jainen

>>many more<< Thanks, friends! In case you are wondering how many already, I am in my EIGHTH DECADE. Yes, I was born in the '40s, then there were the '50s, the '60s, the '70s, the '80s, the '90s, the '00s, and now the '10s.

>>There are resources available every year<< In my opinion, a professional simply MUST take state and federal updates. In my opinion, that by itself would be a much surer indication of competency than any other test. Here in California, "non-conformity" is always a major block of the update course. It's not just for tax prep, but is important for planning too. California does not allow HSA'S, dependency is determined by the divorce decree instead of time in the home, corporations can't use MACRs depreciation, and registered domestic partners file a joint return. Virtually nothing new that Congress approves (except pension reform) applies to California for at least several years. The chart of non-conforming items is pages and pages long, not counting explanations.

>>neither the parents nor the student can deduct interest<< It is an odd rule. In my opinion it is not well-supported by the code (and offends common sense), but apparently nobody has successfully challenged it. Only the "primary" borrower may deduct the interest. Dependents can't deduct it in any case, while the parents can't because they aren't the primary. There is an opportunity for tax planning in applying for and using student loans.

>>gross income not taxable income << Yes, good point. I misspoke, not meaning Line 43 but "income subject to taxation." For example, in the $3650 gross income test for dependency, the non-taxable portion of Social Security does not count. Similarly, an individual whose only income is $18000 Social Security does not have a filing requirement, because "gross income" or AGI is zero. Although net capital gain is included in gross income, net losses exceeding $3000 are not. In business terms, gross income is not the same as gross receipts. Of course, when the IRS knows money was received it may ask for proof of the losses, just as it might ask for proof that checking account deposits are from non-taxable loans or gifts.

>>they don't need to file<< Technically, they DON'T need to file unless they have taxable income. When 1099's start showing basis, will the IRS still harass people like this?

>>It's not what is says in the sales contract<< I was referring to treatment under tax rules. Between themselves, they can do whatever they want. It is not unusual to keep separate books for tax and accounting purposes. In fact, Form 1120 for corporations includes a specific schedule to reconcile the second set of books.

>>my understanding is he was selling it at cost<< No can do. In the sale of an entire business, inventory must be valued at FMV before anything else is allocated to goodwill.

>>Do you go back to the original date of sale or date of death for basis? << There are two things. Collecting the monthly payment is presumably taxed as it was or should have been to the decedent. Conceivably the seller elected out of installment treatment so only the deemed interest is now taxable. More likely you will need to determine the ratio for capital gain as well. (Even though it was inherited, it will only be long-term if it was already long-term to the decedent.) If it was not being reported, the executor and heirs are personally liable for the unpaid tax to the extent of distributions. The contract itself is a capital asset. The heir could sell the contract rather than hold it for the monthly payments. Basis is determined on date of death, presumably using time value of money for the balance owing and term, then adjusted for payments received later.

>> Statements with or without sidelong snickering<< Let's see--inventory, goodwill.... Hey, don't forget the deemed interest on deferred payments!

>>Rev Rul. 90-38... section 4.03 of this revenue procedure" I didn't find your text, so I'm not sure if you have current citations or whatever. I would guess the additional condition is the Section 481 adjustment that prevents doubling up any current tax advantage, but I still think this is talking about property in the year of disposition. Other than that, it may refer to non-automatic changes. The idea of Form 3115 is that Congress gave the IRS very broad power to accept or reject changes in accounting method. The IRS responded with very specific requirements, which it adjusts every year (e.g., a whole new form last December, as well as major changes to Rev. Proc. 2008-52 which itself superseded a lot of rules). You have to have a pretty strong position to take advantage of it. Besides, it's a bit of a stretch to believe this taxpayer "forgot" about entire buildings. Maybe he finished them by the end of the year, but didn't get the use permit until January? Otherwise they belong to 2009. He can't save up deductions for a bigger tax break later.

>>DON'T LET YOUR SOFTWARE MAKE YOUR DECISIONS<< In my opinion there are better tools for planning decisions, but when it comes to filling out forms, software is hard to beat! I only referred to the real estate specialists because those guys are likely to be very knowledgeable about how to handle an NOL.

>>from the shareholder perspective outside of the corp<< How could the shareholder loan have survived the bankruptcy? I don't know the legalities, but it may be that the shareholder has abandoned it by not listing it as an asset in the court filing. That would presumably be ordinary income to the corporation, or at least an adjustment to Cost of Goods Sold.

>>I have a article.... don't say anything about how many years>> In my experience, many articles are mostly about deducting missed depreciation when it is discovered in the year of disposition. This is because there are some more confusing issues with that, and the IRS has made special rules including waiving the 2-year minimum. There's not much question about just amending when you catch the mistake right away.

>>2009 NOL is from k-1 income<< I presume you mean K-1 "LOSS." I don't really mean so in irony. This kind of bare-bones question always makes me uncomfortable. Supposedly you have worked through one of the more difficult calculations in tax theory, handling any passive or at-risk limitations, timing issues and all. Then you got stuck on which FORM to use? Your tax guide for an NOL is the INSTRUCTIONS? Well, as Gail explained, the choice may depend on factors other than the NOL itself. According to your profile your firm specializes in Real Estate using super-sophisticated software, so surely they can provide more focused advice than here.

>>client is out of luck<< It's not a matter of luck. If the client did not keep and use business-like records, the expenses probably aren't deductible anyway. Maybe he can take at least the missed depreciation through the catch-up procedure.

>>Taxpayer receives K-1<< According to the form's INSTRUCTIONS at My link, "If the amount on [line 14] is a loss, enter only the deductible amount on Schedule SE."

>>the state unemployment commission could not provide copies << Be thankful for tax cuts! No doubt that office had their staff slashed, and there are boxes of stuff that haven't been scanned, so they just aren't even going to try to find time for someone who doesn't keep track of his own records.

>>I have a article.... don't say anything about how many years>> Okay, I suppose you can argue that a Revenue Procedure doesn't actually have any more authority than somebody else's opinion. But one way or another you need what Section 1.446-1(e)(2)(ii)(a) of the regs calls a "pattern of consistent treatment." I agree with the IRS, it takes more than one time to form a pattern.

>>Oops.<< Oh, the press loves stories like this but it doesn't hold up to a closer look. What brokerage allowed a young alien to churn a half billion dollars in risky trading while living underground? What exactly does it mean, he "nearly" went bust? Why call him an "emigre" when he never settled here? The only research the writer did was to browse an anti-government site, talk to some friend, and ask a CPA who wasn't even involved. Not exactly responsible journalism. But it does work as humor. "What is the IRS?" Gee, why wouldn't people in Spain know about taxing authorities? They call theirs by the same word they use for God's representative on earth!

>>she was ordered to file a joint return<< I admit I'm being pretty tough on this. You are going to need to get tough too, to win anything for your client. Focus on the result you want, and stop blaming other members of the same team. I still don't see that the attorney did anything wrong--geez, he got her almost everything! Some of it came with deferred tax liability, but that's just what it was. A QDRO would have made your client indisuputably responsible for the tax. She may pay it anyway, but at least this way she has a chance to stick it to the prisoner. So file an injured spouse claim. Even though the money was transferred to her, it was only to pay HIS separate legal obligation, not hers. For her it was simply a property division, not income. At least, that's what I would say.

>>it is more advantageous for us<< Too bad, you can't. Unless you're into, like, fraud, you have to amend the 2009 return. The instructions to Form 3115 (My link) refer repeatedly to Revenue Procedure 2008-52 (My link). Section 2.01 says "a method of accounting is not adopted in most instances without consistent treatment... in two or more consecutively filed federal income tax returns."

>>they are ordered to split Jan and Feb; which is rediculous because he won't have any income and has no money to pay tax.<< Why is that a problem for your client? Hasn't her attorney just managed to shift half the Jan/Feb tax to the other party? >>He didn't even know that there was an early withdrawal penalty for the 401K.<< Why is that a problem for your client? Hasn't her attorney just managed to shift the entire tax and penalty to the other party? The only problem I see is if you tell your client to put the money in an IRA, which apparently would be an excess contribution.

>>writing a letter to the IRS asking if they could possibly eliminate the interest<< It is not legal for the IRS to abate "interest" (except for certain rare circumstances). But some of it is called "underpayment penalty" (actually a form of interest), and that is generally easy to abate using vague "reasonable cause" such as preparer error or 3rd party delays. Whether you pay P&I/tax is a business matter that must be resolved in business terms. You should address it in an engagement letter to begin with, probably saying you will NOT cover it (unless you are competing with national franchises). Then you can make exceptions for your good clients. Stay professional, making sure all your clients know you are a person, not a machine, but that you stand behind your work. In my opinion, a professional would not refund the fee because of a math or theory error, but only for poor service.

>>the first dispersal was done incorrectly., and taxes were not withheld properly<< The fact that it did not provide your client the greatest tax advantage does not mean it was wrong. There are two sides to the settlement, and that usually means some give and take. Apparently the petitioner was hoping to benefit from a longer prison sentence, which probably did not encourage the respondent to offer any favors. Meanwhile the attorney probably wishes you would just do your job and let him do his job.

>>must be the economy<< Nobody failed to pay me this year, but several called and said they couldn't afford it and I had to beg them to let me do it anyway. They've been good clients for years and I'll still stand behind them. Besides, one of the nice things about this business is that each job is relatively small, doesn't add much to my costs except a bit of time, and is only a few bucks lost. We all have to do what we can.