jainen

>>Jainen and Old Jack are NOT telling you<< Both OldJack and I have posted this information many times on this forum. A half dozen of the most active members of the TaxBook forum were blocked during a change several years ago. No reason was ever given, but it was apparently related to several threads on the political implications of tax policy, a common theme that is handled pretty elegantly here. If you wonder what our positions are, you need only review a few days posting. I hope you would find my open skepticism to be deeply rooted in high ethical standards for client service and an indefatigable pursuit of statutory authority. Well, I can freely admit my review of Quickfinder and its competitor are colored by the same bias. It is anybody's guess why the publishers of The Tax Book didn't want such posts.

>>try to get someone to review again<< Another way is to paste a link to the earlier post.

>>Home was purchased prior to November 7th and therefore doesn't qualify.<< NOW I will express an opinion. I challenge anyone to cite some authority supporting what Taxbilly just wrote. The code section I QUOTED above clearly states the date of occupancy is considered to be the date purchased.

>>The Tax Book is written by people who actually work in the tax business and thus they have unique insights into the needs of tax pros<< I always thought this was an odd marketing claim. Are they implying that "Competitor Q" is written by a used car salesman? I mean, is tax practice just a sideline for TaxBook authors, or is publishing their book the sideline? And are their "unique insights" related to tax pros in a national franchise, a big accounting firm, or a solo office? 'Cause they sure don't put those insights into a book about tax practice, like Quickfinder does. And QF even offers a companion volume all about my state, California. And lots of other great books on accounting and planning for tax professionals, If you don't trust Quickfinder's professional legal researchers, it is easy to check because they fill their book with citations--PLR's and court rulings as well as code regs. And it truly lives up to its name because whatever you are looking for, you can find it quickly. When the TaxBook first came out I was impressed by their more detailed index. It turned out they had to do that because it's not so easy to find what you need where you expect it. Still, there was one thing I didn't like in my 15 year Quickfinder subscription. In 2004 when the qualified child rules were expanded from EIC to all five benefits, I thought they had a weak explanation for Head of Household.

>>your answer or opinion<< I simply quoted the code section, without expressing an opinion as to how it would apply to the original post.

>>They didn't get the keys to the house or could move into the house until after Nov. 6.<< According to the definition of "Purchase" in code section 36, "A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence."

>>we don't have all the information about this case on the newspaper article<< Hey, that is NOT a news article. It is a columnist's rant, and by now we should recognize the difference because it affects how we think about everything from the price of food to the war. The author starts by saying "IRS pounces" so it's pretty obvious he is going for the emotional angle instead of straight reporting. He even admits he is not giving you all the facts. He gets away with blatantly slanting the news because he is a "columnist" instead of a reporter. So of course we don't have the information we need. All we have is the self-serving excuses of someone who apparently got caught cheating. She blames the agent who caught her. Listen, she was flagged for the extremely common reason of claiming just enough SE income to reach the upper range of EIC. Well, I suppose you can call that "trolling for the working poor" if you enjoy colorful language. Still, the IRS accepted her explanation of low rent, so it is misleading to write, "They said she was too poor to make it in Seattle." (By the way, "lifestyle audit" is always an element in IRS examination, but in spite of the author's selective facts it doesn't seem to have played much of a role in either generating or resolving this particular audit.) The author then says the parents were also audited. Apparently they are well-known to the IRS who has reason "now and then" to question their business reporting. Perhaps this time the IRS was interested in that rental income, but again, they accepted everything just fine. So what was the issue? Well, it sure wasn't that "Rachel's kids now are in tax limbo." That's more rhetorical nonsense. The personal exemption for two dependents in 2006 totaled $6600, but her tax adjustment was only $1438. Probably the difference is standard deduction and tax rates for losing Head of Household status. Now let me ask the forum, what do you all think about an accountant charging $10,000 for a Head of Household audit? Note that the client could have got the same result for free from her own tax preparer.

>>Surround yourself with what you love<< Hmm, well that would be me kids, don'cha you know. And thems what made me feel so dang old in da first place!

>>disallow principal portion of corp payment... any depreciation.... large constructive dividend.... we need an auto reimbursement plan<< My advice is to set up an auto reimbursement plan. In the meantime, amend the shareholder's return to report the constructive dividend, and arrange payment for the extra corporate tax, penalty and interest from the disallowed deductions. And keep your head down if you prepared the tax return, because it took a position without any reasonable basis or substantial authority. You might be able to salvage something by treating the payments as constructive wages instead, but generally the sooner you get this audit closed the better off you will be. Yeah, yeah, I know. "It was the client's decision."

Check this out. http://tax.aicpa.org/NR/rdonlyres/59F11538-2F23-4583-84A5-ED06D01CDBCC/0/SSTS_Online_PDF.pdf I guess that few of us on this forum are members of AICPA, but clients can still hold practitioners to common industry standards of ethical behavior. For 2010, this organization is raising the bar a bit more. In particular, it is no longer enough that a position on a return one signs be non-frivolous. Now it must have a realistic possibility of success, or at least a "reasonable basis" with adequate disclosure. In my opinion, tax professionals who continue to say "let the client decide" are acting unethically.

>>the taxpayer is disquailfied from the credit if they owned a home and it was their principal residence<< Section 36(c )(6) (Exception for long-time residents of same principal residence) says, "In the case of an individual (and, if married, such individual's spouse) who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence." While "subsequent" can sometimes be considered as a synonym for "next," it is usually used in the more general sense of "later." So the code doesn't say "THE subsequent principal residence," just "A subsequent principal residence." (And before you ask, NO, that phrase does not contain any plurals.)

>>because he is not working << To which you must reply that you ARE working.

>>split the transaction into its components<< Once again I must caution against letting tax considerations overrule basic financial planning. For whatever reason, this organization can not convince normal lenders that it has the ability and/or intention to repay. Does the client really want to risk losing his HOME in that context? Maybe he could take a lien on the organization's assets in exchange for a personal guarantee on a loan they take out. Or something. For taxes interest expense will just offset interest income, so really that's not the most important thing.

>>a long rusty pole<< Yes, but those snooty neighbors had a new one with a bunch of short crossbars which meant they were getting special extra channels.

>>made-up marketing words<< My folks had a Desoto with Fluid Drive. And I remember when Dentyne prevented cavities, and when Wonder Bread only built strong bodies eight ways.

>>since home 2 was the principle residence and it was not owned 5 out of the last eight years<< Five out of the last eight does not mean the LAST five out of eight. That would be five out of five. You can count any five consecutive years within the eight year window. Therefore home #2 is irrelevant to the question. Suppose they had rented it instead of buying--they would still meet the 5 out of 8 test.

>>they basically said "tough"<< I can't say what might happen with the return. Maybe nothing, ever. You are dealing with COLLECTIONS now, so why not approach it that way? Arrange a reasonable payment plan that will stop the levy, then file an Offer in Compromise based on doubt as to liability.

>>She recently sold it<< A 1031 exchange involves trading only PROPERTY for PROPERTY. That's where the "like-kind" comes in. Since your client has already sold her lot, she no longer has any property to trade. Instead, she has money to buy new property. It is common to use an intermediary to buy the replacement property and then complete the trade. That must be arranged ahead of time; it's too late now. The sale was taxable.

>>these jerks didn't notify me of that fact<< Why should they? Did they not provide the service they promised at the price you agreed? Read the first part of Matthew 20, and chill out.

>>2010 Standard Mileage Rates<< Thanks for posting this. Besides just listing this year's rates, it is a well-written review of many related issues. Note that although the rate goes down 10% this year, the basis adjustment goes up 10%. Also note that if you take standard mileage allowance the first year (instead of Section 179), you can switch to actual expenses but NOT to MACRS. And of course taxpayers setting up those popular S-corps and LLC's don't get to use the standard mileage allowance at all on a business return other than Schedule C.

>>If anyone's response to this question is emotional, it is yours! << Yes, I admit I am uncomfortable with the proposal, and I can only plead that my bias interfered with understanding what you were saying. Your background and questions are almost entirely numerical. You did not express any personal opinion about how your client got into his current circumstances or the best way to get out, other than which numbers are bigger than others. I mischaracterized your position, Linda, and I apologize for that.

>>How can you say relief of debt is the same as making money when he has no money to spend from the debt? << I didn't say relief of debt is the same as making money. I said THIS TRANSACTION is increasing his net worth, that is, his total assets minus total liabilities. That balance is his key to obtaining further credit, which he CAN spend as he has so dramatically proven. Yes, he lost net worth when the property value dropped, but that is ancient history. Now he is looking at whatever position he is currently in, and inquiring about taxation of a proposed transaction. Well, for some reason his tax consultant had an emotional reaction to his history. My point is that even with the taxation he will come out of this ahead of where he is now. In fact, what the tax consultant calls a bitter pill is exactly what his legal counsel is recommending as most desirable. I agree with the lawyer, but only from the taxpayer's point of view. I also had an emotional reaction--not to the way his speculation plans turned out, but to what he now plans to do about it.

>>point me to the wording that authorizes this?<< In my opinion, kc's citation does not authorize new construction on previously owned land. It describes placing a mobile home on land you DON'T own, a different situation. The definition of principal residence for this credit comes from Section 121, under which a principal residence specifically includes the land appurtenant to a building. So you can't qualify just by tweaking the vocabulary, trying to call it a "new" home when the only thing changed is certain construction. Capital improvements to the property (including the land) that you are already using as a home are not eligible for this credit. In my opinion, "it is not necessary that the taxpayer own the land" does not imply that if you do own the land it automatically qualifies. I agree with kc's first post that it's the same as rebuilding after a fire. You don't get the credit for that either. A new mobile home on vacant or rental land is one thing. Property you are already using as a primary residence is something else, and we haven't seen any wording that authorizes it.

>>Form 8453 should serve perfectly well<< You are thinking about effective tax administration, but that is never the only goal. Think of it in terms of the BANKS. That's what Treasury cares most about. Oh, what a surprise! This refundable $8000, twice the EIC amount and not limited to low-income returns, has generated some fraud! The IRS has decided to review settlement statements, a process incompatible with Refund Anticipation Loans. The banks don't want to look like the bad guy on delayed refunds, so this credit has been entirely removed from the RAL system.

>>he 'earned' that tax bill by his own actions and inactions<< Even with that, kc, I think you are being too kind. This joker's own attorney says "Troy's goal" is to manipulate the tax system so the bank is forced to give up its rights under state law. Rights to sue his sorry assets to pay back what he promised just a few years ago. Well, it's legal but it ain't right. It's another example of how the last administration didn't really foster a capitalist economy. Greedy investors grabbed whatever they could, and then asked the government to guarantee it.