>>I think you have to segregate the activities>> Who says? Every entry on Form 8903 goes in the column titled "All activities." Line 7 in particular specifies plural pass-throughs. Check it out. Form 8903. Since the instructions are a pdf file, I even did a search for "what Bulldog Tom thinks," and it wasn't in there any where.

>>You cannot have a negative DPAD<< A partnership is a passthrough entity. Some can calculate Qualified Production Activities Income on the entity level, others will simply report all the necessary information on income and losses. In either case, the actual DPAD deduction is determined on Form 8903 of each partner's separate return.

>>what job pays minimun wage or sometimes lower and people live better then you and me? << Campaign manager for political candidates.

>>the ATX software will automatically place "Filing as surviving spouse"<< I hope this is not true, because the surviving spouse does NOT automatically have a right to do this. The decision can ONLY be made by the executor or personal representative. While it is common for the surviving spouse to file this way, there is nothing in the original post to support such an assumption.

>>the amount ($28K) that they actually netted on this car<< Sorry, I don't agree. He won a brand new car from a dealer, and sold a pre-owned car from a private party. A 44% drop in value is realistic in such a transaction. Unless he can document that dealers are selling for less, he is stuck with paying taxes on MSRP. If he didn't like the deal, he shouldn't have taken it.

>>What should I look for in the documents << Look at the deed. Did it grant an easement or not? If this were a rental house, you would have to calculate and subtract land value for depreciation, right? From there it is a simple matter to allocate a percentage of the land value to the strip.

>>2010 instructions haven’t yet been issued<< For 2010, the credit is not only $1000 higher but it is refundable. However, specific substantiation is required, so the return is not eligible for e-file. The credit is phased out for AGI over $182,520.

>>what she sold was an easement<< I disagree. An easement is the right to use somebody else's land. Sometimes roads are built with that arrangement, but in this case the state actually took title to a half acre. When you split a lot and sell off the new division, that is NOT an easement. It is as Kea suspected an outright sale. The taxpayer will need to allocate basis to the strip that was sold, and calculate gain or loss accordingly. Most likely this will be simply by size, unless they can document that at the time of original purchase the strip had a disproportionate share of market value.