BulldogTom

Going off on a sidebar here, are any of you being asked to prepare a return for a Marijuana facility? The same concept applies as it is a controlled substance on the federal register and the activity is illegal for federal purposes. I think CA and CO are allowing deductions against income for these activities, but so far I have not heard that the feds are allowing any deductions, not for COGS, not for wages paid to employees, not rents, nothing. Would you take on one of these businesses? If you got in on the ground floor, you might be able to specialize and get a lot of business. On the other hand, you might lose your license to practice. Just an interesting practice item, not making or taking any political stance. Tom Hollister, CA

All of this is business property? Are any of the items on the fixed asset schedules? Assuming this is all business property. The fixed assets would be "sold" for the net recovered insurance payments on the 4797. It will flow from there. The inventory will be "sold" at the net insurance recovery amount as well. This will flow through the inventory lines on the return. He was not "paid" the deductible. He only received what they paid him. Lottery tickets, cash and "fine" for terminating contract should be listed as business expenses - something like "stolen merchandise and cash not reimbursed by insurance" on the tax return. Same thing with the unauthorized withdrawal from the bank. Document and get ready to show the police reports, pictures of the damages, insurance reports, bank refusal to pay the unauthorized withdrawal, and other supporting documents in a year or two to the auditor. Charge accordingly. Tom Hollister, CA

Just an editorial. I will try to keep it as non-political as possible: The reason we are in this situation in CA goes back to the 70's and 80's. The state of CA passed a lot of laws for environmental protection and worker protection that some business owners saw as anti-business. The state got a reputation as a high tax, high regulation state and many companies moved to other states, expecially those with no income tax (ie Nevada). However, they kept a presence in the state. CA saw that they were getting a triple whammy to their tax revenues; they were losing the income tax from the company, they were no longer collecting the sales tax for the products being sold, and they were not getting the income taxes from the high earners in the company that were claiming to be domiciled in the other state. So they got aggressive on the concept of nexus. They have been very aggressive in pursuing companies that are accessing "their" market of consumers, but paying no taxes to do so. Famously, they have gone after high wealth individuals who move out of state just before selling their companies for huge profits. They have also gone after a lot of companies who they can attach any kind of nexus to the state so they can get some taxes out of them. The dot com bust, followed by the housing implosion in the state decimated the budget for the state, bringing the typical response from the state of becoming more agressive on collections from companies and individuals with higher incomes. They have also been at the forefront of trying to tax internet sales and attaching nexus to companies who sell in the state via the internet. See the agreements they made with Amazon to now collect and remit sale taxes in the state. As they have gotten the bigger companies to comply with their demands, they have started working on the smaller companies. That is why you are seeing the aggressive steps to go after companies for sales taxes. If they can get a company to register for sales taxes, they can audit the sales, and from those sales records, find out if they can attach nexus for income taxes. Very sophisicated approach the state of CA is using to get revenues from companies and individuals who don't vote. Tom Hollister, CA

Catherine, Welcome to our wonderful state full of greedy ba$t@rds who think that any connection with CA subjects you to a tax. The customer is wrong. There is no nexus (based on your statements above), as it stands right now. Future court decisions might change that. I would tell the client to call the customer, tell them there is no income tax liability, and if they insist, then stop selling to them. It appears from your comments that this is a customer, and your client is not on the FTB radar. That is good. Try to keep them that way. Tom Hollister, CA

RDNKCPA, I am sorry if it sounded offensive. I think of disability as something that keeps you from being able to work. I was only commenting that being a cop and being a soldier are both very physically demanding jobs. From just the information that he was on disability from his cop job, but serving as a soldier, I was a little perplexed as to how that could happen. I meant absolutely no offense, and I definately appreciate his service to our country. Tom Hollister, CA

I have always done it this way. It works for me. I have an issue with going back and redoing work, so I like to get the return done in one sitting. Most of my clients have learned to bring me everything they need. The first year is a learning experience for them. Complete interview, every line on the return gone over and explained. Future issues addressed. Why you don't take a deduction for 5K of donations when you get 12,200 in std deduction. We go over everything that first year. Every year after that is money in the bank. They know to call me during the year for big items, they know what to bring to their appointment, and we get it all done in one shot. No trying to remember what we went over. Besides, the client does not want to come in more than once as well. We are both motivated to do it all in one shot and get on with life. That being said, I have noticed that I used to schedule 1 hour for most clients and it would take me 45 minutes for a returning client. I am now taking about 55 minutes to complete, and there is very little room for scheduling errors. All the damn foreign bank account questions, questions about the quality of the $600 in donations to goodwill, etc, etc. Tom Hollister, CA

That was my thought too? How can someone be physically unable to work as a cop, but fight as a soldier? Tom Hollister, CA

Julie, When it is a new client, it has to be entered. It goes on the form that is associated with the passive activity. There is a tab on the ATX Sch. E form for entering prior year passive losses. I did the over ride thing a few years ago on worksheet 1 before I figured this out. The next year, it was all screwed up because the overrides did not carry to the new year. Then I found out how to do it the right way in the software. Tom Hollister, CA

Sorry, I should have seen that you were trying to bring those carried losses onto the 8582. Yes, you enter it on the Schedule E. it is on the "loss limitations" tab. Last tab on the form. Tom Hollister, CA

Income over 150K nullifies the rental real estate exception for deducting passive losses. They will be suspended until the income falls below 150K or the passive activity is disposed of. Tom Hollister, CA

Look at you KC. Trying to get out of helping Joan out. You know if you set foot in her office, she is going to put you to work. You are getting lazy in your retirement. Tom Hollister, CA

Sharks are killers too, and they like to swim as well......hmmmmmm I'm not saying nothin'....I'm just saying. Tom Hollister, CA

I am getting in a canoe and paddling for the islands right now. Tom Hollister, CA

I am so sorry to hear of your losses. I am in Hollister. Work my day job in Gilroy. My wife Patty is a CTEC preparer as well. She may have 1-2 days a week to work for you if that could help. She is in our Lodi office Tues and Wed. We travel to Lodi and Fresno on Saturday's. But we may be able to give you enough help to get you through this tough time. Distance is very managable for us. Let me know if you want to go to lunch and discuss. I work right off Leavesly Road in Gilroy. We could meet at Black Bear Diner, Denny's or Chevy's. Send me an e-mail or PM me if you are in need. Thomas R. Carlson, MST, EA [email protected] (831) 635-9414

I think you are brilliant as well...scary as hell...but brilliant too. So glad the Mississippi river, Rocky mountains, and Sierra Nevada mountains are between us, cause if you were pissed at me, I might be able to get to Hawaii before you got to me in Hollister. Love ya girl. Scared too. Tom Hollister, CA

Sorry to come in so late to the party, but I think Catherine is right on the money. I see it as two different possible explanations: 1. The bank did not sell the home, listed the FMV and issued the 1099 in error 2. The bank did sell the home for 200K and issued the 1099 in error. If this were my client, I would ask them to call the lender and get an explanation, and try to get them to correct the 1099 (yeah, I know, good luck with that and let me know how that works out for you). But it is part of the due dillegence process before you advise your client to take a position on a tax return. If the lender is not taking calls or is uncooperative, then a call to a congressman up for re-election might help. If it was my client and they could not get a clear explanation from the bank, I would show the home sold for 200K as per the 1099A, and include the 1099C on Line 21, and then zero it out on line 21 as well with an explanation "incorrect 1099 issued by bank". Document the position, wait for the letter, and explain it to the IRS in 2 years. It seems very strange to me that the dollar amounts were exactly round numbers? Is that you just making up numbers for illustrative purposes or was the exact FMV listed as $200,000.00? Just my take on this. Tom Hollister, CA

Margaret, I am doing this from memory right now, but I am pretty certain that the reduction of tax attributes from exclusion of cancelled debts only takes place on the first day of the next tax year for the taxpayer. I will need to go back and read the text on Qualified Business Property to see if that exclusion requires the reduction of basis before the debt is excluded. That does not sound correct to me, as it would negate the use of the exclusion. If you have to increase your basis by the amount of discharged debt, you just shift the discharged amount to gain on the disposition. I don't think that is how the mechanics of the exclusion works. I think that the only time you have to reduce the basis of the property which is subject to cancelled debt is when you keep the property. In his case, the property is gone, so there is nothing to reduce basis against. Let me look at this again tonight when I have my source material in front of me. Tom Hollister, CA

Margaret, You need to slow down and take this one step at a time. The 982 is the last step in the process. First, you have a sale of a rental property. Run the sale in the normal way. Put a bulk sale together in ATX and sell the property with a sales price of 92,000. The result is going to be a loss on the 4797. Do not do anything with the basis, as the 982 reduction in tax attributes does not take effect until the first day of the new tax year for the client. DO NOTHING WITH THE BASIS AS A RESULT OF THE CANCELLED DEBT IN 2013. You should have a loss of about 40K flowing to the front of the 1040. Second step is to work with the cancelled debt. Enter in the 1099C information and put it on line 21. Third step is to work with the 982. I forget the ordering rules, but I think it goes bankruptcy, insolvency and then qualified business property. Was the client insolvent immediately before the cancellation of the debt? Most likely he was, because he had a condo with a FMV of 92K and mortgage debt of 87K. If he was in as bad of shape as you say he was, I am guessing he was insolvent. Go through the worksheet on insolvency and see to what degree he was insolvent. If he was not insolvent, then look at the rules for Qualified Businss Property. I know there is a lot of disagreement about wether a rental activity rises to the level of a business. Especially given the circumstances under which he started renting the property. This may or may not be a viable option. Does this make sense on how to attack this problem? Tom Hollister, CA

No, and they will not this year. I asked the question on the other board and ATX Kristen said they would not support 541 e-file this year. No reason given. It has to be mailed. Tom Hollister, CA

I think I found it. It looks like there is an extra space in the name. How it got there I have no clue. But apparently, that is enough to make ATX think it is a different file. I still want to blame ATX...but it looks like it was operator error. Now if I could just figure out how an extra space got in there. Tom Hollister, CA

Jack, Not sure what is going on with my return, but I have 2 returns with the same name and nothing that says "copy of". I thought that was what used to happen. I am sure there is something that is different, but right now I just can't see it. 2 returns, same name. Thanks. Tom Hollister, CA

Makes me wonder about ATX. I just did a return with that form in it. Never thought much about it, reviewed the numbers and they looked reasonable. Did not give it much thought. Just reviewed the entry for the AGI, Investment income, and looked at the tax amount added. Seemed right so I never thought twice about it. I did not even know that there were rules still in the works from IRS. Anyone hear of this issue and do you think ATX has it right with the form? Kinda scary. Tom Hollister, CA

We use a laptop for our seasonal office, and last week my spouse/employee began working on a tax return from hell (wanna be day trader - pages of brokerage statements). She could not finish it at the time and brought it back to the office and transferred it to the main office computer. She worked on it for a couple more days, then exported it back to the laptop. She met with the client today and finished up the return. Then she e-mailed me the export so I could e-file it from the main computer. This is a normal operation for us. But I did not check to see that the return had been removed from the main computer after it was exported to the laptop. And then I imported it and had 2 copies. And I e-filed the wrong one!!!!!!!! So, I know I am an idiot.....BUT..... The returns were named exactly the same, but they did not show up side by side in the return manager list. One was on top of the "D" last names and the other was at the bottom of the "D" last names. Why would ATX allow an exact duplicate of a tax return name to be imported? I seem to remember that in past years, it would warn you that there was already a return named whatever you were trying to import (yes Jack, I know, "Forget everything you knew about prior versions of ATX"). Am I crazy to think that the software should warn of a duplicate named return? Go ahead, kick me, I deserve it. I should have checked. Tom Hollister, CA

You should see a 1099R with a code G. Perhaps it got lost in the mail. I would not worry much about it. Having the 5498 certainly would prove that the funds were re-deposited into an eligible account. Just hold onto that piece of paper if there is ever correspondence from the IRS. Tom Hollister, CA

I know. I guess my remark wasn't funny. I thought it was. Tom Hollister, CA