Corduroy Frog

Form 8594 is the brainchild of the IRS, for purposes of assigning dollars to Goodwill, which is amortized over eons of time. It's anyone's guess as to how accurate the buyers/sellers could be. (Not very) Most sales occur before the parties even know an 8594 should be filed, and the tax preparer rarely can see that this is done.

Engineers know more about anything than anybody about any subject. Some of the worst returns I've had to clean up have been self-prepared by Engineers who knew everything.

I thought it was so preposterous I didn't even go into the other methods. There has to be concern as to whether such an expense is ordinary/necessary, and also whether we are being told the truth.

Yes, we all are amazed when we think we hear the "grand champion" idiocy from our clients. I've got to think hard to wonder if I've heard anything like this before... Client has a farm - has had for a few years. So this year he buys a 2024 FORD F450 truck. (Those of you who know anything about trucks know what a beast and expensive this thing is). Drives it 4000 miles for Farm Use only. This is not a 1975 Ford F150, or a hay truck with a long bed. It is a Ford F450. Brand new. Didn't keep a log because he thought Farm Use only means that he didn't have to keep one. Needless to say, I told him to take his taxes somewhere else.

Done all the research I'm going to - it was a Magic Carpet ride. Several companies have been involved since 2001: Westrock RockTenn Mead/Westvaco Mead Corporate Westvaco Smurfit/Westrock Sold for $51/share, and Schwab reported basis of $5.17. I began my research because I thought Schwab's basis was ridiculously low. However, reading about these old companies in Wikipedia, some sales statistics were discussed, and most of the predecessor companies had sales which increased exponentially, so the Schwab basis of $5.17 doesn't seem so low anymore. The 2024 sale to Smurfit was a 1:1 stock exchange with some $6,200 in cash. I believe I can report LTCG income as $6,200 and add it to the new Smurfit basis which is still ridiculously low. Taxpayer and spouse is 79 years old, and if left to their son, the historical mess will disappear. Thanks to all for comments and assistance.

This is the wrong way to accomplish the goal of getting rid of illegal immigrants. And unfortunately this crosses the line into politics.

Thanks to all - the help is coming in faster than I can research. By the way, there is absolutely NO WAY I'm going to report zero as basis.

Judy - you finally found it!! I don't have any of those boxes marked, and I should have marked the "Active" box. My mistake (as predicted) and not Drake. Thanks for the time you spent on this and being tough enough to see it through.

Thanks jkl and PencilGuy. I will use the information you have provided to research.

Pencil, I agree with everything you've said, but Drake is allowing a rental loss with a huge income. Judy thanks for your involvement. I'm going to move on, because this thing is taking effort away from other clients at this late date.

The "type" of partner is "Individual" answered on the K-1 , question I1. Box D refers to a publicly traded partnership, and is not checked. Box B for "other passive" is not checked, because this is active participation. However, you may have found something. "Active participation" may be an antithesis if the loss is coming from a K-1 partnership. Seems to be quite a stretch of the imagination, but maybe.... If this were really "passive" there is no doubt Drake would disallow it. I believe Drake should disallow it because of the high income, not because it is passive.

Judy, thank you for hanging in there with me. You demonstrate a keen intuition for possibilities, and are bulldog tough in thinking things through. I am thinking there may be a problem with Drake - that is doubtful, but I have found them to be in error a very few times over the years. We agree that Taxpayer A was handled correctly - unable to take the loss in the current year. Taxpayer B is not a real estate professional - a private high school principal. His $236K income is very high in his geographical area. There is no entry at all on page 2 line 43, as he is not a real estate professional. Instead there is a loss appearing on line 41. This is Sch E, page 2 - there is no Page One. Also there is no 8582 form and no 8582 worksheet, which typically allocates the suspended losses - such as for Taxpayer A. I would call Drake, but the call center personnel are knowledgeable about their software - not responsible for the intricacies in the law. They would have to refer it to their "development team" who forges the tax law into their software. I am convinced that Taxpayer B should not be entitled to the rental loss - whether it's my fault or Drake's. Thanks again - Ron

This one is really tough, and I appreciate any help. A client sold inherited stock in 2024. The stock is "WESTROCK CO" The stock symbol is truncated by Schwab, so we can't tell the symbol. The selling price was $51 per share in 2024. We need the historical price as of April 23, 2001, when the mother died. We do know at the time in 2001, there was a predecessor company in Chattanooga, TN. Hint: We have already consulted with Stock websites such as "Investor.com" and "Bigcharts.Marketwatch.com" and they are no help at all. Tjhe brokerage firm, Schwab" can't help either and listed $5.25 as the "basis" but could not confirm it. Actually we do know that prior to 2011, brokerage firms were not required to track basis. Preparers like myself are not going to be able to help. If any of you are savvy in investment data, please look into this and I will appreciate it.

Thank you Judy for your response. I'll deal with your questions in Bold Italics 8582 must be produced to determine the correct amount of net loss to use at the bottom for the limitation, if that actually applies. 8582 appears on Taxpayer A, whose loss has been suspended, and this is what I expected to happen. Taxpayer B, whose losses were allowed on a 1065 K-1, has not 8582 at all. What boxes are checked on the input for the activity? The only boxes checked for Taxpayer A, are "Active Rental Real Estate" and "Single Family Residence." Taxpayer B, has no page 1 for Schedule E, and lists the loss on page 2 of Schedule E under "Nonpassive Loss allowed" Line 28A coming from the pass-through K-1 (form 1065, 8825) The K-1 shows the loss on Line 2 - Rental Income or (Loss). What is the modified AGI being used? Have you checked to make sure that MAGI is below $150K, and that you aren't basing your statements on AGI? Modified AGI for taxpayer A is $156,307. There is no calculation of Modified AGI for taxpayer B, but their AGI is $236,778. TTB lists 10 elements which comprise "Modifications" for Modified AGI and none of them occur with Taxpayer B. I doubt Drake is wrong and is probably doing what you are telling it to do based on your input. Don't know what else to say. Thanks.

Sorry folks. The $150,000 has not been adjusted for inflation as the personal losses continue to go to 8582. And no restriction on rental losses for the pass-through. The rental activity is "active participation." I'm missing something relevant in the comparison, and reaching dead-end streets with the responses, for some reason. Or else Drake is wrong. Thanks.

For high-income taxpayers, rental losses phase out and are totally suspended after $150,000. But suppose a partnership invests in rent (Form 8825) and has a loss. Or maybe an S corp that passes through the loss to the owner/shareholder. The loss is allowed on the personal return. Why the difference? They are both rent - and both investments (if a profit they are subject to the NIIT). The pass-through character is the same from the entity as to the owner. What is the difference? Thanks in advance...

To what extent does the IRS match Names to SS#. Possibility matching Dates of Birth as well?

Please correct me if I'm wrong, but I believe for purposes of the IRS, a recovable trust is ignored (as if it had never occurred). If the trust is created by state statutes, it probably exists for state law unless it piggy-backs with the IRS. By contrast. an irrevocable trust has it's own identity, and must file a 1041 with the IRS for every year it exists. The basis of its assets are frozen as their value as of the date of its creation.

Excellent response Judy and thank you. From your response, The heirs are not entitled to the impounded loss, although do acquire the rental house at stepped up basis. The deceased can treat the house as disposed, which should free the impounded loss. I didn't know this - for example if there is a Capital Loss carryforward by virtue of the $3000 limit, the capital loss carryforward dies with them.

George and Elizabeth owned rental property, and consistently have AGIs well over $150,000. As a result, they have accumulated losses of over $75000 that they have not been able to deduct. They both die in the same year (maybe a car wreck), and their son Robert will inherit the rental house, FMV of $300,000. Robert's FMV stepped up is $300,000. Can he inherit the $75,000 in his parent's impounded losses? In other words, can he: Sell the house with basis of $375,000, or is his basis only $300,000? Continue to rent the house and absorb the $75,000 as his own impounded losses going forward?

This could drift into political expressions about the current administration, which won't be allowed here. But I would expect much of such as this to be rescinded when it hits the fan. Tennessee required all tax payments and unemployment taxes to be electronic 7-8 years ago. But they still accept checks and dare not penalize the issuer. They need and love any kind of money like a pig after slop.

Actually, I've been comparing information returns with previous year's for the last couple years. This was based on advice from kathyc2 some time ago. We'll note if the ugly letters drop some. Again, this still will not stop notices from the IRS that are in error. Still in the 50% range, and providing them ironclad information doesn't help. It's like it just sails over their head.

Doesn't surprise me. When you consider all the returns that are filed with TurboTax because they have only a W-2 and no deductions, and those who file by themselves with only a W-2, those people never get a letter. My 10% is absolute maximum, more like 5-6%. Almost all my returns have farms, small businesses, rental property, investments, etc. Being in southern Tennessee, I do several Alabama returns, and haven't had a letter from them in years. Maybe the AL tax people are understaffed.

Seems like June/July is the season for most of them. What are the error percentages? 50% the fault of the IRS, either in part or in total. 40% my customers for not giving me information, or bad information, as in "I didn't know I had to turn that in" or [tee! hee!] "I forgot. Some of their excuses are quite imaginable... 10% or less are my goofs and mistakes. They don't happen everyday, but I admit they do happen. And overall, maybe 10% (at the most) of my clients receive such letters.

Exactly. This is another example of the powers that be are so out-of-touch with the real world. No firm guilty of these crimes is going to comply to begin with. And especially after the application which has hiccuped in fits and starts.