BulldogTom

What happens when it turns out to be a loss? Non-recognition of loss. I got it now.

Maribeth, I think you are right. Thanks so much. Tom Lodi, CA

That is along the lines of what I am thinking. What I did is take the difference between the number of shares he had and the new number of shares and said he sold them. Then I took the remainder and said he exchanged them share for share. I will put some numbers to it. Client holds 1575 shares with a basis of 10,000 or 6.34/share. He recieves cash of 3,933 and 1074 shares of stock in the merged bank. So he sold 511 shares with a basis of 3,260 for 3,933 with a gain of 673 and exchanged 1074 shares of old for shares of new with a basis of 6,760 Something is telling me this is not right. I can't put my finger on it though. Is it possible that he has to add the value of the new stock to the cash recieved as the sale of all 1575 shares, calculate the gain, and then act like he puchased back shares in the new company? Thanks again for your help. I just can't find anything that is on point in my research. Tom Lodi, CA

Client held shares of stock in a bank. The bank merged with another bank, and the client recieved both cash and stock in the new bank. I am not sure how to handle this. The terms of the merger call for each shareholder to recieve $2.50 in cash and .6 shares of stock in the merged bank. Any suggestions on how to handle this? If it was stock for stock, I think I would not report it and substitute basis. If it was cash for stock, I would have a sale and gain/loss. The 1099B shows it as a sale, but it is a very weird looking Substitute 1099B. Any help is appreciated. Tom Lodi, CA

This is a little off color, so if you are easily offended, just quit reading now. The post by Jack reminded me of my "colorful" economics teacher in college, the best professor I ever had. He was teaching a principle to the class that he called the "prostitution principle of economics". Why does a hooker get paid before providing the service? Because the value of a service declines immediately after the service is rendered. The more desireable the service, the more that can be charged for the service before it is rendered, and the steeper the decline in value after it is rendered. Now, I am not saying we are all hookers, but we do provide a service that is in high demand right now. If we don't get paid for it while the cliet percieves the need for the service, the client's motivation to pay us will decline proportionately after the service is rendered. I have never forgotten that lesson. All the women in the class were shocked. I was roflmao at that one. Thanks Mr. Yerge. Tom Lodi, CA

Taxbilly has always been "elite", now he just has the title to prove it. Tom Lodi, CA

I am with you Ray. Food is good, but......................... some things ARE more important. Both is always better. Tom Lodi, CA

Yes they are. I first had them at the Big Fresno Fair about 10 years ago. They are abour 6" long by 3" wide and they have the crusted cinnamon and butter on the bottom. They keep them hot so the cream cheese melts on them a little. They give you a fork, but you have to eat them with your fingers and then lick the sticky off your fingers. Tom Lodi, CA

This came up one time before, and I think it is correct. I think it has something to do with the law that a baby who is born and dies in the first year can still be a dependent. I think if you are alive on 1.1.XX and you die sometime during the year, you get a full year return, full exemptions, full credits. Tom Lodi, CA

My problem is my client got the 1099 SA and it is code is 1. I don't like changing the distribution codes on the forms, because of exactly the reason you stated Cathy - if the IRS looks at it, they are going to say no way and send the bill first and ask questions later. I was hoping for a way to explain it on the tax return. My eyes are getting tired, so I think I will sleep on this and see if I can get it to come out right tomorrow. Thanks for the responses. Keep them coming. Tom Lodi, CA

Help Please. My client contributed to an HSA, but he was not eligible. His spouse has coverage for the entire family. So he took the money out of the account. There were no earnings in excess of his contribution. I have tried to put this all together in the software, and this is what I am coming up with. His contribution is not deductible. His withdrawal is taxable. Since he did not have eligible medical expenses, he has to pay a penalty for withdrawing the money. This seems like a totally unfair result, but tax law is not fair. I hope I am missing something. Since California does not comply with the Federal on HSA's, we don't see many of them. Any help is appreciated. Tom Lodi, CA

Nope. Cinabon can't compare to the fair. Tom Lodi, CA

It is a little cold out here too. Breezy and about 65 today. Lots of pollen in the air from all the trees blooming. Just terrible. Sorry, I couldn't resist. Tom Lodi, CA

Mel, you are cruel. Out here in CA, there is a small company that runs the fair circuit in the summer. They make some of the best cinnamon rolls, and they smear a bunch of cream cheese on them and sprinkle them with walnuts. It is the best $6 I spend at the fair every year. And you can watch them make them right through the window of their trailer. The fair is still so far away, and so is Hawaii. Hey Mel, if I take my wife to Hawaii for a three day weekend in April, will you make some rolls for us? I am serious. I have to take Patty for a long weekend after tax season for missing our anneversary in March. I was going to take her to Monterey, but Hawaii would work too. Tom Lodi, CA

This was my question on an earlier thread, and I have not found an answer. If you have any source material on this, please post it. I have a client who is purchasing a quadplex. He will live in one unit. My first thought, which will probably not be right, is that you treat it the same way you would for depreciation. The square footage of the entire property divided into the total purchase price times the square footage for the personal portion. That will give you the purchase prices of the personal residence, which will then be used to determine the 10% limit for the credit. Using my example, if the quadplex is 2000 square feet and cost 400K, and the personal residence is 500 square feet, the purchase price of the personal residence is 100K (400K / 2000 sq ft X 500 sq ft). The limit imposed by the law is 10% of the purchase price or 8K. In this example, he would get the 8K credit (or the 7500 if purchased in 2008) and the 300K would be the rental portion to be depreciated (minus land of course) on the E. This is how I am going to approach this until I see some better guidance from the IRS. Anyone who has some source material, please post it. I would really like something with authority other than my own thoughts. Thanks. Tom Lodi, CA

Many 401K plans are written in such a way that withdrawals are not allowed except for certain reasons. One of those reasons is a "hardship" as defined by the individual plan. In order to prevent the tax and penalty, the 401K will sometimes permit a "hardship loan" from the 401K. Many 401K accounts do not allow a loan because of the administrative cost of allowing them. If they do allow a hardship withdrawal, they are not exempt from tax and are only exempt from penalty if they meet one of the code provided exceptions. There are a lot of plan specific rules about taking withdrawals from a 401K, and employees will often confuse these rules with tax rules. Hope this helps. Tom Lodi, CA

Mike - here is a joke you might like. It has nothing to do with birthdays, but I like it. A church lost their pastor and formed a search committee. They interview process included the candidate giving a Sunday sermon. One young man really impressed the search committee, and was scheduled to preach that Sunday. He lit up the pulpit with a sermon on serving God, and the entire congregation was enthralled by his exhortations and passion. The elders immediately hired the young pastor. He accepted and arrived the following Sunday to preach. He gave, word for word, the exact same sermon as the prior week. The elders were suprised, but let it go, assuming that he did not have time to prepare another sermon. The following week, the young pastor again delivered the exact same sermon. The elders got together and decided to let it go for one more week, as it was a very good sermon. The fourth Sunday came, and the young pastor delivered, word for word, the same sermon. The elders had had it. They called the pastor on the carpet and demanded an explanation. His response was short and to the point. "When the elders and congregation act on this sermon, I will move to my next topic." Happy Birthday Mike. Tom Lodi, CA

<<<and just because you are too lazy to read the notice?>>> I did read the notice - all ten pages. Please see my original post :0) The notice does say that I can send an amended return. It says to send it to the address on the front of the notice, which I am doing. I appreciate what you are saying joanmcq. However, my distrust of the IRS runs deep. And I know that if I send in an amended return, I am in a better position should the IRS audit at a later date. The CP2000 is just a mis-match on information that they have in the system. It is a notice that something is not matching up. And since the 1040X now has a foreign tax credit that is available to the client now, it seems to me to make more sense to present a complete and acurate return to the IRS with all schedules and attachments that prove the positions taken on the "new and improved" tax return. In the future, if it is a very simple change, like a small W2 the client forgot about, I will consider your advice. But for this particular client, I think I will send in the 1040X (which the notice clearly says I can do) and go from there. Thanks for the reply. Tom Lodi, CA

I have started adding the 2 year comparison to every return of prior year clients. I review it before I finish the return, just to make sure I don't miss something like that. It is also very helpful when the client asks the invitable question "Why is my refund different from last year?". I just show them the differences. Tom Lodi, CA

Deduct the tuition and fees. It is only non-taxable re-imbursement that you need to worry about. Tom Lodi, CA

What state are you in jasdlm? I would tell my client the same thing. Get a corrected W2, you are an employee. But I would also warn him of the potential consequences of this action (see below). Everything that an employer pays and employee is wages unless you can find a code section that says it isn't. I don't know of a code section that exempts bonuses. They should have gone on the W2. I would advise that all employees get a revised W2, that you gross up their wages for the "net check" that they actually recieved, and pay the penalty and interest. I beleive this is what the IRS would tell you to do. Now, that being said, if you are in a state that has "at will" employment, you could just fix the one employee W2, hope it does not trigger an audit, and then very publicly have your client lay off the employee "for no reason, per our employment relationship agreement". The rest of the employees might get the hint. Then again, they may not. This is a very risky thing to do. Then go tell your client to never ever listen to the employees again and always cut a payroll check for bonuses. Tom Lodi, CA

Sweet. What a lucky man you are. Tom Lodi, CA

I was taught by a onery CPA the same way that Catherine was taught. 1040X, 1040 highlighted "Amended", supporting docs for changes, 1040 hightlighted "As Originally Filed, Do Not Process". I have been doing it this way since I was in college. Never had one come back for additional information. Tom Lodi, CA

Don't give your fee away. You are right. It is not your fault the taxpayer does not qualify for tax breaks. Take your fee. Just explain everything. If she walks, oh well. If she pays, you have a great client. Tom lodi, CA

I have been looking on IRS.gov and not finding anything. TP is single. Wants to buy quadplex. Move into 1 apartment and rent the other 3. I don't see anything that disqualifies him from taking first time homebuyer credit. Has not owned main home in prior three years. Will use the one apartment as his principle residence. Income qualifies. I assume he takes sqare footage and divides to get sales price of personal residence? Takes up to $8,000 in credit (10% of purchase price of principle residence portion)? Anyone have an cites or a problem with this approach? Thanks Tom Lodi, CA