jainen

>>I hope it is something *I* did wrong<< That's a very honest and fair thing to say. All software takes a bit of time to learn, and "two different returns, in two different states and on 2 different Forms" doesn't really get you there. You may indeed find that this is more of a quirky workaround than a serious flaw. Sometimes it's as simple as running the diagnostic check a second time.

>>ProSeries was expensive but it was also dead on accurate.<< I am also a ProSeries user. My observation is the same, but how does that lead to NOT wanting it? Accuracy is at the bottom of my priorities--the bottom line, that is.

>>Any suggested strategy? << Spidell Publishing has a great book on non-residents at www.caltax.com. There are some quirky rules so don't make any assumptions about anything, not even who is a resident of which state. For example, each state only taxes its own income. But (as Joan points out) the tax RATE is determined by total FEDERAL income. To avoid the higher bracket you might need to file separate instead of joint.

>>What are the tax consequences of selling your second home short?<< That depends on how the sale is structured. The bank does NOT necessarily have to approve--a buyer could take it subject to the lien, perhaps as a lease option of some kind or equity sharing. Or the bank might agree to second position to avoid foreclosure. Can't your Realtor come up with ANYTHING better than selling at a rock bottom price for full commission?

>>receiving government help disqualifies someone from getting the first time home buyer credit?<< EVERYBODY gets government assistance because the loans are guaranteed by FNMA or FHA. The credit is based on the purchase price, not how much of that the taxpayer actually pays up front. Source of down payment is irrelevant for this purpose.

>>resident for more than half the year<< Earned Income Credit is established by Section 32. Paragraph (e) says, "Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months." Therefore EITC can be claimed on the decedent's final return. (That would be the 1040, not the estate return as such.) It's actually not uncommon to get EITC when a taxpayer dies early in the year, even though his income would have been too high if he had lived the whole year.

>>the statutory language defining the word "purchase" << It is a good question, but a long shot. The definition starts out well enough, "The term 'purchase' means any acquisition," which sounds like an inheritance would qualify. Then it goes on, "but only if... the basis of the property in the hands of the person acquiring such property is not determined... in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired." You would have to argue that you acquired it directly from the decedent (before the basis step up) rather than through the estate. Maybe she could buy the siblings' share from the estate before it closes, then later inherit the rest.

>>being a real estate professional<< The RE professional rules allow rental real estate to be a non-passive activity, but don't give guidance on this question which is similar to the unresolved one about limited partners. Whichever way you see it, there isn't much authority to back you up. As for his tax implications, my prior post identified a couple of huge problems which might apply. And I sort of hinted that the lawyer might not be at all comfortable with reporting separate entities on an individual's return.

>>Thanks everyone, agree 100% I should let his lawyer handle all this.<< You are welcome, but that was not what I said. In my opinion, the tax advisor would have a key role both in the decisions and the implementation for this plan.

>>help her focus her reading<< The post was up here for two days without any response, an unusually long time that suggests this board does not have specific answers for her. She already plans to get Pub 514, the most focused read available for non-specialists. It is pretty technical compared to many other IRS pubs, and because she is missing on fundamental concepts and vocabulary I recommend she start in-person with a knowledgeable tax office. And I recommend she start at the source for interpreting the W-2.

>>The bishop is coming out next week<< It's really not that big a deal any more--we all know how those celibate brothers get by. But, say, where can I get some of that "Holy Water"? Sounds like powerful good stuff!

>>qualify for the Foreign Tax Exclusion<< You need to go see a tax preparer. I don't think you are going to like his answers, but they are going to save you trouble overall. There is no such thing as a Foreign Tax Exclusion. There's a Foreign Earned Income Exclusion, but it doesn't have anything to do with Canada unless that's where the income is being earned, and it doesn't apply to military employees in any case. There is a Foreign Tax Credit, in case you do earn something in Canada and pay Canadian tax on it. I don't know what you mean by "his 35 days allowed to be in country for tax purposes" but I'm sure the payroll clerk on base can explain what is and what is not on his W-2.

>>He scares me, too. << It was kind of scary. Several times I had to go back up to the top to make sure which president he was complaining about.

>>he can still report the properties on Sch E<< Yes, for federal income tax. As his tax advisor, you need to let him know if there are any state requirements. In California an LLC usually must file an LLC return with an LLC fee and a minimum tax, in addition to the state and federal income tax returns. I'm not a lawyer, but in my opinion it can be very difficult to maintain liability protection in a single-member LLC, and I suggest your client ask his attorney to give some details about that. I'll bet he can't cite a single case.

>>The client called you from her sick bed, right? << I meant what I said--field auditors are friendly but aren't kidding. If you waste her time, she won't be friendly anymore but she still won't be kidding. Field auditors are more experienced and know many more dodges than you can think of. Give her the box and the Pepsi, then get out of her way.

>>I would NOT recommend allowing the audit to happen at your client's office<< No good can come from letting the auditor onto the premises, although it will not necessarily be bad. The idea is supposed to be that all the records are available there so the audit can go smoothly. But you may not want the audit to go smoothly and you certainly don't want all the records to be available, not to mention trying to hide the fact that some records don't even exist. It is perfectly reasonable to ask a field auditor to come to YOUR office. IRS will agree if you explain that accounting records are maintained by the accountant. If the audit is at the business, prepare a private office where you can leave the examiner alone without fear of snooping. This audit will take several hours and your client can't afford to have you there the whole time. Same thing if it is in your own office. You will give the examiner the box or file cabinet she needs and go about your own business until she calls your cell phone. Make sure you have some Diet Pepsi and Costco muffins for her. Remove (not just lock) all records including the computer, except those relating directly to the P&L and tax return for the specific year. Don't worry about looking like you have something to hide. Hide it. Of course remove all personal items like the guitars and quilt frame. I mean, put a lot of work into this. Do not allow the auditor to tour the facility--not even public areas or the parking lot (tell the client to leave her Beemer at home and drive her son's old pickup that day. No, I'm not kidding.) The auditor has no right to talk to any employee or even the owner, or to interrupt business operations in any way. You can remember all this but your client can't, which is why you should consider not having her around. The auditor will be very charming and friendly, but she's not kidding either.

>>I'll have to keep looking for a candidate.<< Too bad we don't know who really wrote this. He would probably make a great politician, what with his ability to get his ideas out there without actually signing off on any of them personally. And he has a little bit for everybody, too. Even a rabid liberal can buy into the education-for-welfare deal. It recognizes the fact that our economy can never provide a path off welfare into employment, because entry-level jobs don't pay enough to support a family on. And I'm sure the proposal implies childcare will be paid for while the parents are in class. Easy to implement too, since the vast majority of welfare recipients are children who are already full-time students anyway, right? He might lose a few votes from the men and women who already fulfilled their military obligation and are now called back to combat duty, but veterans are used to being mistreated. My favorite is the wheat thing. Just imagine if wheat were the principal commodity in international trade! China and Europe, who each produce twice as much as us, would love it! And it would be a big boost to Iran, Turkey, and Pakistan too--they are all top producers, as is Russia. No worry about Pakistan at least, since India also harvests more than America. I'm not sure about that oil for wheat deal though. Wheat is only five bucks now, but oil is twelve times that. When oil goes black market, the price of food could get pretty scary. You do know our main source of oil is Canada? They aren't that big on wheat consumption there, and already grow far more than they want themselves. But, oh I forgot, we won't be buying oil from them anyway. In fact, we aren't going to buy anything from anybody, so I guess we'll just be giving the wheat away--no, that's the foreign aid we do now but have to stop. Wow, this guy's good. If he can't be President, maybe he could at least be IRS Commissioner!

Oh my, where to begin? Well, I guess number 1, "wait at the border." That won't help the natural born-in-USA citizens for whom Spanish or one of a dozen other languages is their native tongue. And since they constitute a large block of votes in the South and West, he won't garner many electoral votes there. #2. If we go to no imports, Wal-Mart will have to come up with a new policy.

>>the Obama administration was signalling that they would extend the program<< In my observation, President Obama is aware of the mechanics for getting his agenda approved. "Signalling" is not exactly a specific promise, nor is "extend" a description of exactly what a new law would cover. Still, I understand your worry that our new president might be like our last one, doing whatever he likes whether or not Congress agrees or even knows about it.

>>you could always acquiesce after the fact << No. That approach throws away the possibility of a quick settlement, which for many taxpayers is the best strategy and for some the only possible hope. And anyway how would that help schirallicpa's client, who doesn't even HAVE what they want? Challenging the auditor's scope of authority could only be an empty bluff, which an experienced agent will immediately see through and probably resent. A very experienced and skilled advisor might pull it off in exceptional circumstances, but generally turning an employment audit into any kind of power struggle will be disastrous. You want to talk power? That smiling guy with the necktie has the district attorney on speed dial, just in case he thinks your client is being unusually evasive about his business practices. So unless you can put lawyer-drafted contracts on his desk, you'd better think hard about saying some version of, "Gee, sorry, I didn't know."

>>just wondering if the tax preparer took the client word and not verified if he really was a first time home buyer<< Not very likely. This case never even went to trial. Tax Preparer pleaded guilty to a felony, meaning IRS had him cold on multiple counts. Good riddance.

>>what is the essence of drafting such a tax code<< It was two separate laws--like many tax provisions, it was changed in a later year. In this case it was expanded, but there are plenty of benefits that have been reduced or eliminated. Even for this credit, it gets cut off for purchases before the end of 2009. In my opinion, the fact that the credit terms were changed for other transactions does not change the value of the credit your client was pleased to take advantage of.

>>these agencies tend to not want to get into a long protracted dialogue<< Oh, no. Your example is the IRS requesting other years which they have no intention of auditing anyway. These employment status audits are a whole different thing. They get started when some screwball you tried to help but had to fire files for unemployment insurance. The fact that you fired him is pretty much proof that he was an employee--by definition you can't fire an independent contractor. And if he was an employee so was everyone else who ever worked for you. And since you didn't file payroll tax forms for independent contractors there is no statute of limitations, and as the original post says, "I doubt very seriously that they have records still around." These are easy pickings for the state agency. When the labor guys get through (holding the owner personally liable for the debts of the company), they turn it over to IRS for Social Security and withholding, for which the owner is also personally liable even if the worker already paid all his taxes in full! No, I can't recommend you go in railing about "their domain." They have enormous power and you must deal with that up front. Sales tax data, for example, will be used to prove your business activity for which you will be deemed to have had employees in the absence of payroll records for past years. You can only win these with technical presentations backed by excellent documentation. Otherwise, your best bet is a negotiated deal--a bribe in which you let let them skim off the quick stuff in exchange for a quick close and a blood oath of future compliance.

>>invest in companies like Zipcar or lease your car to them<< There's been some buzz lately about going public, but so far Zipcar uses various forms of membership. Other companies might welcome an investor. These are for-profit companies, so I can't imagine they would be interested in leasing their fleet.

>>a small proprietor trying to make a living<< On one level, it's easy to see that small businesses are vulnerable to state money grabs because they can't afford a big fight. But on another level, we must observe that they have had years to get their act together. You haven't said what the issues in these audits are, but we can guess that someone has filed a complaint about employment practices. Maybe it's misuse of independent contractor status, or unfair scheduling, or health and safety violations. These are extremely dangerous audits. Your clients could be ruined by back taxes and fines "from inception," not to mention mandated compliance in the future. And then the audit decisions can be used in further personal lawsuits. Never mind the kitchen sink or Bernie Madoff. Your clients must approach these audits very seriously as major business projects, with a budget, timeline, goals and strategies. They probably need qualified counsel.