David

Great! Thanks so much for your help.

I am preparing a 1065 for a 2 member LLC. An extension was filed for the 1065. One LLC member bought out the other member on 1/1/15. I didn't realize this until this year. The LLC member who bought out the other one paid him $11K from his personal funds and gave him a check from the company for $4K. Shouldn't the $4K be considered a draw for the remaining member? The departing member's 12/31/14 basis was $17K. Therefore he would recognize a $2K loss from the buyout of his partner interest - correct? I guess the big question is what tax returns need to be filed. Officially the partnership was terminated on 1/1/15. Therefore a final 1065 should have been filed by 5/15/15 shouldn't it? And the remainder of the year would be reported on the remaining member's schedule C. What should be done at this time? File a late 1065 for 1 day and have the LLC incur late filing penalties? Would there be relief from any penalties since the LLC members are reporting their K-1s on their timely filed 2015 tax returns? Both members have filed extensions for their personal tax returns. What have any of you done who have had this situation and, if there were late filing penalties, were you able to successfully get them abated? Thanks for your help.

H&W owned heating and plumbing C Corporation had an asset sale in 2015. The sale agreement also included a non-compete and owner assist to provide consulting and services for 20 hours up to 6 months. I want to confirm that the goodwill is considered gain to the corporation and not to the individuals. The C Corp has a huge NOL carryforward, not that this matters. My understanding is that the goodwill will be considered part of the gain to the C Corp and netted against the NOL. Is this the correct way to handle this? Thanks.

TP received a 1099-Q with box 6 checked stating that the recipient (TP) is not the designated beneficiary. The funds were used for the TP's dependent. TP's income is too high to claim any education credits or deductions. I don't want to waste time entering the education information since there will be no deduction or credit. Can I simply ignore the 1098-T and the 1099-Q and not enter either? All funds on the 1099-Q were used for education purposes. Thanks.

Thanks for your help.

The wife transferred her shares to her husband. I realize that it is a non taxable transaction. The only way I see to handle this is on the basis statement. An increase to the H's contribution and a decrease to the W's contribution for the W's remaining basis amount. Is this the correct way to report this or should it be reported another way? Thanks.

I have already asked for this information from the client and am waiting for an answer. Thanks for your help.

The reason given to me was that wife is not involved in the business and they didn't want wife to be legally liable for anything to do with the business. Given this, how is her remaining basis handled?

H&W C Corp entered into an asset sale and sold all assets in the latter part of 2015. H&W retired and expect 2015 to be the final year of the C Corp. The C Corp reports on the accrual basis. Attorney fees and other expenses paid in 2016 were accrued for 2015. A loan from the H&W to the corporation was paid back by the corporation in May 2016. No dividends were paid out in 2015. The H&W will take final distributions in 2016, after the extended 1120 is completed. I don't think 2015 can be the final tax year since dividends/distributions weren't paid until 2016. Or can the 1120 file a final tax return in 2015 and send 1099-DIVs in 2016 to be reported on the H&W's 2016 personal tax return? Thanks.

Wife was no longer a SH in H&W S Corp effective 8/31/15. She has a remaining basis of $1,145. What happens to her basis? Does it "disappear" and is ignored? Does she report a loss in 2015? Can her basis be transferred to the H's basis? If so, where is this done in the tax program? I can't seem to find anything on how to handle this. Thanks for your help.

Rita, thanks so much for your help. I think the program "got confused" because in the 2010 program it showed the conversion amount as non taxable since it was going to be taxed in 2011 and 2012. Then the program carried the non taxable designation forward each year so that when a distribution was made, it didn't apply the 10% penalty. The program should have been able to determine, by the election to tax the conversion in 2011 and 2012, that even though it wasn't taxable in 2010 it should be considered taxable for purposes of the 10% penalty. I threw this out to the forum thinking that maybe there was an exclusion to pay the penalty for those who took that Roth conversion election in 2010 and I was not not aware of it. Thanks again.

Both made withdrawals over several years from their 2010 Roth conversions and all before the 5 year period. I am preparing their 2012, 2013 and 2014 tax returns. Her withdrawal was in 2012. So she didn't meet the 5 year period to be exempt from the 10% penalty. However, the program is treating it as all non taxable in 2010 and not subjecting it to the 10% penalty. Based on what you are saying, my thoughts are correct - she should be subject to the 10% penalty and the program is wrong. Is that correct? Thanks.

They both have withdrawn the Roth amounts over several years before the 5 year exclusion period. Therefore, the taxable portion at conversion amounts withdrawn should be subject to the 10% early withdrawal penalty. My apologies. I thought when I made the comment above that it was clear the withdrawal was before the 5 year period. Neither H or W is over 59 1/2. So based on that, do you think the program is incorrect and I should change the withdrawal amount to be subject to the 10% penalty? Thanks.

The program is treating the W's 2010 Roth conversion as 100% non taxable. She withdrew all of her Roth conversion amount in 2012. Therefore, she didn't meet the 5 year test. However, the program is not subjecting her Roth withdrawal to the 10% penalty. So, are you saying the program is correct? Is the reason the program is showing the 2010 Roth conversion as non taxable because she was not taxed in 2010 but was taxed 50% in 2011 and 50% in 2012? This doesn't make sense to me. I can't find anything in the regs that gives relief from the 10% penalty for TPs who chose to delay the tax for their 2010 conversion. The 2010 conversion wasn't taxable in 2010 and the program marked it as non taxable and carried forward the non taxable amount into future years. I'm wondering if this is an error in the program and she should be subject to the 10% penalty? Thanks for your help.

H & W both converted traditional IRAs to Roths in past years. Both had basis in a traditional IRA so the full amount of conversions weren't taxable. They both have withdrawn the Roth amounts over several years before the 5 year exclusion period. Therefore, the taxable portion at conversion amounts withdrawn should be subject to the 10% early withdrawal penalty. The H's penalty is calculating correctly based on the amount taxable at conversion. The W converted to a Roth in 2010 and elected to be taxed 50% in 2011 and 2012. The full amount of her Roth conversion is being treated as non taxable at conversion. I'm sure this is because she elected to be taxed in 2011 and 2012. Shouldn't the 10% penalty be assessed against the 2011 and 2012 taxable amounts? Or since she took advantage of not being taxed in the year of conversion, does she get relief from the early withdrawal penalty? I don't see anything in the regs that indicate early withdrawal penalty relief if the taxpayer wasn't taxed in the year of conversion. Does anyone know if the program is treating this correctly and the W isn't subject to the penalty only because she wasn't taxed at the time of conversion but was taxed in later years? Thanks.

TPs were divorced during 2015. The 1099-B is in both TP's names but only the H's ssn. I'm sure the IRS will expect to see the full gain on the H's tax return since the 1099-B only reports his ssn. Is there a way to report only 50% of the sales, cost and gain for the H? I'm also preparing the ex-wife's tax return so I would report 50% of cap. gain to her as well. Thanks.

H&W are the only LLC members of their company. They have enough profit to take the full $53K max 401K deduction for each of them. Where is this reported? It doesn't look like it is reported on the 1040. So do I simply take the full $106K deduction on the 1065? It shouldn't be exempt from SE tax, should it? That's why I thought it wouldn't be reported on the 1065. I can't find exactly where and how to report this. Thanks.

Client had health coverage through the exchange and was inadvertently dropped by the insurer in Jan 15. Client says it was a glitch on the exchange. Premiums were auto debited and they did not know they had no coverage until April. They got short term coverage for May and June and then back on the exchange in July. They receive a 1095-B from the exchange showing coverage from July - Dec. Since the lack of coverage was no fault of the TPs what can be done to not penalize them? I would like to check the box that says they had coverage all year. But I guess I have to take the time to see if an exemption is available? I would think the exchange would have issued an exemption. Any problem in simply checking the box that they had coverage all year?

OK but I can't find anything that tells me where to report this information. Any ideas?

No withholding. The canadian tax return has already been prepared. It was reported as non taxable. Is it taxable to US?

Where does a Canadian Form NR4 with code 11 get reported? Thanks.

TP worked for US employer in Canada for 3 years. He left CA on 5/25/15 and transferred to his same employer in the US. I completed the 2555 Foreign Earned Income Alloc Wks and reported all of his $108K Canada wages as foreign wages. Since his foreign wages exceed the $100,800 income exclusion limit, shouldn't the exclusion limit amount be excluded? Part VII of F 2555 is prorating this amount by 145/365. The 145 days is from Jan 1 - May 25. If all of his wages were earned within the 145 days, why is the program prorating the exclusion amount? I checked my entries and they appear correct. Did I miss something that caused the program to prorate the exclusion amount? Or is this how it should be done? BTW I am using ProSeries. Thanks.

TP worked in Canada through the end of May. Historical averages always give the average for the year. Does anyone have a good source that will give an average through a particular date, e.g. through 5/25/15? If not, what do any of you do who have this situation? If no better suggestion, I am thinking of using the exchange rate as of 5/25/15 and 12/31/14 and dividing by 2 to get the average through 5/25/15. Does anyone see a problem with this method? Thanks.

Yes, I get some very interesting scenarios. Thanks for your help.

US citizen TPs were Canadian residents for the past 3 years and returned to the US in June 2015 with the same employer. They sold a condo they used as their primary residence in Canada for 3 years. I know the US taxes citizens on world wide income and I don't think the gain exclusion is available for the TPs since they sold a Canadian residence. Is this correct? So they will be taxed on the gain from the sale of their Canadian residence? Thanks.