jainen

>>he can't figure out how to do it<< Let me guess--he lost money trading without first learning how to do it.

>>What do you make of all of this?<< I believe lenders are deliberately waiting to file the 1099-C just out of meanness so the borrower can't offset the income. But your client is still in trouble. That judgement will follow him for at least ten years. It can be enforced against ANY assets he owns or later acquires. Form 4797 is for business property, so it would not be appropriate unless this "investment" was actually a rental.

>>Did you read the OP?<< Certainly, but you didn't explain what tax-exempt status you wanted to get going, or for what purpose you (or the organization) would want to be anything other than what it already is. If you don't say what you want to do, how can we help you do it?

>>it was you who cited CA law<< Checkpoint doesn't have state stuff. It is hard to search and even harder to browse because it covers so much. That's why I go to Quickfinder first to get the reg section, then go look up the specific citation. Once you get close the hyperlinks work great.

>>how to get "tax exempt" status going<< I'm not sure what you want or why you want it. You already have tax-exempt status. You can't qualify as a 501(c )(3), which is what most people think of for non-profit although it's an entirely separate issue. The homeowners aren't likely to want their financial records open to PUBLIC access. (Yes, all sorts of people prowl through 990's for all sorts of reasons.)

>>How did you know this?<< As I recall, this idea of sampling a period of time doesn't have very good authority, but it is touted in real estate industry tax guides. I think it comes from a Tax Court Memorandum Ruling or something else pretty low-level. I have never actually recommended it before, because someone who isn't keeping records anyway is not going to make a credible argument about how certain months are typical of the entire year. In other words, it is generally used just to get by with less than adequate records, while the true purpose should be to MORE accurately reflect the vehicle usage with short-term fluctuations over the entire year. My first level of research is usually Quickfinder (My link). That generally cites the regs or rulings involved, so for details I turn to RIA Checkpoint (My link), especially the primary sources. In the last year or two I have relied heavily on the very fine website run by the IRS. I go straight there to view forms and instructions when the issue is HOW to report. The fastest way to use it is to Google search for the Form or Pub number. The official IRS version is almost always the first thing listed--I really appreciate that they put a lot of effort into staying ahead of the commercial distractions.

>>He has a mileage log. It's in his head.<< That's nonsense. He is not tracking business usage for 18 properties while "always looking to buy more" in his head. He is not using ordinary business care in his required record-keeping, and so is not eligible to deduct vehicle expenses. Of course it's a lot of work for so many properties. Some taxpayers wouldn't bother about the close-in stuff, figuring it's not worth it. But he can't have it both ways, easy records and a deduction too. Remember, the standard for documenting transportation costs is substantially higher than for anything else except meals and entertainment. The original question was, "What would be a good way to allocate the vehicle use amongst the 14 properties?" A good way would be to implement a bona fide system of recording the time, cost, and business purpose of the vehicle use. The real estate industry has managed to get approval for extrapolating annual usage from a three month test period when the taxpayer can demonstrate that it is consistent with the entire year, so there is still time to set something up for 2010. Too bad about 2009, but he can't claim he didn't KNOW he was supposed to keep track of his expenses.

>>only one code can be entered on the 5329 in ATX<< According to the INSTRUCTIONS to Form 5329 at My link, you should use #12 "if more than one exception applies."

>>there is no mileage log<< According to the law, there is nothing to allocate.

>>The State of California has disagreed<< California started auditing 100% of HoH returns (over a three-year cycle) when it disagreed with the IRS about the definition of foster child. The federal law has since adopted California's interpretation, but the state continues the letter audits because it thinks quite a few taxpayers "borrow children" for tax purposes. The program has been financially successful, as you are finding out. (Now the main difference in filing status rules involves registered domestic partners.) California will also tell the IRS about your mistake, so you might as well stay ahead of the game by amending the federal return too. Unless the brother is permanently disabled, he is not a qualifying child for "considered unmarried."

>>cans of worms that we don't want to deal with<< Why wouldn't you want to deal with it? Isn't that what you do for a living? In my opinion, based on Circular 230, you should advise your client of the need to file and explain the potential penalties for failing to file.

>>I have read more conflicting info<< What information have you read? Did you follow my link to Circular 230? You have somehow come to exactly the opposite conclusion as to what I said, so I don't think I can tell you anything else.

>>they would need to file an LLC return<< Unless they elect to file as a corporation, California LLC's filing as a partnership or disregarded entity must file Form 568 Limited Liability Company Return of Income with an $800 tax, plus an LLC fee if their income is high enough. This is in addition to the partnership or sole proprietor return and taxes. You can find out everything you need from the Spidell website at My link. I recommend their booklet, The Life of an Entity.

>>anyway of avoiding having to file a corporate tax return?<< The LLC format is disregarded for federal tax purposes. If the business continues to be operated as a sole proprietorship or qualified joint venture, they would continue to use Schedule C. Otherwise it would be a partnership filing Form 1065. It wouldn't file as a corporation unless it makes a specific election to be taxed as a corporation. In any case, a California LLC must also file an LLC return, pay the franchise fee (minimum $800), and pay the income-based LLC fee if applicable. I tend to be cautious of changes in insurance plans. You don't always get what you expected, and it is usually too late to go back.

>> there is an actual form<< In the old days the IRS used to mail back the second extension request marked "approved." Now that approval through October 15 is automatic they don't bother any more. Can you find a tactful way to suggest to the bank officer that if he is going to base loan decisions on IRS procedures he had better keep up to date? On the other hand, I can't resist asking why your client is in such a big hurry to get the loan done before his tax return in the next two weeks? If I were the loan officer, I too would be very curious about documenting the matter. If you e-filed (and this is another example of why you should always e-file) you can print the ACK. Otherwise, have the IRS fax a transcript showing what has been filed.

>>input the following in ATX?<< In my experience, it is extremely difficult or impossible to use software for a 1031 exchange. Unless you specialize in the subject and have become very familiar with the programmer's assumptions over many transactions, it isn't worth the learning curve. (Besides, even a specialist would never use a general tax prep program like ATX for this. It requires a high-level fixed asset manager.) Calling tech support is two or three times worse, because they will barge ahead with further assumptions not related to what you are asking! For example, there is probably an obscure way to link the four assets in a single disposition. That single exchange value has to be allocated to land, land improvements (if applicable), and buildings. You need to use FMV for the new allocation, which is likely not available to the software. And when you try to carry forward the existing depreciation schedule, to the extent it applies within the new allocation, you will almost certainly leave tech support in the dust. And you haven't even started on the new money (sometimes disguised as mortgage debt). God help you if either sales contract mentions furnishings or appliances! I always recommend you work everything out with pencil and paper first. Yes, it takes a couple of hours, so set your fee accordingly. Your client was perfectly willing to pay the facilitator a thousand dollars to word process a few boilerplate documents, and must understand the value of actually running the numbers. After you get it all figured out, then delete the old assets and re-enter from scratch (or otherwise use overrides).

>>filing returns based on taking a stance where there are open/ undecided cases in tax courts<< As I read Circular 230 at My link, contingency fees are never allowed for an original tax return, although contingency fees can be charged later for responding when the return is audited or penalties are assessed. In my opinion, based on what you have said, the CPA is stretching this rule to include preparing a defense for positions that may be audited. In my further opinion, that attitude leads to further problems unless the uncertain positions are properly disclosed. The problems I refer to are more likely to come from the client blaming the CPA than from anything the IRS might stumble across. Besides, on what contingency is the fee based? If it has anything to do with the refund amount (and what else is there at the filing stage?), it is clearly unethical under any state licensing authority and all the national professional associations.

>>Has been hard to find reliable people<< Hmmm, can't rely on people in your town? I would guess it's the nature of the job, not your neighbors' personalities. Some few fanatics like us enjoy tax work, but most people don't rate it high on their list. Besides, nobody pays the clerks more than $15 with no benefits, and that just isn't enough to run a household on. So the only people who CAN take the job are living half underground, sharing rooms and scamming food stamps. And since we don't offer any long-term commitments, we only get people who can't hold a job anyway. Which is why the small office and solo practitioners provide MUCH higher quality than the guys who advertise on TV.

>>This makes news and great role models but the military doesn't.<< Well, the military does its share of personality-based news releases too. They just aren't as good at it as the celebrities who hire full-time publicists. But even in Hollywood the hype is about lifestyle. Except in rare cases, death is pretty discreet. For the military, you can easily find information about it, but out of quiet dignity and respect for the families, they don't flash big headlines. Personally, I agree with that policy.

>>acres would work<< How many acres? It rather sounds like they are part of the homestead, none of which is eligible for a like-kind exchange. Tell them to go see an estate planner, for pete's sake! Put it all in a living trust or life estate or something, or sell it now while capital gains tax is low and so is replacement cost. This is not a tax question. Our out-of-control political media has got everyone worked up. Look, tax on the sale won't affect the mother one way or another, and the daughter just wants to live someplace better. So my advice is to go ahead and sell it, and buy something that works for her with 75% of the proceeds. That's do-able, isn't it?

>> authority to abate interest & penalties<< Basically the IRS has no legal authority whatsoever to abate interest (except in limited circumstances such as government delay or as part of an offer in compromise). Anyway it's cheap, so don't even bother trying. Most penalties can be dismissed for various reasons, according to different provisions of the tax code. If you are asking about late payment penalty, it can be abated for "reasonable cause." That generally means the problem was caused by an outside force over which the taxpayer had no control. Although that wouldn't seem to fit your client, the IRS is fairly easy-going on the point. They have an enlightened attitude that the purpose of penalties is to ensure future compliance, rather than punish past errors. It's worth asking about, especially if you have some half-baked story about what happened to the original documents but you can show SPECIFIC steps taken to make sure it never happens again.

>>like/kind her property for the new property<< First of all, you haven't described "her property" so we have no way of confirming whether it is eligible for like-kind treatment. But Section 1031 will not prevent her from doing anything she wants. It's just that if she does not continue to use it for business/investment in the same name, she will have to report the exchange as a sale subject to capital gains tax. If the original return has already been filed, she would need to amend it and pay any back taxes with penalty and interest. In my opinion, a 1031 exchange could not survive either a gift or a beneficiary deed within two years. Still, 1031 is very flexible. Depending on what your underlying goals are, there may well be a way to structure it. Certainly if you want ordinary things like relieving the Mother of management responsibilities, moving to a more profitable investment, ensuring the daughter inherits, and avoiding probate--all that can happen.

>>Can it work this way?<< No. The daughter can not use Section 1031 for property she has not held for a substantial time. Nor can the mother 1031 the property first and then transfer the new property. She can exchange it all right, but it must be reported as a fully taxable sale. The IRS has solid support from the courts in disallowing tax deferral when a change in title is one of the steps in an exchange, even if it is spread out over a year or more. The gift probably has no problem. Mother would need to file a gift tax return but would not owe taxes unless she exceeds her million dollar lifetime maximum. (There is no two-year limit on gift tax.) However, it may subject her estate to high taxes after death, so she should get advice from a professional who is closely following the issue in Congress.

>>what if anything should we watch out for?<< Train one of your clerical staff to take the lead; don't let the tax preparers e-file directly. Don't bother with the IRS seminars that mostly focus on registration. Just print out Pub 1345 and whatever instructions your software gives. She will quickly become the expert, making sure all forms are signed, Form 8453 with attachments sent in, file status updated, etc. Even more important, she will check the ACKS (IRS and state acknowledgments) every morning, and will easily fix SSN/EIN problems and everything else.

Every now and then someone posts on this forum, "Let the client decide." The idea is that the taxpayer is primarily responsible for the facts, so the preparer does not have to audit or verify anything. Recently, in U.S. v. Stadtmauer, a tax preparer was convicted of criminal conspiracy for "willful blindness." Admittedly it was an egregious case in which the defendent had a lot of direct knowledge to be willfully blind about, but the bottom line is we are indeed required to explore facts that are inconcistent or incomplete or conflict with what we already know about the company or the tax code.