David

Ha ha. You're right. Sorry about that.....

TP entered into a 1031 exchange in November 30, 2015, exchanging one residential rental house for 2 residential rental houses. All time requirements were met, no cash was received and no mortgages were assumed by either party. The first property acquired was closed on 12/28/15 and the second property closed February 26, 2016. None of the research materials seem to address how to handle the depreciation for a property relinquished for 2 properties when one property is purchased in one year and the other property is purchased in the following year. Do I allocate the exchange basis (adjusted basis of relinquished property) between the 2 replacement properties based on each replacement properties' cost and depreciate each allocated exchange basis along with depreciation for the excess basis for each replacement property? Of course, the depreciation for the 2nd replacement property won't be reported until 2016. Or is this handled a different way? Thanks for your help.

OK, I knew there shouldn't be a conflict. I guess I misread the instructions. Thanks for your help.

TP sold his primary residence in 2015 that he purchased in 1994. The house was rental property until mid 2010 and the TP lived in it from mid 2010 until he sold it at a gain of $189K. I reported the non-qualified use from 2009 to mid 2010 and calculated a $9K taxable gain for the non-qualified use. I also reported $41K gain related to depreciation taken through the rental years. This is in accordance with sec. 121. However, pub. 523 page 7 appears to say that if the TP did not use the house for business in the year of sale or did not receive rental income in the year of sale, then the TP receives the full $250K gain exclusion. Pub 523 also states that the TP has to report gain for depreciation taken for the rental property, which is in agreement with sec. 121. Can anyone clear up this apparent discrepancy for me? Thanks.

Thanks.

Tenants in common sold land and received a 1099-S with both names included but only my client's ssn. My client owned 80% and the other person owned 20%. The other person claimed their share of the sale proceeds on their tax return. If I file my client's return reporting only his share of the proceeds won't the IRS send him a letter asking for taxes on the remaining proceeds? I don't see a way to report 100% of the proceeds and allocate 20% to the other person. How have you handled this issue? Thanks.

So it appears that he can file his 2012 return by 10/15 and receive his refund. Thanks for your help. I'm not following what both of you are saying regarding he should file his 2011 even though he won't receive his refund. He hasn't received any letters from the IRS. My understanding is that if the IRS sees that he has enough taxes withheld against the income documents that were filed with the IRS, then they don't send out letters and they don't threaten to prepare a SFR. They would only do this if they saw that the amount of taxes withheld against the income documents filed would result in additional taxes owed. I also don't understand the comment that by not filing the 2011 return the SOL won't start. OK, if he files 2011 the SOL starts back in October 2012 doesn't it? Then he is out of luck to receive his refund since the SOL ran out October 2015. So why file? What am I missing here? Thanks for bearing with me on this.

TP hasn't filed tax returns from 2011 - 2015. He says he always filed extensions and he always gets refunds. I told him there is no sense in filing 2011 since he won't get his refund. I am trying to determine if 2012 is still available for him to file and receive his refund. I thought the rules were that a TP has 3 years from the original due date, including extension, to file a 1040 and receive a refund. However, everything I see on the IRS website just says 3 years from the original due date. Can anyone confirm if a 2012 1040 can still be filed for a refund if the TP filed an extension that filing year? Thanks.

Thanks for clarifying.

TPs own a condo in Mexico that they rent out. In 2015 they did not use the condo and they rented it out for 7 days. Are the TPs able to report 100% of the condo expenses? This will more than offset the revenue received. Expenses were for items such as repairs and maintenance, condo dues, management fees, property taxes, cleaning, etc. Any loss would have to be carried forward as the TPs have high income. I can't find anything in my research that says that the expenses have to be prorated to only 7 days since the TPs did not have any personal use days. Thanks for your help.

TP received a K-1 for his limited partnership interest and a Canadian equivalent T5013. How and where do I report the T5013 information? Thanks.

S Corp is entering into an asset sale for it's restaurant business. The owner is agreeing to put an amount for repairs and improvements into escrow for use by the purchaser in the future. I can't find anything in the regs regarding how to treat this in the asset sale. I would think that this should be treated as ordinary expenses instead of selling costs. This would allow the expenses to be deducted at ordinary tax rates instead of reducing LT gain. Does anyone know any cites or have any information on how to handle this? Thanks.

Thanks so much for your help on this.

Thanks, Judy. I appreciate your help.

Yes, I looked at that and the comments above are how I understand this should be handled. However, it doesn't seem to address what to do for assets that sec 179 was taken. It seems as though the remaining member is deemed to take 1/2 the fixed assets at 1/2 fmv. So even though book value is zero, he gets to increase the value of the assets and start depreciating them again? I always thought assets were transferred out of a partnership/LLC at book value and only corporations reported asset transfers at fmv. Thanks for any insight.

OK, after going through this a little more I want to make sure I am carrying over the correct information to the surviving LLC member's Sch C and 1040. The only assets at the date of termination were cash for $6K and zero book value for a group of fixed assets purchased in 2013 for $32K which sec 179 deduction was taken. Each LLC member had $17K basis as of 1/1/15. My understanding from the research is that the remaining member is deemed to take a distribution for half the cash value of $6K and the departing member is taking a distribution of $15K, the amount paid to him by the remaining member. Is this correct? It appears that the remaining member has a cost basis in half the cash and fmv of assets attributable to the departing member's half interest. What happens to the sec 179 taken in 2013? This isn't considered a sale of the assets so is it as simple as transferring zero value of fixed assets to the SMLLC? Thanks for your help.

Thank you for your help.

TPs started an S Corp in 2015 and thought they had until 4/15 to file an extension. There are 2 shareholders in the corp. They brought their tax information to me around 4/15 and I told them I had a backlog and would not be able to prepare it until later and that they missed the extension deadline anyway. I prepared the tax return and it was filed in June. I know the IRS no longer accepts Rev Proc 84-35 as a basis for abating the late filing penalty. Have any of you been successful in getting the penalty abated? If you have a form letter of some type that you have used successfully, I would appreciate a copy. Thanks for your help.

PEO subjected an S Corp officer's health insurance premiums paid by the corporation to FICA taxes. The salary amount and the premiums paid are included in boxes 1, 3 and 5. I will discuss this with the client. However, I'm sure the corrected W-2 will not be issued and filed by the time I complete the client's 1120S and 1040. How have any of you who experienced this issue handled it? Should I enter the correct amounts in box 3 and box 5 and report the lower FICA taxes withheld since the PEO should correct the W-2 and amend the 941 and refund the officer and the corp for the excess FICA taxes paid? Or is there a better way to handle this? Thanks.

I still need to do those additional analyses. Yes, I agree that the salary may be considered unreasonable. I plan to discuss this with the client. Thanks for your help.

Thanks Abby and Judy. Yes, I already ran several scenarios. If $6K sec 179 deductions are taken then ordinary income will be $213K, no excess distributions and $11K loss carry forward. The taxable income that will flow to the SH's 1040 will be $212K. This is the same taxable income if the corp takes $44K sec 179 deduction and the loss carry forward will be $39K. For these two scenarios, I thought it would be better to go with the same taxable income but $39K loss carry forward. That's why I didn't mention the 3rd scenario earlier. Is there something I'm missing in thinking the $39K loss carry forward is better than going with the $11K loss carry forward scenario? The SH's salary is $48K. Thanks for your help.

The corp has 222K of ordinary income and the SH took $212K distributions. 179 deductions are $44K and charitable contributions are $5K. Even though the corp can take the 179 deduction, this creates a $39K loss carry forward. Therefore, am I correct in thinking that the TP will not be able to take the full 179 deduction and the charitable contribution on his 1040? If no 179 deduction is taken then ordinary income is $209K and distributions are $212K resulting in $3K excess distributions. This also results in a loss carry forward of $5K for the charitable contributions. Am I missing something by thinking that the second scenario is better for the TP? Thanks for your help.

Thanks for your help, Judy. Yes, I see where the SH compensation is added back to the 179 calculation. So the K-1 shows the full amount of 179 deduction. However, the SH's basis statement shows $39K loss carry forward. The loss items are $44K 179 deduction and $5K charitable contributions. Even though 179 is allowed at the corporation level, won't these loss carry forwards limit the amount of 179 deduction and charitable contributions allowed on the SH's 1040? Thanks.

Thanks. I didn't think of the salary being reported on the TP's 1040 and the impact to the loss carryforward. He has more than $39K W-2 salary from the S Corp. So even though the basis statement shows a $39K loss carryforward, will he still be able to take the sec 179 portion of the loss carryforward on his 1040? I thought his losses were limited by his basis.

I need a sanity check please. Single SH S Corp began in 2013 and had beginning basis of zero in 2015. If the company takes full advantage of sec 179 deductions, there will be no taxable distributions in excess of basis. However, there will be $39K loss carry forward. If the company takes no sec 179 deductions there will still be $5K loss carry forward for charitable contributions and $3K distributions in excess of basis. I am thinking that it would be better to not have a $39K loss carryforward and instead have the $5K loss carryforward. Regarding the $3K distributions in excess of basis, I am thinking of classifying that as due from shareholder and discuss with the client that they need to take less distributions in 2016 to make up for the $5K loss carryforward and the $3K due from shareholder. Does anyone see a problem with how I am approaching this situation? If the distributions in excess of basis is reported, will it be taxed at the LTCG rate since the SH has held his stock since 2013? Or since the SH had zero basis at the beginning of the year, will the distributions in excess of basis be taxed at the ST rate? Thanks.