jainen

>>what if he structure assets sales as follows: all assets are sold for zero and goodwill is $50,000 since all assets are depreciated and market value<< In that case, based on what was stated in the original post, I would withdraw from the engagement.

>>If one is so bad at money management they cannot make their own savings deposits (in an interest bearing account - even at today's rates), they should probably be using a personal money manager.<< I have always opposed this loud rant about "giving the government an interest free loan." I find it simplistic and frankly insulting. In most cases refunds are a relatively minor element in taxation, especially over the short time frames involved. Maximum yield is only one of many important investment goals, and substantial withholding is a perfectly valid and respectable technique. It is an easy and effective way to control risk, guarantee the preservation of capital, and avoid management costs while optimizing cash flow for whatever personal purposes may apply. I trust that my clients understand their own financial circumstances, and respect anybody's right to do whatever they want with their own money.

>>increases the stcok basis<< Yes, I stated that wrong. The flaw in the plan is not the shareholder's basis in stock, but the C-corp's basis in the assets. Since it is less than FMV at the time of S-corp election, their sale generates an additional 35% built-in gains tax.

>>his basis becomes $100,000 (50,000 + 50,000)<< This is not a partnership. Gain or loss within a corporation does not affect a shareholder's basis in the stock. He gets taxed on the $50,000 gain that is passed through, and then presumably breaks even on the liquidation which he treats as a sale of stock.

>>When he sells the business for $50,000 by assets sales, he will have $50,000 of ordinary income (depr recapture)<< No, HE won't. The corporation will have income that it will pass through on the K-1 prior to the liquidating distribution of all cash. Unless the corporation distributes the property in liquidation at FMV and he then sells the zero basis assets. Or he might just be selling the stock. Anyway, he can't mix & match.

>>Is my client's basis in the realty the cash paid and mortgage liability assumed<< That is his total basis in ALL the assets of the company. Unless the buildings just stand vacant, some value should probably be allocated to personal property and intangibles such as leases, permits, vendor relationships, and going concern. These assets take faster depreciation or amortization compared to the buildings. Of course, another allocation must be made to non-depreciable land values.

>>even though it’s not a Corp<< For federal tax purposes, it IS a corporation. You will have to check state and local rules about payroll because sometimes it has to be treated differently under state and federal laws. In fact, sometimes it must be payroll for state employment tax but not for income tax, as they usually have different definitions. If this doesn't make sense to you, I recommend you use a payroll service. Actually, I recommend a payroll service in EVERY case, but if you already understand it you will no doubt use the payroll service without needing a recommendation.

>>They also ask for corrected forms and schedules to be appended<< Nothing new about that. In fact, this draft has almost everything that was in the old form except the original numbers, which the IRS already knows but taxpayers who have previously amended or been audited sometimes get mixed up. Note that the lines here are exactly the same as before except that a couple of payment categories have been consolidated. This is a good improvement.

>>I see lots of situations where additional letters of explanation will be needed<< Don't be silly. Who could not understand this? Line 1 - What's your income? Line 2 - What's your deductions? Line 3 - Subtract Line 2 from Line 1

>>putting on another preparer<< Have a good heart-to-heart talk with your E&O insurance agent. Now.

>>Sec 179 expense $24,000 was taken for a vehicle<< I believe the 1120-S is in error, since listed property is not subject to Section 179 recapture. However, if the corporation is not your client there is probably nothing you can do to correct the K-1. Follow Maribeth's instructions if you are using the same software, or tweak it to get the same result. If it is not otherwise included on the K-1 or elsewhere, report the shareholder's personal use of the corporate vehicle as ordinary income on Line 21.

>>it is possible to accelerate 2010 unreimbursed business expenses<< Standard advice at this time of year. It applies to ANY deductions over which the taxpayer can control timing. For example, instead of paying half the property tax in December and half in April, you can accelerate the payment and do it all in December. That will allow the whole deduction this year instead of waiting until next year. The opposite is true too. If you don't need more deductions this year, you can delay the payment. For example, since medical bills have a 7.5% floor you might postpone this year's small payments so they are "bunched" to reach that floor next year. Similarly, if you delay selling capital assets or taking a job bonus until after the first of next year, you will have a whole extra year before you have to account for it on the tax return. Or if you are going to be in a higher bracket next year, maybe you can pull the income back into this year. A taxpayer does not always have this kind of control, but it's always something to watch for. Of course there are restrictions on the amount and timing of pre-payments, and constructive receipt rules might prevent delaying income. But it's pretty common to find at least limited ways to apply the techniques

>>assuming the property has increased in value<< The answer is correct even if the property value has dropped. The new asset is the amount included in the gross estate, presumably 1/2 of current FMV. The other half continues the same depreciation schedule as before, although of course the adjusted basis would be split to reflect the partial interest.

>>something that I can understand<< I use Corel Paintshop Pro. It is compatible with Photoshop plugins, in case you get into editing big time. Meanwhile, I don't know what you mean by "restrictive." If all you want to do is crop and adjust color and upload, ANY of the free or under-$100 versions should be a snap to use. You can also resize, combine photos, and tons of other stuff. By the time you've run through your 2000 pics, you'll have discovered all the tricks and will be an expert! Usually the expensive programs are only needed for very high productivity (as in two million photos, not 2000), color balancing for different print technologies (as in old-fashioned big budget print, not color copy), or special effects like archive photo restoration.

>>the business was closed because of slow business this year<< How does that constitute reasonable cause for not filing last year's return? If they got their personal returns under the extension, maybe they can use the small business revenue procedure. Well, the IRS is pretty tolerant anyway. But really, are these guys just flakes or what? What was the tax advisor's role in missing the 1065 extension? Why didn't they file on time? Did SPECIFIC outside events interfer with the normal conduct of business? Did the market reversal generate legal problems that used up all the time? Were they unable to pay bookkeeping so they didn't have access to all their records? Find out what was going on, then you'll know how to treat it.

>>pay each one's share of the credit back<< Only the resident is entitled to any share of the credit, and he is entitled to the whole amount even though he only has partial title. Under the law, the credit can be divided according to who lives there, regardless of ownership percentages.

>>We can only let the line become so long during peak. << Maybe after a third preparer audit you might get the point.

>>I know... DEVIOUS!!!<< Not at all. You didn't say this was an IRS rule, just that IRS wasn't going to accept the particular tax returns to which you were referring. That was a simple fact. Those returns were done before the 14th.

>>The rules<< These rules are for the PREPARER, and can not be met by having the client sign the form. According to this article, 90% of EITC errors are due to the preparer's lack of knowledge of the law, and in my opinion asking the client to sign the form is another example of that problem. The clients do not have to understand the law. That's our job. They don't have to understand our questions or their own answers, so their signature means nothing. the PREPARER has to determine if the client's answers are consistent and complete.

>>if we have any doubt about a particular clients eligibility<< You seem to doubt EVERYONE's eligibility. I suppose if you are running an EITC mill like some franchise offices you might want to standardize some rigorous procedures because their reputation attracts opportunists. Of course, true doubts that are based on conflicting or incomplete information must be resolved, but in the typical small practice ordinary interview techniques should serve well enough. I don't see how school or medical records would help at all. Everyone lies about those even more than about taxes.

>>it goes on the 2009 Schedule A<< However, it does NOT go on Form 1040, line 10. That is, subtract any amount paid in January '09 when you decide if the state refund is taxable.

>>waiting for someone to define 'normal'<< As I understand it, pretty much the whole idea of normal is that it's what EVERYBODY is.

>>are you saying that he doesn't have to pay the SE tax, period<< That's a very good question. I always assumed ALL taxes are due (to the extent of estate assets). I'm not sure how "specific to the person who earned the income" is any different than regular income tax, but it's a lovely idea!

>>limiting the losses should require passage of a new law by Congress<< ... or for a really radical approach they could just enforce the laws already on the books. Which, by the way, is all the G.A.O is saying in this article. I don't know what kc thinks would be totally unfair. The article plainly states that the G.A.O. is NOT recommending limiting losses, and the only unfair thing is the way the author cheats the reader with a misleading headline. According to the article, the I.R.S. isn't going to change anything. The plan is simply to use existing data to work up some new statistics. That is indeed a typical government solution.

>>Property acquired from a related party does not qualify for the credit<< Also, improvements to property one already owns does not qualify. What a coincidence that the cost was exactly what is needed for the maximum credit! Except, of course, that there wasn't any genuine cost, just leverage. Nah, this one is a tax scam, and not even very clever.