jainen

>>'inventory' or 'freight' is not "Use"<< Then neither is the nominal ownership by a leasing company, which never even had possession or control. Cite some authority for your position. (I'm glad we can all have a friendly root beer over this. It isn't very often I get to argue the deduction while you others take the IRS point of view.)

>>It's original use was as rental property<< Before that, the dealer used it as inventory. And before that, some trucker used it as freight.

>>as long as the auditor isn't standing at the doorstep<< Always a very useful attitude, easily adapted to other activities such as driving a car and shopping for small valuables.

>>If he uses all his SS benefits for his use, is it "his own support?"<< Social Security Disability is support provided by himself. SSI is third party support which counts under the qualifying relative rules but not the qualifying child rules. [EDIT] That is, SSI is not self-support, so it allows qualifying child. But it is also not support provided by the parent, so it counts against qualifying relative. This comes from the Worksheet for Determining Support in Pub 501, which identifies welfare payments as not "funds belonging to the person you supported."

>>a 1 percent chance of getting audited<< I always enjoy silly articles like this. According to the author, the stat includes IRS correspondence to the tune of three out of four of these audits. Do any of you know a tax preparer who doesn't get more than one IRS letter for every hundred clients? There used to be a saying in this business--if you aren't getting audited you aren't being assertive enough.

>>There is no official note and there has been no interest accrual.<< In my opinion, it sounds more like an equity contribution than a loan.

>>To my way of thinking... he used the vehicle<< Can you see that I QUOTED the code? It says original use. It doesn't say original ownership.

>>from the House Bill of January 9, 2009.... Typically confusing language. << It wouldn't be so confusing if you would stick to what the final law actually says.

>>he cites IRS Publications as "authority."<< Why shouldn't he? IRS Pubs ARE authority, albeit very weak. They don't count for much in Tax Court, but they are appropriate and amazingly useful in an examination. Basically auditors don't have a lot of training and don't feel comfortable away from Pub 17. That's why you should be very very familiar with it, and all the relevant pubs for your client's issues. They almost always mirror the actual regs, so if you are right (as I believe you are in this case) they can get the job done. Few things besides tax protester arguments will turn an auditor against you faster than slinging Tax Court citations around the cubicle. Sometimes that works with an Appeals Officer but since 16 judges don't support your position you probably want to avoid going to Appeals. You'd better work out something that even an *** can understand. For example, you might TACTFULLY suggest that Pub 17 (page 21) says the 20% penalty is based on the amount of underpayment, which is a bottom line sort of thing way past Line 44. And that when it says "correct tax," it's using exactly the same term the Instructions to Form 1040 use for what you are responsible to pay, and it's likely that means the whole thing. But maybe you don't think IRS instructions are good enough either.

>>Tax Prep Fees Average $229<< Awesome! According to that there survey, us Californians (with our colleagues in OR and HI) are worth at least 15% more than any of you other guys! Up to 113% more! (Our AK and WA colleagues don't do state returns, so they are either bringing down everyone's pay rate or they are cheating their clients.) By the way, does anybody know any of those 40% of all preparers who won't even get into a return until they see the cash? I'd like some tips on implementing that procedure, but I've never even heard of it before.

>>The Master Guide states... << Would you say that accurately reflects the Tax Code section I quoted?

>>Handy to print for a client with questions.<< I think it's an odd chart. First of all, it should be labeled QUALIFYING Child Related Tax Benefits, because it doesn't say anything about children as qualifying relative. And that's where most client questions come up, so in that sense it's kind of misleading. For example, it is not true that a child must live WITH the taxpayer for more than half the year to claim Head of Household; a qualifying relative might live there in some different months. Similarly, a dependent child does not necessarily require one of those specified relationships. And even with a qualifying child these benefits are not available to all taxpayers due to income limitations, tie breaker rules, etc. Note that all the boxes in each category are the same anyway, except a couple for age and a couple for support. So all in all I think there are better ways to explain things to a client.

>> David << Did you happen to notice that, although I fussed about somebody else, I didn't cite any authority for my own position either? The answer to your question, on the appropriate use of Form 8606, is to READ THE INSTRUCTIONS.

>>Form 8606 wouldn't be appropriate in this case would it? << I will answer your question after you tell us the amount of the excess contribution.

>>the correcting distribution is not taxable<< You got a sympathetic post in this thread, but it doesn't cite any actual authority for your position. I think the distribution is only non-taxable in proportion to the basis tracked on Form 8606--that's why you filed that form. And unless you come up with some other rule, the 1099 must be treated as correct, and an early distribution penalty assessed in the normal way. Form 5329 only has certain specific exceptions, and your clients' situation is not one of them. You didn't mention if they calculated and withdrew the earnings as well, a important point of consistency for the position you are trying to support. As for both taxpayers not paying attention to what they are declaring under penalty of perjury for years and years, that's not much of an excuse.

>>link doesn't work<< Fixed it, thanks. >>Page 11 says code 8 is used for IRAs<< Well, yes, but that is irrelevant here because it's only in reference to section 408(d)(4), the title of which is "Contributions returned before due date of return."

>>this is not a new vehicle<< Let's think about this some more. The code doesn't say it has to be new at the time of purchase. Section 164(B )(6)(d)(i) says, "The term 'qualified motor vehicle' means... and the original use of which commences with the taxpayer."

>>Wouldn't the correct code be 8<< Code 8 is only for 401(k) and other qualified plans, not IRA's. At least, that's how I read the Instructions to Form 1099-R at http://www.irs.gov/pub/irs-pdf/i1099r.pdf . In a qualified plan the participant does not have as much control. Code 8 usually represents an inadvertent excess contribution determined after the books have been closed. For example, it is used for highly compensated employees whose contribution must be adjusted in proportion to the total payroll. But right then, not four years later. In the original post, the investor knew about the excess contribution so he must have had a particular reason to leave it in place. Now he's stuck with the implications of that choice.

>>Form 5405 Draft<< Thanks for the warning. I can hardly wait for the instructions 'cause there's gonna be questions. It seems to say any credit taken on 2008 return is subject to recapture, even if bought in 2009. It seems to say you can only claim "your share" if you have a co-buyer. It seems to say you have to attach a HUD-1 in all cases, even if bought before the law changed, unless you claim it on the 2008 return, even if bought after the change. And it definitely says you have to use the 2009 form on some 2008 returns--can your software handle that? An no mention of e-file restrictions. Apparently the instructions will also express an opinion relevant to our discussion about purchase date .

>>CCH Intelliconnect did not pin down the meaning of "tax required to be shown on the return"<< According to Section 1.1662-4(3), The "amount of the tax required to be shown on the return" for the taxable year has the same meaning as the "amount of income tax imposed" as defined in §1.6664-2(b ). That definition is "the amount of tax imposed on the taxpayer under subtitle A." Subtitle A is the part of Title 26 called "Income Tax" and covers pretty much everything on Form 1040.

>>I have the internet browser on the right<< Hmmm, that DOES sound more gooder. That way I wouldn't have to turn off the adult content just because it's taking me all night to enter some shoebox full of hand-written proof of "business lunches."

>>you will have the exact same thing on both monitors<< That's exactly why I don't bother with dual monitors--just 'cause one is good doesn't make more than one more gooder. I'll come on board when we got software that will show DIFFERENT things. You know, I don't always want my client seeing exactly what I'm up to. And then there's those divorced couples who still both insist you have to do their return. It could also be useful in IRS audits and all sorts of other situations.

>>issue a corrected 1099-R with the correct code<< What do you think would be the correct code? This certainly sounds to me like a Code 1 early distribution. Since you have filed Form 8606 (presumably every year) it is easy to determine the non-taxable basis of the distribution. Note that double-taxation can hit in some cases of excess contributions. Too bad.

>>this taxpayer is not constructing anything.<< In a sense, all construction is modular. The carpenter does not work with logs, but simply assembles pre-formed lumber. The glazier does not construct windows, he just installs standard frames. There is no magic threshhold beyond which the modular units have "already been constructed by someone else." If the walls are stored in a factory warehouse, signing a contract does not constitute a home purchase under Section 36 as quoted above.

>>he is only watching delivery<< According to the original post, the home was "delivered and set up." Pre-fab isn't actually standard terminology. It usually refers to a modular or panel building that is assembled from major components on a constructed foundation. If it is instead more like a mobile home that is transported intact and simply placed on blocks, I would be less certain.