Edsel

Thanks to all who have participated in this, and it seems to me Judy's answer is more reasonable than anything I had imagined previously. A little extra spice - taxpayer claimed bankruptcy, although it is unclear to me whether the bankruptcy was concurrent with the seizure. Of course, bankruptcy does bail anyone out of taxes, so the bankruptcy could be irrelevant.

A so-called farmer claimed a huge loss ($200K) to offset large income ($395K), and was later ruled to be a hobby by the IRS. For this and other reasons he ended up owing the IRS a ton of money, several hundred thousand dollars. The IRS seized his assets, including $150,000 worth of farm equipment. Most of the farm equipment (but not all) was fully depreciated because of s.179 treatment. The IRS used the equipment to absolve the taxpayer of $ w,xyz.00 of debt owed to the IRS. Question: In the year that the seizure occurred, is the taxpayer obligated to report a 4797 transaction showing $w,xyz.00 as proceeds from the sale? If not shown on 4797 does the transaction get reported as income any other way?

Got to go to the source of the problem - get the issuer of the 1099-K to change the number. Very difficult to get them to amend the document, and until it is amended, IRS will force taxpayer to claim the income. They won't respond to letters, they'll say the problem is between the taxpayer and the issuer (and they're right). You have a more expedient suggestion to try and put this behind you. If the 1099-K is large, the schedule C will need an eye-opening explanation to justify an expense of equal amount. I don't know whether your software will allow a "statement" to be entered with their e-filing. Drake does, but I'm not sure what the IRS does with the statement. Taxpayer should be told how precarious this expense should appear to the IRS, and take the initiative to get off his butt and take care of this, or he'll have the same problem again next year.

I am amazed at the errors the custodians make, and nothing ever happens to them. IRS is more interested in harassing the taxpayers with penalties of the sort than to do anything to Fortune 500 custodians. Custodians make all sorts of errors. 1099-Rs that are late. 1099-Rs that are wrong. Failure to distribute RMDs. Refusal to correct income documents that are wrong even when the error is pointed out. Some of them claim they have no responsibility to distribute RMDs because "the individual may have other retirement accounts with other custodians and might wish to skew the distribution from one account to the other." Extremely remote excuse. To reflect on the original question, if the error is easily shown to be of the custodian, they could be threatened with a civil suit for the amount of the penalty. That might get their attention, because a favorable ruling in this case might be taken as a precedent, so the payment of a few hundred dollars of penalty might be a precursor of substantial amounts of money. I just hate to see them get off scott-free, when the taxpayer has to unjustly suffer.

Sorry Carolyn, what kind of renewals are you speaking? Software?

Your customers may appreciate talking to a live person rather than a "virtual" receptionist. Answering services have live people too.

Thank you Lynn for your response, and correction. Edsel...

I will begin with a narrative facing a situation with which I am not very familiar - and someone please tell me if and when I am wrong. A 10% partner sold her share effective 1 minute after midnight on January 1. The intent was to receive a K-1 with zeroes in ordinary income for the calendar year. The partnership, however, had inventory on 01/01/18 left over from 2017. Using fictitious numbers, $60,000 in inventory. During 2017, the cost of sales was 66.67%, meaning that the $60,000 would generate $90,000 in sales and $30,000 in margin, before operating expenses, which were 15% of sales. The inventory would thus generate $90,000 minus $60,000 minus $13,500, or $16,500 in ordinary income. If I understand the rules for issuing the K-1, this shareholder would still receive 10% of the $16,500 in ordinary income, or $1650 on her K-1. Does this sound correct? Thanks in advance for responding.

If you ever get to Manchester, I'll meet you and buy y'all dinner. (But not your whole caravan). Manchester is a small town, but strategically located on I-24 halfway between Nashville and Chattanooga. It is the first town north of Monteagle mountain. Monteagle is the highest point on the route between Miami and Chicago. Living conditions in Appalachia, from WV to AL, have been well publicized on TV commentaries, particular those involving coal. Trust me when I say some of the finest people on earth live in these places. I go there often to play bluegrass music. The poverty is abundant if you're looking for it but there is so much more. And over the years, some of the portrayals of these horrible living conditions are coming from places considered to be enlightened, such as Detroit, Chicago, Newark NJ, etc. One example is McDowell County in West Virginia, the poorest per capita income county in the U.S. You can tell it just by driving through it. However, the story of Homer Hickam and the "Rocket Boys" (from the Jake Gyllenhaal movie "October Sky") was backdropped in that county because that was their residence. Another untold story about Homer's father - he was the inventor of the most current commonly used slender personal rescue device used in coal-mining accidents. And banks, who hold life-and-death power over so much in our economy, barely populate McDowell county - as fewer than 10% of the homes are held by a mortgage, also a low for U.S. counties. The people there are incredibly resourceful and independent. I realize this is a tax forum and not designed to be a social commentary - but I would love to meet you if you are traveling through. I think you are a great member of the forum and appreciate your posts from time to time.

Each state has its own residency requirements - most range between 30 and 90 days - primarily the assessment of part-year residency liabilities without necessarily becoming a permanent resident. My feeling (certainly not authoritative) would be their residency is the last established residency prior to becoming residence of another state. Confusing, but they start with IL, and if moored in OH long enough to meet OH residency on May 12, they are part-year residents of IL until May 12. If they are not moored in OH long enough to meet OH definitions, then move on to WI, and are there long enough to meet WI definitions on Jun 12, then they are IL PY residents until Jun 12th. If they are extremely mobile and never stay in any state long enough to be established as residents, then they are IL residents full-year. Most states are aggressive and skew their definitions to the maximum extent to assess revenue. However, I can't imagine any state being shrewd enough to capture these folks unless they register their boat or earn income in a given state. Registration requirements via days are most likely similar to residency requirements. Earning income is a dead giveaway, and if sufficiently large, will result in the taxpayer having to file a part-year or non-resident return. Associated with this question is a supreme court decision about taxing retirement income by a state when the source of the retirement is from another state. Can add complications to this situation.

I was pulling for Fresno State and they did well but fell short against Southern Cal. In particular, I dislike Southern Cal - the perennial choice to win in the Pac 12 and more Hollywood than athletic. I believe the Mountain West will again feature Fresno State and Boise St. Boise was a big winner down in Florida Saturday. Coach Talbert has done well in Fresno - better than his fate at CalBerkeley. CalBerkeley might just be another place where it's hard to win. Another Hollywood team. Fresno is more of a blue-collar team. I look for them to go 9-3 before post-season. Air Force, Utah State, and Nevada will be tough - I look for them to win only one of these games. A pleasure meeting you at Rita's last summer. Come back to Tennessee anytime - I'll buy your dinner.

It surprises me to know that I ever did... Unlike CBSLee, your responses have never contained anything to bring helpful discussion, only consternation or belligerence.

I have researched and received from good sources some settling information about capitalization of operating leases. There is a delay in the implementation of this until 2021. Furthermore there continue to be significant opposition within the ranks of the AICPA from sources who feel the addition of full-term lease numbers simply "bloat" the balance sheet by adding fat numbers to both assets and liabilities. So it may not even happen. There has been the phenomenon of "notes" being added to the back of the financial statements, and language stating that the notes are an integral part of the financials. For what it may be worth, I am a proponent of removing the notes if real numbers can be placed in the financials to measure the effect. However, that is not always possible.

Probably true Mr. Lee. In many cases what makes a question incomplete is a series of remote events which may serve only to complicate the answer. The only way to defend against this is to so burden the question with so many qualifiers that the question/answer exchange becomes so cumbersome nothing constructive comes out of it. A general question may be answered as if the situation is so mainstream that there are no other relevant factors. This simplifies the question, the answer, and the discussion. I would hate for you to stop replying to my posts. You are often a source of accurate and reliable information.

Illmas, thanks for your discussion. Judy, when I can find the time, I will send you a message, as there is more to this than meets the reader's eye. Thank you for your response and I have no disagreement with your conversation above.

Lion, you are not insulted. Thank you for your suggestion above. Come to Tennessee sometime.

I get the message. No GAAP questions on this forum. By the silence of other members, this is confirmed. Only Levites were permitted to touch the Ark of the Covenant. Only CPAs should be discussing GAAP.

I went through this the last round of posts regarding GAAP. There was abundant conversation about whether I had any business asking about GAAP and whether I was trying to be a CPA (I'm not), and whether this was an appropriate forum for asking questions about GAAP. And precious little simple response to the question posed. Should we be adding "GAAP questions" to "Politics" as another prohibited topic on this forum? Thanks in advance to those who may have the nerve to respond to the original questions.

Back to the GAAP Discussion - If there are book-to-tax differences, GAAP requires a "deferred tax liability" to be calculated and shown. Not sure if there is a GAAP requirement if the difference turns out to be a Prepaid instead of a Liability. A couple specific questions - If the entity is a partnership with zero tax at the partnership level, the deferred liability doesn't exist unless it can use the difference calculated at the personal tax rates. Should the entity calculate and present the liability which results from the personal taxes? ( I believe it is obvious that this is not a Sch K-1 item) In the rare event that the differences calculate to a PREPAID balance instead of DEFERRED balance, should the liability be shown? This might be one of those situations where GAAP prefers to be conservative and blind to the optimistic. Appreciate any responses. Don't worry about whether I am trying to function as a CPA or not.

Good discussion and I'm thankful for that. However, I'll repeat the original question and hope there is a simple "yes" or "no" answer: Jim has an RMD of $2500 - can he divert $3000 to a charity and qualify for the tax break or is he limited to $2500? I may have not presented this well - is his AGI lessened by $2500 or is it lessened by $3000 if he exceeds his RMD with a charitable diversion?

In these days of huge standard deductions, people aged 70 1/2 and older are directing the RMDs directly to charities. The tax strategy is obvious: You don't have to report the income from the RMD, and you don't get to deduct the charity deduction (that most likely you wouldn't be able to anyway). I understand this strategy is not available unless the taxpayer is over 70 1/2. My question is whether the diverted charity payment is allowed to exceed the RMD. In an example: Jim has an RMD of $2500 - can he divert $3000 to a charity and qualify for the tax break or is he limited to $2500?

Often these phone encounters are followed by a message: "Please take a survey to tell us of your customer service experience today." Customers are often furious, but these corporate giants use these surveys to chew out the poor reps that were on the phone. These guys(girls) are usually not the problem, and spend their time having to defend idiotic policy decisions made by people far above their heads.

I am not a CPA, thus the aforementioned statements are being launched by their bookkeeper, and I am advising/preparing taxes only. If there are book-to-tax adjustments, the adjusted tax liability will need to be incorporated into the statements as well, according to GAAP. It remains to be seen whether the bank will hold their feet to the fire and require the bookkeeper to validate the statements by using a CPA. The entity is too small to afford an audit - or even a review in my opinion. They are almost six months behind on their statements, but are current on the bank loan, so the bank might just leave well enough alone. Not having to attest to anything (except their tax return), my only interest in the application of GAAP was my original question about whether operating leases must be capitalized or not.

Cbslee, I don't disagree with your point of view, but I do have a customer who negotiated a loan with a bank in Kentucky who specified quarterly financial statements on a GAAP basis. Does a study of IRS code include a precept of GAAP except in cases where the code or regs state otherwise?

Thank you Mr. Golar. If I understand your link correctly, operating leases must be accounted for in the following manner: Initial Recording of 3 yr lease @ $2000/mo: Dr. $72,000 Prepaid Lease; (asset) Cr. ($72,000) Leasehold Liability (liability) As rent is paid monthly over course of the lease: Dr. $ 3,000 Lease Expense (current expense) Cr. $ 3,000 Prepaid Lease (asset) Dr. $ 3,000 Leasehold Liability (liability) Cr. $ 3,000 Cash (liquid asset) This is what happens, as I see it. ????