jainen

>>pricing this engagement<< Since an Offer in Compromise usually takes 20 to 35 billable hours, the fee the client WOULD pay probably equals or exceeds the amount he MIGHT save. And since the client has no assets at risk of seizure and in the worst case still automatically qualifies for low monthly payments, in what way is he "well suited" for an OIC? Most likely his OIC would end up looking a lot like a five-year payment plan anyway--you know they don't just accept whatever you turn in. It's not much work to get up to a one-year stay on collections, he just has to call in every two or three months. And then when business picks up he can start to pay what he owes. Or if business continues to fail, the past years will time out and qualify for bankruptcy. Unless he filed for an OIC along the way, which suspends the time limits and drops him back to square one when he defaults.

>>merely tax implications<< I've pretty much given up on tax planning engagements. I remember a lot of concern that euthanasia might increase because dying in 2010 was expected to have tax advantages, but now we see that eliminating the estate tax for a few people has raised capital gains tax for everybody. The so-called marriage penalty has always been a terrific tax break for many families. All the hype about capital gains tax rates pales to almost nothing in the face of actual market performance, not to mention other economic factors such as unemployment. In my opinion, it is not possible to discuss tax implications without political viewpoints.

>>Do I report it as income even though they were not issued a 1099C?<< Suppose a 1099C was issued when your client did NOT have any relief of debt. Would you include that as income anyway? In my opinion, you should try to make your own work as accurate as possible, even when somebody else does something else.

>>whether there are such distinctions between home office and rental situations<< Well, one obvious difference is that a home office has nothing similar to the vacation home rules under Section 280A. But in my opinion, the IRS position does make more sense in that it reflects the actual economic reality of most of the room rental situations I have seen. (The rules are different for short-term rental like a hostel or B&B, or if the tenant lives in a separate structure on the property.)

>>treat it as I do my home office with the appropriate percentages or one of x number of rooms<< Although this is common, there unfortunately is no authority for it. For renting out part of a home, the vacation home rules apply to prevent claiming a loss. Furthermore, NO deduction whatsoever is allowed for expenses allocated to common areas such as the kitchen, bathrooms, or entryways. It can be even worse than that if the tenant is a friend or relative, which is usually all anyone would let move in. It's not often possible to determine or document a profit motive, a reasonable division of costs, amount of personal use, and other elements of a genuine rental. Sometimes I'll take the mortgage and taxes in the ordinary way, and ask the client if their friend isn't just sharing expenses.

>>I don't think I've ever had that sort of expectation under any circumstances<< Then why were you surprised that it takes six months to process a claim for refund? Did you not expect the government would be more efficient? Why were you concerned? Did you not expect the government would be more efficient?

>>The part I found surprising, and a little concerning<< Like all government agencies at all levels, the Internal Revenue Service has been severely restrained by budget cuts in the face of increased service mandates. In my opinion, it is unreasonable to expect big tax breaks AND high performance standards from government, but that is the political climate of the day.

>>The state also requires the company to pay couple of hundred dollars for the franchise tax a year<< $800, same as everyone else. If he didn't know about this, he has only himself to blame. It is a minimum tax for the right to do business in California, whether or not there is actually any business activity. Yes, he is required to pay it. However, without more information I couldn't say what means the FTB has to enforce collection.

They owned the stock jointly<< I would guess she can only deduct the loss attributable to her separate ownership interest, presumably 50%.

>>If you buy something and never resell it<< The question is not the purpose for which it was sold, but the purpose for which it was held. I am not going to cite tax rulings, so you can ignore my opinion if you dare. In both the general understanding of economic theory, and the specific usage in our tax code, investment implies property held for appreciation due to market forces over time.

>>Due to that, he owes an early withdrawal penalty on his 2009 1040<< Due to what? Using a retirement plan in a divorce settlement does NOT necessarily incur a penalty. There must have been some additional settlement terms, presumably with offsetting concessions. Well, to answer your question, an Offer in Compromise is a net worth calculation looking forward five years. As JohnH explains, the taxpayer can cover the bill in that time frame. The IRS generally has no reason to accept an OIC for anything less than they can collect anyway.

>>how you can decide the taxpayer's intent<< I didn't decide it. I just said it appears that way. To me, it doesn't seem he intended to hold it for investment because he didn't hold it for investment. He sold it instead. And it further seems to me that he held it for a purpose other than investment because he treated it as other than investment.

>>I would argue that the deduction in 2008 was an error due to the taxpayer being a "small person" not knowing what he was doing... Always ask the taxpayer his intent rather than assume or decide his intent. << In my opinion, these two sentences are contradictory. Why would you assume that a professional does not know whether his work is professional? I don't understand your interpretation of intent. It's a pretty vague concept at best, and is generally understood in terms of what actually happened. In this case, it appears he intended to respond to an economic slowdown by developing a new market for his business skills and resources in a short term construction project, reporting the activity on his business return. Apparently he did not intend to hold the property for investment. At least, that's the way he actually implemented whatever his true intent was.

>>skew the taxes actually withheld<< I'm not an accountant, but I don't see how a credit would affect what was withheld or even how withholding was recorded. How do you handle other credits like Advanced EIC? If you claim that on Form 941 for one employee, would it "skew the taxes actually withheld" on other employees?

>>n the construction business, does this have to be reported as Sch-C<< Seems so to me. He's a builder; that's what he does for a living. He wasn't holding the property for capital appreciation, that is, profit from the action of market forces over time. His profit was a direct result of his own professional activity. And obviously he himself considers it all part of the same business, since he deducted his operating costs (including what should probably have been cost of goods sold) as business expense. And not just on the tax return--I would guess he used his contractor's deduction in purchasing materials, charged it to the business account, paid it out of the same checking account used for other business income and deductions. In my opinion, you haven't given even a single fact that points to Schedule D.

>>posted several deposits incorrectly<< Since it was wrong, you can't assume you know what the error was (if it was even an "error"). We had a post on this forum some months back where the service was saying something weird like calling the gross amount 103%, or saying you get 100% plus we get 3%, or something. Another interpretation would be to take the commission out before applying the 97%. Anything is possible.

>>purpose of the trip is to attend 3 days of training to pass the EA exams<< It would be deductible as a business expense, but I really doubt it will be much use for passing the EA exam. The seminar topics are not exactly advanced, but they are intended for experienced practitioners who need more context than just the basic tax rules. The EA exam doesn't get much beyond Pub 17 (and comparable references for the other sections).

>>any payment made by the brother will not be deductible on the partnership return<< Ummm, yes, well there isn't any partnership return and the brother isn't going to make any payments, so I suppose that's true.

>>I meant to say<< What I meant was that relying on tax benefits makes a poor business model. I'm sorry he has to go back five years to find any decent numbers, but the whole world is pretty much like that these days. I think the idea of the carryback is that the big losses we are seeing now can in a sense be blamed on what was going on three to five years ago. I do admit to some political bias in my economic analysis.

>>TP is getting hit with AMT when I throw in the NOL<< I'm always uncomfortable about the term, "hit with AMT." AMT is a normal part of the system, somewhat more predictable than regular tax. And you shouldn't "throw in the NOL." That is something for which you have a number of planning options. Remember to calculate and apply the AMT NOL separately, for both the current and carryback years. It's a lot of work.

>>use short tax year for a Sch C<< A sole proprietorship is not a separate entity. Virtually all individuals file on a calendar year, so there is no such thing as a short year. Use mid-quarter convention in the ordinary way. It is technically possible that an individual could hold assets subject to a short-year depreciation schedule, if they were converted from a corporate entity.

>>who gets to deducts it?<< In my opinion, it sounds like the transaction would have no tax effect at all, so (as I already said), tax treatment of the rental including the purchase mortgage would continue as before.

>>Where did they get my phone number as I have never done any business with them? Hmmmmm?<< They bought it from ATX, TRX, Drake, or whomever you HAVE done business with, and/or the IRS. Hmmmmm. But ya gotta admit, it is pretty uplifting to see that there's still a dozen different tax software publishers out there.

>>TP was thinking it was going to be treated as it was a refinance<< I believe you are right, and I shouldn't have called it a sham if there was no intention to deceive. "Invalid" would be a better word. In this case, the "sale" was just an unusual form of refinance. Private money often takes unusual forms. Tax treatment of the rental including the purchase mortgage would continue as before. Note however that any costs or interest payable to or on behalf of the brother would not be deductible as rental expenses, because the loan proceeds were used elsewhere.

>>there is a sales contract.<< A sham transaction--apparently there was no intention to transfer the rights and responsibilities of ownership. Did he record a new deed, which would probably have triggered a due-on-sale clause in the mortgage? To me this looks more like the brother lent him money secured by the property, economically similar to a second mortgage.