OldJack

OK John, I will fess up. I intentionally created confusion on this post because I knew bees knees would attack me and show the kind of person that should promote his book on his own tax forum. In his post that he deleted he said he would stay around just to correct me . Of course I was wrong on my stupid position and everyone here clearly knew that so I was not worry that anyone would be misled. In the future if bees knees is still allowed to post, I will ignore him as I would anyone that posts spam.

I fail to find a code sec. 7703 2( c ) that you refer to. I believe the statute I quoted above (2b) says "such individual shall not be considered as married."

The argument is about 2 separate basis. The members tax basis (capital account or outside basis) in the partnership "entity" increases or decreases by 1065-k1 items but has nothing to do with the basis of purchased stock. The partner's entity basis only comes into play on part or all disposition/sale of his interest in the partnership. A simple way of looking at it is you might say his partnership basis is in the cash produced by the sale of the partnership assets in liquidation of the partnership. As an example, when he receives cash or property distributions they will not be taxable to him unless they exceed his partnership entity basis (capital account or outside basis). The reason is he has already paid tax on that income and his basis therefore increased (or decreases if loss). Therefore you are right that his entity basis does not increase the stock profit or loss on Sch-D. He is right that his "partner basis" increases on all the assets as income is reported on the 1065-k1. He just has to wait to use his partner basis until he receives cash or assets.

>>Sec. 7703. Determination of marital status -STATUTE- (a) General rule ............ ( b ) Certain married individuals living apart For purposes of those provisions of this title which refer to this subsection, if - (1) an individual who is married (within the meaning of subsection (a)) and who files a separate return maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a child (within the meaning of section 152(f)(1)) with respect to whom such individual is entitled to a deduction for the taxable year under section 151 (or would be so entitled but for section 152(e)), (2) such individual furnishes over one-half of the cost of maintaining such household during the taxable year, and (3) during the last 6 months of the taxable year, such individual's spouse is not a member of such household, such individual shall not be considered as married.<< There is nothing in the statute that says this person, considered unmarried, must file head of household reather than single. This person is not divorced nor is there anything mentioned about a legal separation. Think about it.

Because they "qualify as married" and NOT as "considered unmarried"! Why is everyone so hung up with the fact that single is a default filing status? Is it because.. you may have been filing tax returns wrong for so many years? OK.. if you still disagree with me tell me WHO are these >>certain married taxpayers living apart compute their tax under the following tax rates for single persons if they can't use the tax tables<<

Under everyone determination in this post there is no such thing as ""and you do not qualify for another filing status". If he qualifies and elects as "considered unmarried" he does not file married. Think about it. >>RIA Federal Tax Handbook 2011: Paragraph 1102-Single Individuals. >>Taxpayers who aren't married at year's end and who don't qualify as surviving spouses or heads of household, and certain married taxpayers living apart compute their tax under the following tax rates for single persons if they can't use the tax tables.<<

I disagree. This man can file single under the concept of "considered unmarried". For a person that qualifies as considered unmarried they qualify for head of household but if they don't meet the requirements of head of household they can file single as the default under "and you do not qualify for another filing status". See pub 17 under heading single.

Read publication 926 and your client would need to report payroll taxes on form 1040 Sch-H.

In as much as this is an Statutory Stock Option (employee) and not a Nonstatutory Stock Option, there is no income to report until the sale of the stock, therefore no code V.

Catherine, I find your comment a little insulting as I have been a good and long contributor on this board and do not have a chip on my shoulder. This board has previously deleted or banned vendors only here for selling their product and bees knees is no different.

It has been my experience that the IRS only challenges profit motive in obvious and questionable cases. Mainly cases that are commonly considered a hobby. Achmid's comment is inappropriate.

bees knees should be banned from this board as he posts here only to sell his tax book. In his 2 posts he has made no contribution of useful information and it is unlikely he ever will!

>>What more needs to be said? << 1) What needs to be said is that bees knees is a vendor! 2) Quickfinder revised all of bees knees work after he left and turned QF into the best tax books. 3) Why don't you rant on the board you administer instead of this 3 year old posts on this board. 4) Were I the administrator of this board I would ban bees knees. 5) This board has never banned anyone but TTB has.. so much for member appreciation and loyalty on TTB. 6) In spite of what bees knees thinks, TTB is still not near as good as Quickfinder or he would not be trying to convince everyone so he will not go broke. :)

>>and condition would not extend its life because it would still be five or seven year property. << Like you said "say something stupid" and OldJack will say something stupid. Capitalizing because of extending life has nothing to do with the tax life classification of property. You could spend a million dollars on a car and it would not change the class life for depreciation, its still 5 or 7 year property. It's will the expenditure increase the useful life of the property beyond the original life of the type property in that you now have a new life for a property. Thus the $1200 would be depreciated over a new life rather than add to the original vehicle being depreciated. I agree in this case I would expense as a repair.

>>Jack, I think you misunderstood the situation which deals with the tax laws specific to the year 2010.<< Yes, I misunderstood and stand corrected.

In simple terms. A computer has one or more processors (brain) that read data like a choo choo train and do math with the data. A 64 bit processor can read 64 train cars at a time, and you guessed it a 32 bit processor can only read 32 train cars. Which processor do you think would run your programs faster?

Why would you buy a 32 bit when all the new software will be for a 64 bit processor?

What is there about the S-corp tax return that you don't understand? 1120S line 7 is for compensation actually paid. No salary per 941 and on the return means no salary was paid and a corporation is a separate tax entity from the shareholder. Its too late to do anything about the S-corp payroll not being done. Its too late to do anything about the shareholders distributions and taxable income classification. Its your job to prepare the tax returns according to actual facts.

>>So in 2010 $5,000 will be taxable with 10% penalty.<< So in 2010 the 10% penalty will be on earnings distributed. Did the $5,000 represent earnings? I think not! So since the $5,000 is a return of contributions, nothing is taxable in 2010.

Just add it all to the bill. He will pay after a loud holler and he will not run over it again.. as he will not be back next year.

>> open for 5 years or more.<< The 5 years or more only has to do with penalty on the income earned portion of the distribution. This taxpayer says no income earned on the account so no penalty.

>>So I think it's a related party transfer and the basis carries over to the new owner.<< Well... we need more facts and what has already been reported on tax returns to determine what to do now. Sale at FMV and a taxable gain between related S-corps (50%+ same owners) generally result in new "cost basis" for the buyer S-corp books unless the transaction is a sham transaction that is ignored and recorded at carryover basis. However, "tax basis" and new "cost basis" for the buyer S-corp are NOT the same thing and tax basis generally is carry over basis for depreciation purposes under the anti churning rules (code sec. 168(f)(5)). Related party sale resulting in a loss gives no deduction to the seller S-corp under code sec. 267(a)and code sec. 267( b )(11). As to the deed, there was no gift, rather a sale at FMV or, if a sham transaction (no economic substance or business motive other than tax benefit), it is just a transfer at carryover basis with any cash difference a possible cash distribution to shareholder. Jainen... you sandbag as you knew that!

While I agree with reporting it on a W2 and deducting it on the S-corp, I question doing it now after the year tax returns have all been filed. Really, what would that accomplish as it does not change the tax for anyone and is just more paperwork for the IRS and the client. You did not make the mistake on last years return so I would leave it alone. >>The clients could not get another CPA to take it<< I would bet because they want it done cheaper.

By default the IRS considers an officer of the S-corp an employee regardless of salary. That is the theory behind reclassifying distributions. If there are no distributions/payments to the officer there is no amount subject to recapture as salary. Its not likely the IRS will audit if there is not enough income to support a salary. Any taxable benefit does not go on a k-1, but should be reported on a W2 even if the officer did not take a salary.

>>What could be more inherently personal than a part of her own body?<< This taxpayer thinks they are a tax expert. No deduction...No way!