jainen

>>Does the son have to claim himself<< As I read the scenario, the son CAN'T claim himself anyway.

>>there is $6,560 of value left in inventory<< There are any number of possible reasons for the discrepancy. The adjustment on the books should, in my opinion, be in accordance with whichever one is true.

>>The test is 'gross income' not 'taxable income'.<< In my opinion, gross income is the same as Adjusted Gross Income without the adjustments. The chart on page 3 of Pub 501 at My link defines it this way. "Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax." It then gives an example of only counting the taxable part of Social Security. The same sentence is repeated on page 17 in the exact context of qualifying relative, with reference to "all taxable unemployment insurance."

>>the tipping point the affair, or the taxes? << I wonder which one had the affair. Probably the guy--we're such pigs anyway, and it kind of looks like he wasn't finding much love at home. But how come nobody's made any sick jokes about Form 8379 yet?

>>City bought part of taxpayers front yard<< I think you get your choice of several nice options. Yes, they can take the 121 exclusion--if they sell the rest of the home within two years. Or they could treat it as an involuntary conversion under threat of eminent domain, and roll the basis into new property. Or just recognize any gain this year if they are in a low tax bracket. And the basis itself has some options. Should you allocate the whole basis equally by square footage, or was the roadside more or less valuable at the time of purchase? I think they might even be able to pocket the cash as a return of principal and simply reduce the basis of the home by the same amount.

>>a red Chevrolet<< I always appreciate when a reporter includes all the important facts.

>>There is a limit to how much babysitting we should be expected to do<< There is also a limit to how lazy we can be in our professional duties. Pub 1345 at My link plainly says, "Providers with repeat customers or clients should check to see if taxpayers have new accounts. Some software stores prior year’s information and reuses it unless it is changed." Later it even says we should tell clients to verify the current number with the bank! In my opinion, the preparer is responsible to make sure the client understands what we are asking and provides consistent information. In many cases this year, RTN's have changed with mergers, even though the account seems to function the same. The level of service you are describing, kc, is more typical of the national chain refund mills.

>>give additional comfort to LLC members<< I'm not convinced that the IRS is altogether uncomfortable about this. In forcing the issue into court, they don't have to deal with Congress when they decide, for example, that LLC's are deemed to have a reasonable wage or SE income. Meanwhile, plaintiffs' attorneys are looking for additional holes in the shield of limited liability, and material participation has a nice sound to it.

>>Can she sign the e-file authorizations for both of them<< It is not clear from your two threads [this and My link] that the widow is the executor or personal representative. In my opinion, you should determine that before you prepare forms for signature.

>>make it a practice to have the client verify the bank account entries.... This mistake is not your fault << In my opinion, these two statements are contradictory. This was absolutely a failure of proper interview technique. As I say over and over and over on this forum, we can not simply assume anything on the tax return.

>>It's a stupid move<< It isn't an all-purpose solution. But it's a reasonable way to shelter money from corporate tax rates, pay kids' allowances and build retirement accounts, generate Social Security credits, and all sorts of other things.

>>learning more about a TIC 1031 exchange<< Your problem is not title as such. The nut is the property itself. Since the project is being developed for sale, it is not eligible for 1031 treatment, plain and simple. That is, it is not being held for investment or productive use in a business. It would be a neat trick--maybe some clever lawyer could write it up with the developer renting the property back or something, and in this market it just might meet the customary two-year holding requirement. But don't forget the original gain is only deferred. If the project ends up in the hole (and presumably it's already in trouble which is why they are looking for non-conventional funding sources), she will have lost her cash but still have a big tax bill. And that's just from the mother's point of view. In any case the developer has to pay tax currently on the disposition of 1/3 of his inventory. I'm telling you, stop browsing the Internet and go see a real estate attorney.

>>TP would have to report on his tax (related party transaction) return the 1031 exchange<< Section 1031 is one of the few parts of the tax code where FORM is more important than SUBSTANCE. You must get everything set up EXACTLY right. Talk this over with a qualified intermediary, someone really smart. If they don't tell you they have to look up the answer, find someone else. It will be very difficult to call this a 1031 exchange. The mother can not exchange a house for corporate stock (securities are never 1031 property). Nor can she exchange into a partnership arrangement. If she sells to the corporation she will be taxed. If she exchanges first she will end up with another property and still have the same problem. The corporation can't acquire the house and then do an exchange, because they will not have held it as a rental. They can't exchange one of the condos for the house because those are inventory. I'm not saying you can't find a way to do it. You just won't find it on the Internet.

>>well below what it would of cost to hire a contractor<< Indeed, and that's why there is no further tax break. Payment to a contractor would be considered as made with after-tax funds. If he had wanted to include his labor in the basis, he should have paid himself a taxable wage. I am not being sarcastic this time. This is relatively common. The wage is typically paid through a corporate or other entity.

>>They have two kids together<< Taxbilly has a great link worth quite a bit of study time. One way to summarize it is to say that the two households must maintain separate finances. In my opinion, that refers to all finances, not just the housing costs. In that sense the taxpayers in the original post are not likely to qualify. It is not reasonable to assume that a parent earning $80,000 is not contributing anything to the support of his own minor child with whom he shares living space.

>>A will do the same<< Presumably B got some 2009 gain out of the deal, but it seems me that A did not have a taxable event in taking the distribution of property while dissolving the partnership. In my experience, however, nothing is what it seems. At least, what it seems to me--I invariably get everything wrong at first glance. In the original post, I would not sign a tax return until I had examined the partnership agreement and buyout and the real estate escrow, looking closely at how assets were titled and who was responsible for what and so on.

>>a personal residence which was temp rental until sold<< A lot of times I'll do stuff like this by hand, then plug the numbers into the software using overrides. It just isn't worth the time and trouble to learn whatever weird workaround some kid programmer patched together to pacify his quality control supervisor. It's not like you are going to run into any more of these this year, or even if you did you'd probably already forget how or it would be a little bit different or something.

>>someone has a better idea<< I have a better idea. Follow the IRS instructions. Use the software the way it was intended. What's wrong with an override? I use Lacerte, and it has exactly the same procedure as ATX. Manually enter the numbers for lines 2 and 9. That is LESS work than ginning up lines 1 and 8 with a whole description of fictitious entries.

>>Auditor kept my client waiting 53 minutes. Unreal<< It sounds real enough. Do you think, if you had walked out, would that have helped your client's situation?

>> Is the IRS nowing accepting returns by e-file that include the D-1?<< IRS instructions since at least last year are to attach the D-1 (or equivalent) to Form 8453. I presume that any professional grade software would have to conform to this requirement in order to get IRS approval.

>> theres no record for form 2553 << In my opinion, one should not skip over the matter of reasonable cause. Although the IRS has been tolerant of late elections, it is best to give them something to agree to, besides that the corporate officers just forgot to do it. I think you should insist the clients try to find SOME proof of the intention to file, such as a copy of the 2553 as signed and dated (bonus points if it's not on the Dec 2007 revision), memo or phone log from when it was being discussed, board minutes--whatever. And make a reasonable effort to explain why they didn't follow through with filing the form. In my further opinion, an important factor that is not shown in the official requirements is to demonstrate with affirmative facts that the decision to be a S-corp was NOT made later, after the business loss was known.

>> If he was into making these bills<< Thanks for clearing that up, because I was thinking, like it's already included in inventory as cost of goods sold! By the way, is getting caught with funny money an ordinary and necessary business expense? Seriously, and assuming he received the bogus bucks from a customer, he should probably just back it out of sales or whatever income account it was in, similar to a returned item or a discount. If it came from a vendor, employee, or himself (even innocently) I suppose that would be different.

>>questions that he had to answer as to the origin of the bill<< Ummmm -- I think before I give you my answer, I'd like to know what HIS answer was. If you know what I mean.

>>This was really a business investment of sorts<< In my opinion, that's probably a fairly difficult argument to support. Your first step might be to determine if this was a bona fide loan (enforceable right of repayment, etc.), an equity stake (the normal definition of investment), or just a waste of money. Different aspects could be treated differently. For example, office supplies in an accountable plan might be considered a non-business bad debt, while unpaid wages would simply be not added to income.

>> I can't imagine how 'out of state' and 'stayed in a motel' and '3 months' could make me think 'temp job'? << That's why I put up two fairly common examples of when it would not be temporary. Do you need more? If the trip was not primarily for work so he spent more time on vacation or settling an estate or hiding from the U.S. Marshall, the housing would not be deductible. Why does the original post only ask about 50% of the rent? Doesn't that make you wonder if maybe the business purpose was not more than half the trip?