jainen

>>I understand the documentation<< If it's not too burdensome, a better paper trail will usually be of some benefit. For the situation in this thread, I would worry more about other heirs than about the IRS.

>>I never made any type of statement to anything you have said<< It's true that I only know what this member told us about his practice. Any reader can compare his statements with my understanding that a number of Hispanics have used that office to make false claims about their families, that this has been going on for years and is increasing, and that he does not know why they come back there to do it again. From these individual tax cheats who use his office he suggests a characteristic of the Hispanic community. I am not afraid to label such an expression for what it is. I appreciate Terry's compliment for my position on this board. I care for the ATX forum and work hard that our use of the tax code be technically correct. But I also often address issues of practice and procedure when raised by others. As professionals we have a delicate intimacy with our clients' family and financial circumstances. Each client is unique and should be thought of as unique. Our relationship with clients is a technical matter of the code as well. Last year the IRS invested great energy in revising guidelines on that very topic, which is one definition of ethics. In my opinion, the tax code has no technical meaning in itself; it can only be understood in terms of the whole society. When the code is used in a divisive manner, I'm moved to object. There are some legitimate ethnic provisions in the code, such as special treatment for immigrants and native Americans. But the manipulation of ethnic prejudices continues to be among the worst problems identified by the IRS, like, for example, slavery reparations. Factors in between such extremes are worth highlighting, whether they come from clients or professionals. I honestly don't believe that the idea that lying about family composition is "happening more and more within the Hispanic community" can be supported with anything beyond anecdotal evidence. If in fact the routine has found a home in a particular preparer's office, the problem is within that office, not within the Hispanic community.

>>the practice I mentioned, is done in large proportions within the community I mentioned<< Like all prejudice, this one feeds itself. Apparently you don't see the majority of Hispanics who are honest and hard-working. No doubt they avoid your office in the face of such an attitude. Maybe only the ones who want to cheat think your office is a good place to come. In my observation "the Hispanic community" is deeply religious with far more commitment to family values than the general population. It also embodies a strong work ethic, which is the principal reason for immigration in the first place. They don't risk freedom and money just to hide their marital status or claim someone else's kid.

>>How is everyone handling this situation?<< Are you kidding? I'm not handling it at all. I'll be dumfounded if anyone tells me they bought a house last year, let alone someone who could never manage it previously. I put this law in the same category as the zero percent bracket for capital gains--political grandstanding. There ain't no capital gains, and there ain't no first time homebuyers.

>>What did you mean when you said nothing changed. << These days getting married isn't necessarily much of a change. More like a paperwork thing. A new baby, now, that is a change but you can't expect people to think of everything in terms of tax deductions. As for identifying business clients in terms of their ethnic background, that is inappropriate and offensive.

>>How does AMT enter into the calculation?>> The net operating loss must be completely recalculated using AMT amounts for depreciation, deductions, and everything else for both the NOL and carryback years. This is one reason why better software is better.

>>I'm a little surprised that an individual would have a nonrecourse loan.<< It's normal throughout California, where most loans to buy a principal residence are non-recourse as a matter of law. When a non-recourse loan is foreclosed, the property satisfies the debt in full so there is no cancellation of debt. Foreclosure on a recourse loan might not cancel the debt either, unless the lender wants to. I could understand a bank not releasing a borrower who deliberately bought a new house with the intention of abandoning the old one.

>>Can the "estate" give it to the aunt without filing a gift tax?<< Your client owns the car and can give it to whomever he pleases. DMV will straighten out the title with little trouble. Disclaiming the inheritance won't work unless the intended recipient is next in line under state law. Don't worry about gift tax. Although Blue Book might say 16K, if you think about it you will no doubt conclude that that particular model is not popular in your area, especially considering the condition it's in. Isn't it really worth only $11,999?

>>taxes paid on her mobile home qualify as real estate tax<< You work in California where most mobile homes are taxed as real estate, although some are still licensed as motor vehicles. Here is an informative article from the county next door. http://www.co.santa-cruz.ca.us/ttc/mobile.htm

>>He took the job in another town<< It may be hard to support deductions for travel and lodging. Study up on the meaning of "tax home."

>>it will last a few months<< That sounds like temporary, not indefinite--so far, so good. But where is his tax home, i.e., the principal work location? Did he take a job locally that sent him out of town on a project, or did he take a job in the other town?

>>the prison is providing his food, clothing, and shelter.<< Third-party support is not an issue for a qualifying child who is temporarily out of the main home.

>>still being told it is temporary<< "Temporary," as in expected to end by a certain date, or whenever the work gets done, as in "indefinite"?

>>Everything seems so clear at the time<< That depends on what one chooses to be under the influence of. Personally, I find clarity to be far too much work.

>>do you believe that the 2008 law will be revised to eliminate the 15 year payback?<< President Obama signed the revision on Tuesday. It says what it says. no more or less.

>>do you have a source for the information you talked about?<< I do. Will you except the actual wording of the tax code? Section 36(g) now reads, "In the case of a purchase of a principal residence after December 31, 2008, and before December 1, 2009, a taxpayer may elect to treat such purchase as made on December 31, 2008, for purposes of this section (other than subsections (c ) and (f)(4)(D) ). " Subsection (f)(4)(D) is the "Waiver of recapture for purchases in 2009." In other words, you can treat it as purchased on 12/31/08 except for the waiver of recapture, which continues to apply because the property was actually purchased in 2009. (It looks like I was wrong about July 1--you can put ANY purchase January through November 2009 on the 2008 return, taking a credit for the full $8000 as provided in current law and waiving recapture accordingly.)

>>new credit is not available on 2008 returns? << For homes actually purchased in 2008, the credit is $7500 and recapture applies. For homes bought between 1/1/09 and 7/1/09, the credit is $8000 and recapture is generally waived even if the home is treated as being bought on 12/31/08.

>>the benefits of using a professional to prepare your taxes<< I'll stand by my previous answer. The benefits of a professional are not in avoiding errors as such, but in understanding the various choices a taxpayer has. You might piggyback on the H&R Block ads, which everyone has seen, claiming they find missed deductions or whatnot in some unbelievable percentage of returns. (New Block clients are not likely to be coming from another professional, since Block's prices are higher). You can also explain the value of tax planning, support in audit and collection matters, free electronic filing, records retention, and the other services you can offer. You can point out that the tax return itself is geared towards professionals, with the signature block and third party designee, reliance on high-end software for worksheets as well as error checking, instructions that don't incorporate alternate interpretations or even the latest rulings, Practitioner Priority phone access, and so on. The National Association of Enrolled Agents makes a good case for using professionals. http://www.naea.org.

>>the number of self-prepared tax returns that contained errors<< What's an "error"? Very few computer returns have math errors. In the category of theory, the tax code supports various interpretations. Consider the need for records, which is generally not spelled out in the regulations. Would you consider it an error to claim a business expense that was actually incurred but would be disallowed on audit for lack of documentation?

>>I cannot reach the client, obviously, to ask questions.<< To answer your main question, no, you never rat out a client (even if he IS a rat). But what CAN you do? You apparently have no way to get instructions for this dangerous audit, and are pretty much totally unprepared. In my opinion, it would be unethical to proceed. You should request an extension for the purpose of securing alternative representation. Obviously the client is very vulnerable. It's an easy guess that he couldn't explain the lack of records even if he were present. A realistic goal for the audit might be no more than heading off criminal charges. For that, he needs an attorney. The wife is also at great risk even though you say "She had nothing to do with the corp." Yet you can't even alert her to the progress of the examination, because she is not the client. Even more important, YOU could have huge liabilities if you find it's over your head. I mean, the guy's in PRISON already.

>>won this position in two different audits<< Well, frankly I think they are lying about that, but if it is true then one wonders why the IRS is so interested in this preparer's clients. Anyway, as I already said, audits are not authority for anybody else. Tell your clients that your work is confidential and you don't use one return to justify another, and that the returns you sign can be supported by the code and regs instead of negotiations with an IRS auditor. Those ads are a violation of Circular 230 and you can complain to the Office of Professional Responsibility if you want, but I think it's a waste of time. If a client can't see that you don't need to make ridiculous claims promoting tax fraud, then you can probably get along without them.

>>this gets really ugly with the Iowa return<< Sorry to sound cold, but you get no sympathy from this sunny California preparer. Not only have we failed to conform to special depreciation, we don't even conform to Section 179. In fact, we have never fully conformed to basic MACRS! So we keep separate depreciation schedules state and federal, and work goes on.

>>they do not want their salespeople getting in trouble for not paying sales tax<< It's heartwarming to hear of their great concern for the salespeople's well-being, but I'll bet the CORPORATE guys got visited by a few state authorities demanding this protection payoff for the privilege of staying in business.

>>be angry at the IRS<< Well, don't you think it's unfair to fault the IRS for giving more detailed instructions? Lacerte has several entries available for qualified joint ventures; if ATX does not it may be that CCH is trying to keep some extra features for its high end product.

>>check with the issuer of the 1099<< If he is getting that car from anyone other than a dealer, it is a "previously-owned" vehicle. He likely won't get the 1099 changed, so he is going to have to disclose that he is using a different figure backed up by reasonable documentation.