jainen

>>I don't do many of these 1120's<< In my opinion, that's why you need to read the instructions. The front page of the instructions to the form named in the subject line of this thread says, "Capital losses are allowed only to the extent of capital gains. A net capital loss is carried back 3 years and forward up to 5 years as a short-term capital loss." http://www.irs.gov/pub/irs-pdf/i1120sd.pdf

>>What had happened was that years ago... << I take back what I said about it sounds like capital. In my opinion, it sounds like a lame excuse to hide dividends. Since the corporate records don't show it as capital, are inconsistent about it being a loan, and only barely suggest the contribution even happened at all, why in the world would a responsible tax preparer be asking such a question?

>>How would we know if their employer used the reduced tax tables?<< In my opinion. it makes no difference at all to the tax preparer. We will simply complete the tax return and determine the total tax liability in the usual way. Then we will apply the withholding, estimated tax, and refundable credits including Make Work Pay, and the result will be a balance due or refund. Presumably many people had less withholding, and that will show up now as a smaller refund. When this was first announced, it was sometimes said that "you have to pay it back" but the same could be said of advance EIC. In my opinion, you actually get the same money either way, in a bigger paycheck OR a bigger refund, or maybe a little of each, but not both.

>>offer a final consultation<< Let me say further, get used to it. In my opinion, times have changed in those twenty years. Now it IS easy for businesses to do accounting in-house, with powerful computers and software, Internet research and training, and all. At the same time, accounting requirements have grown. Consider how much more is needed for compliance with state labor laws, how efficient the IRS has become, the results of the Enron scandal, the intensely competitive marketing environment, the truly bizarre world of business valuation and financing. I mean, how does he plan to talk a bank into reading his self-prepared Quickbooks ledger? In my opinion, there is plenty of opportunity for you to build a lot of new business services on your long-term relationship with this client. Why not become a QB Advisor? Or specialize in some of the more interesting issues that clients can't handle. In my opinion, if this guy's been in business twenty years, there must be certain matters that it's just not cost-effective to spend his own limited time on.

>>he should be paying for it before he picks it up.<< In my opinion, while there is a certain fairness in that position, it violates the ethics code of CPAs in most states. However, in my opinion it would be perfectly appropriate to offer a final consultation to explain any unusual treatment in the books and advise him how to convert it all to Quickbooks. For a fee, of course, and NOT during your busy time. If he declines, then in my opinion you need not return anything except the source documents he originally submitted to you. (Some practitioners would say you should also provide depreciation schedules and other documents you acquired or created that have been paid for.) Keep it friendly and business-like, and don't forget to ask him for referrals--I would guess he waited so long to tell you because he feels embarrassed and guilty.

>>if you turn 65 on Januay 1, you can take the additional standard deduction for being over 65 the year before you actually turn 65.<< Not exactly. In my opinion, if you were born on January 1st 2000 then 2000 was your first year and you were one year old at the end of it, that is, December 31st, 2000. We normally say you turned age 1 on your birthday, January 1st, 2001, but technically that was the start of your second year. 2064 will be your 65th year, so at the end of it you will be age 65. The end is a part of the year, so in my opinion you can say you are "65 or older" in 2064. But that doesn't mean there was an exemption for 1999--in my opinion that was before the first year.

>>39 years because it is NOT residential<< That is probably correct in terms of the test, but it is not good enough for an actual client. There is nothing in the scenario to suggest the office building was used for a depreciable purpose by the taxpayer, or what purpose that might be. Many office buildings have been converted to residential use, often as "lofts." Even if the property is used for a business purpose, the old furniture might be dumped. The question is not what the property is at the time of purchase, but what it is when placed in service.

>>The attorney/CPA who did the previous returns is a 'Trust and Estate Planning' specialist, so I kept assuming I must be misunderstanding the research material.<< A reasonable assumption. What made you think otherwise? Tell us what research material you are looking at, and what it says, and maybe we can help you see it differently. I'm particularly curious about who told you that "the trust 1041 should be bifurcated." [it is true that tax work gets easier when you wear bifurcals to look up at the computer screen and down at the papers.]

>>you refer to me as a "capitalistic pig"<< Not you, buddy. I meant exactly the same thing you did when you introduced that "shrill" term. All my comments are in reference to the article, not your post. You still haven't told us if there is anything in the article that you think would be worth discussing. Did you finish off that vodka yet?

>>I'm willing to go the certified appraisal route<< Having a current appraisal from the most famous name in town might attract offers. You would probably not have to order a retroactive appraisal, if you keep excellent notes of your discussion with the professional who is already looking closely at construction quality and market trends.

>>the Capitalistic Pigs that read the WSJ<< I'm not talking about the political viewpoint. Everyone (more or less) is entitled to their own opinions in America. But it's not too much to ask that whatever you want to rant about actually be similar to what you don't like. For example, the author calls California registration the "IRS blueprint." Well, in California registration is NOT enforced by the government at all, but by the tax industry itself through a non-profit corporation called California Tax Education Council. The government does not even appoint CTEC members. Even a capitalistic pig should be able to understand the value of capitalistic pigs running the show. Why, he even quotes one saying that very thing!

>>a fair amount of venting going on<< That's a relief. I was hoping you didn't want us to comment on the factual content of the article, because I was having trouble finding any.

>>can this be reported on Sch C (or F) or does it have to go on a 1065<< It can be reported on one Schedule C, two Schedules C, a 1065, an 1120, or an 1120-S, and even certain other possibilities, depending on how the actual company is operated and the decisions of the owners. IN ADDITION, Texas (and other states) require the LLC itself to file a franchise tax return.

>>the balance of the loans would be a Business bad debt<< Generally a loan to a corporation would be considered an investment. Although the corporation itself may have used the money for operations [a fact that can't be assumed], that is not a business purpose in terms of the shareholder. Actually, the way the supposedly secured assets were sold off suggests to me that the books are wrong and the funding should have been treated as an equity contribution, at least now if not originally.

>>open this word doc<< Anything in particular you wanted us to discuss?

>>it couldn't sell for that - even in July or August<< I agree. Fair Market Value is determined by the market, and only suggested by real estate agents, county assessors, and internet sites. Suppose the market had been strong and the property sold immediately for $35,000 more than the asking price--would you be willing to pay tax on $35,000 "gain"? We don't know how the IRS will react to large real estate losses when they look at 2008 and 2009 returns. To put your mind at ease, discuss the issue with a certified fee appraiser.

>>none of the 4 CPAs wanted to deal with<< Accounting deals with a great range of things, so CPAs generally focus on certain areas. Find one (or an Enrolled Agent) that does accounting and taxation for corporations and trusts. I don't think you have any problem with the way it is set up as long as all income is being distributed each year. The QSST is a separate entity and should be filing it's own tax returns with a K-1 to beneficiary. If you treat it as a grantor trust it will not be eligible to hold S-Corp stock.

>>specifically tells how the purchase from a Trust would be handled<< A trust is just a separate entity, no different than buying from a corporation or an estate. The related party rules don't go very deep. Being related to a beneficiary should not be a problem. IRS used to have an FAQ page on this credit, which said you can even buy the property from your spouse's parents! [i can't recommend that, though, for non-tax reasons--your in-laws will still consider it to be their own house they can visit anytime.]

>>"It's the moms and pops that don't and could be forced to close if they have to." << I don't appreciate the financial press belittling independent tax preparers. In my observation, small shops generally have a far higher standard of quality than franchise operations. There are some people--bookkeepers, mortgage brokers, and other professionals--who do a little tax work as a convenience for clients or supplemental income. They may give that up if they find annual update classes too much trouble or expense for three or four returns. A similar situation has happened with financial audits, which has become an expensive specialty for CPA's because of the requirements for training and peer review. Companies like ATX will need to adapt to the loss of low-end preparers. Perhaps they will bundle qualifying training with the software, offer their spreadsheets as standalone modules, or add features to compete at higher prices. Anybody have some other guesses about how registration will change the tax industry?

>>Quick Books Small Business pg D-5<< [The citation explains that if all shareholders agree when a 20% share is disposed of, income can be allocated as if there were two short years. This does not change the way the return is filed as a single full year.] One would expect a corporation with net income would have at least a going concern value even if no assets, so a 20% share would represent some amount of equity. But there are various reasons why that might not translate into FMV for the stock. To be thorough, you should document the applicable reasons (assuming your position is that the transfer was an arms-length transaction). Your own notes of the interview should be sufficient for the purpose.

>>the scorp will elect to file a return as two short years<< Why is that exactly?

>>completed the returns on the other computer<< Standard backup and sync applications are common for laptops and work with desktops too. They offer various ways to update both computers. You software may not automatically recognize the new files, so you will probably need to let it rebuild the database, usually a very easy process.

>>the Crusaders were clearly acting in violation of the written teachings of their faith<< It wasn't so clear to them. That's why they called themselves Crusaders. Which (let us never forget) is one of the words our President used to justify the Iraq war. So let's get off this us-against-them hysteria and try working together, which is the written teachings of OUR faith.

>>I will limit my practice to prepare their taxes with forms they brought me.<< If you asked her to verify, for example, her legal expenses--you might conceivably find that they actually related to her employment termination rather than setting up the new business. But I would not find that because I would not ask that, because her explanation is plausible and the amount is reasonable and there is no apparent contradiction with other facts. Nor would I question getting a W-2 and a W-2G in the same year; like you I am not concerned with whether the payment was right or wrong, just with how to report it on the tax return. But when she claims a credit based on certain rules about school and employment, while showing evidence that she was not in school or working, in my opinion that is an inconsistency which (according to Circular 230) must be resolved. I already suggested some possible resolutions, and you suggest another, but personally I would not simply guess at what the facts are. Obviously, if we do simply guess at what the facts are, "almost everybody will come with different answers." In my opinion, guesses are derived from the way we think, and obviously you and I don't think the same way.

>>When she was employed doesn't matter<< In my opinion, it certainly DOES matter, because if (and only if) she incurred the $2500 of child care expenses during months when she was employed or in school she is probably eligible for the Child and Dependent Care Credit. Now it might seem from your revised scenario that she was continuously employed either in her W-2 job or her day care, but in my opinion that fact is inconsistent with the fact that she was drawing unemployment insurance benefits (the most likely but perhaps not the only meaning of "unemployment compensation"). As a full-time student and/or with full time employment or self employment she could not be eligible for that, so in my opinion further inquiry is required to see whether she received it as, for example, a lump-sum settlement on a prior claim. Or maybe she was lying to the UIB office, in which case I would wonder if she were lying to the tax preparer too.