DANRVAN

Yes, that is the form to use.

Keep in mind there are two separate transactions. First, the $15,000 conversion is reported on line 21 form 8606. Of that amount, $7,500 will be deferred to 2011 and 2012. Secondly, the $5,000 withdraw goes on line 26, subject to the 10% penalty. Then in 2012 there will be a line item to reduce the taxable amount by $5,000 (similar to line 22 “basis” on the current year form). The software will have no idea of the amount taxed in 2010 so that will be a manual entry.

Jack, I think you misunderstood the situation which deals with the tax laws specific to the year 2010. It is true that withdraw of contributions from a Roth are never taxable, but in this case the funds came from a converted IRA that normally would be taxable in the year of conversion. It sounds like there are two transactions here. First, $15,000 was converted from a regular IRA to a Roth. Under the current tax law, the $15,000 is taxed equally in 2011 and 2012. In the second transaction, the taxpayer withdrew $5,000 from the converted Roth. So now, instead of deferring the tax on that amount to 2011 and 2012, the $5,000 is taxed in 2010. The net result is $15,000 of a converted IRA taxed over a three year period. Jainen nailed the timing on the remaining $10,000. ($7,500 taxed in 2011 and $2,500 in 2012)

The 2009 CCH Master Depreciation Guide discusses this issue on pages 289 and 290. They refer to Reg. Section 1.168(i)-4©, which states about halfway through: “No depreciation deduction is allowable for MACRS property placed in service and disposed of in the same taxable year.” It appears the statement in Pub 946 comes from the Reg. The CCH Master Depreciation author notes that in the past depreciation was allowed for real property placed in service and disposed in the same year. PS: I don't know how those "faces" ended up in the reg posting below! *************************** Reg. Section 1.168(i)-4© Changes in use © Conversion to personal use. The conversion of MACRS property from business or income-producing use to personal use during a taxable year is treated as a disposition of the property in that taxable year. The depreciation allowance for MACRS property for the year of change in which the property is treated as being disposed of is determined by first multiplying the adjusted depreciable basis of the property as of the first day of the year of change by the applicable depreciation rate for that taxable year (for further guidance, for example, see section 6 of Rev. Proc. 87-57 (1987-2 C. B. 687, 692) (see § 601.601(d)(2)(ii)(B ) of this chapter)). This amount is then multiplied by a fraction, the numerator of which is the number of months (including fractions of months) the property is deemed to be placed in service during the year of change (taking into account the applicable convention) and the denominator of which is 12. No depreciation deduction is allowable for MACRS property placed in service and disposed of in the same taxable year. See §§ 1.168(k)-1T(f)(6)(ii) and 1.1400L(B )-1T(f)(6) for the additional first year depreciation deduction rules applicable to property placed in service and converted to personal use in the same taxable year. Upon the conversion to personal use, no gain, loss, or depreciation recapture under section 1245 or section 1250 is recognized. However, the provisions of section 1245 or section 1250 apply to any disposition of the converted property by the taxpayer at a later date. For listed property (as defined in section 280F(d)(4)), see section 280F(B )(2) for the recapture of excess depreciation upon the conversion to personal use.

Definitely not SPIFF, prior preparer is wrong.

I beleive you can find a reference in section 691. In regards to the imputed interest, you can look up the AFR for the year and month of sale.

Goodwill is reported as 1231 / 1245. Covenant is ordinary. Inventory is ordinary business income less cost of goods sold recognized in year of sale. Hope this helps. Dan ¶ 2627. Goodwill and covenants not to compete. Goodwill is a capital asset, unless it is treated as an amortizable section 197 intangible under the rules explained at ¶ 1975 et seq. To the extent that the Code Sec. 197 rules don't apply, proceeds from the sale of a business that are allocable ( ¶ 2626 ) to goodwill are taxed under the capital gain and loss rules, FTC ¶ I-8601 ; USTR ¶ 12,214.55 ; Tax Desk ¶ 229,501 and payments for a covenant not to compete that is severable from the sale of goodwill results in ordinary income. FTC ¶ I-8603 ; USTR ¶ 12,214.56 ; Tax Desk ¶ 229,502 © 2010 Thomson Reuters/RIA. All rights reserved. (Also see IRS PUB 537)

PER RIA: ¶307,722. Trademark and trade name expenditures. Trademarks and trade names are “section 197 intangibles” that must be amortized over the 15-year period that begins with the month the trademark or trade name was acquired. See ¶ 249,000 et seq. For property acquired after Aug. 10, '93 under a binding contract in effect on that date, the taxpayer could elect to have the above rule not apply. See ¶ 269,028 . For property acquired before Aug. 11, '93 25.1 the above rule did not apply (except for property acquired after July 25, '91, if the taxpayer made the “retroactive” election discussed at ¶ 269,027 ). Instead, trademark and trade name expenditures were capital expenditures that were recovered upon the sale or other disposition of the asset. The expenditures couldn't be depreciated or amortized. 26 However, legal fees incurred to prosecute a trademark infringement suit and to recover lost profits were deductible as business expenses. 27 -------------------------------------------------------------------------------- 25.1 Sec. 13261(g)(1), PL 103-66, 8/10/93 . -------------------------------------------------------------------------------- 26 Genl Expl of Tax Reform Act of '86, PL 99-514, 5/4/87, p. 143 . -------------------------------------------------------------------------------- 27 Rust-Oleum Corp v. U.S., (1967, DC IL) 21 AFTR 2d 516 , 280 F Supp 796 , 68-1 USTC ¶9168 . © 2010 Thomson Reuters/RIA. All rights reserved.

It depends on the situation. If they bought breeding stock they could use sectiion 179. If they bought cows with calves they would have to allocate the purchase price.

Caution, proceed at your own risk. Dependency exemptionearned income creditincarcerated childproof of support; principle abode. Taxpayer was denied dependency exemption for son who was incarcerated during entire year at issue: taxpayer failed to show that she provided more than 1/2 of son's support where she wasn't required by state to support son while incarcerated and amounts she voluntarily contributed to account for him to purchase allowable incidentals was significantly less than support provided by state. Also, taxpayer was denied EIC where son wasn't qualifying child under Code Sec. 32©(1)(A)(i) : he didn't have same principal place of abode as mother for more than 1/2 of year at issue. (Latanya Haywood v. Commissioner, (2002) TC Memo 2002-258 , 2002 RIA TC Memo ¶2002-258 )

Here is how I learned it when I was a grunt in the accounting firm. Setup a second asset called ".....90 Disposed". Modify the first one by adding the words "108 remaining." Prorate the cost, accumulated depr etc and proceed as normal. I use this method for purchased breeding stock (cattle) and leave unused asset numbers below the original purchase so the disposals show up on the schedule right below. I keep permanent asset detail on another program (Easy-ACCT) but think this method would work on ATX

Sounds like a bypass trust was setup to minimize estate taxes.

I agree that 4835 would be a good place to report the patr div, but would leave land on E unless he is receiving crop shares as rent. In reguards to the past gift of grain (which should be taxable income to dad and not son), dad is the one who is putting himself on the line by not reporting it. I am not 100% sure what your responsibilty as tax preparer would be.

If the son is working with dad on the farming operation, then you might be dealing with a misguided form of commodity wages. This article does a good job of covering the nuts and bolts of how it should work: http://www.cpaontheweb.com/listings/51.html

Sounds like the real issue here is "assignment of income". The courts have been firm on this. The grain income most likely belongs to Dad. That might be why your client was looking for a new tax preparer who is not savy to this income shifting scheme.

Those facts might be true, but that does not make it a bona fide loss. Reg § 1.165-1 In this situation the unfortunate taxpayer was compelled to enter into an agreement with a friend for personal reasons (home mortgage) instead of selling it on the open market in an arms length transaction. That fact was clearly stated by the original poster who seemed skeptical about taking the $11,000 loss until he received the blessing of this board. There is glaring evidence that adequate consideration was not likely received by the taxpayer. That is where the taxpayer has burden of proof and tax preparer needs to use due diligence and professional standards. Very unlikely that FMV equals balance on note and that was the best price taxpayer could get on the open market. Also highly unlikely that FMV dropped 75% in such a short time period. (again we dont have the facts but based amount of depreciation shown it could have been less than two years.) The non business purpose of the transaction, the unclear agreement with the friend, and the extremely low amount of consideration received indicates to me that this was not an arms length transaction and the taxpayer needs help in cleaning up this mess.

So you would take a $11,000 loss due to "an agreement with a friend" at face value. In my opinion that shows a lack of due diligence. Sounds to me like some more digging needs to be done.

In my area, there is actually a higher demand for used trucks because of the poor economy many people can’t afford new ones Judging by the amount of depreciation, this one may have only been in service for 2 years or less (assuming 100% business use and luxury rules do not apply). At any rate, it seems highly unlikely that the FMV would have dropped 75% in such a short time period. But if that is the case, it should be well documented in your files. In many cases an “agreement with a friend” does not include fair market value. (a) (a)Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer.

At a glance, it looks like this was a transfer to a friend at less than FMV. I would question as to whether it was an arm's length transaction. Maybe there are some strings attached.

If son is 50% partner for profit and loss, then his share of losses will reduce his self employment income. You should get a copy of the partnership agreement before you proceed.

I am looking for someone who has experience in PLR involving Code section 408(d)(3)(I). In this case, the exception is for death of spouse and rollover was made after 60 days. If anyone has experience with the hardship exception and wishes to kick it around, please respond. Thanks.

I am not familar with your area, but out here timber does not grow much in two years. I would find out what the market price per board feet was at time of purchase and apply it to the volume sold to determine basis. Timber prices have fallen out here since 2006. Good luck, Dan

Dependency exemption—earned income credit—incarcerated child—proof of support; principle abode. Taxpayer was denied dependency exemption for son who was incarcerated during entire year at issue: taxpayer failed to show that she provided more than 1/2 of son's support where she wasn't required by state to support son while incarcerated and amounts she voluntarily contributed to account for him to purchase allowable incidentals was significantly less than support provided by state. Also, taxpayer was denied EIC where son wasn't qualifying child under Code Sec. 32©(1)(A)(i) : he didn't have same principal place of abode as mother for more than 1/2 of year at issue. (Latanya Haywood v. Commissioner, (2002) TC Memo 2002-258 , 2002 RIA TC Memo ¶2002-258 ) Maybe this will help. Good luck, Dan

That's a common misunderstanding and tax trap of installment sales! In an installement sale, all depreciation is repcaptured in the year of sale as an ordinary gain, as was done here by JenMO. I believe the worksheet is throwing you off since 100% gain was realized in year of sale. Subtract the basis of the obligation related to the equipment ($9,640) from the FMV on date of repo. For example if the FMV was $10,000, you will have a gain of $360 and basis of $10,000 in the equipment. Check out Pub 537. Dan

Sounds like you need to amend your client's 2007 Schedule C and form 1040. Good luck, Dan