OldJack

Its the difference in qualified dividends taxed at capital gains rate. Previous year larger qualified dividend (7595) capital gains calculation produced less tax than current year qualified gains (500).

My clients tell me their phone is 100% business and that they have a record. I deduct whatever they say their cost is.

I have always tried not to file extensions and meet the deadlines. One of my fellow CPA friend says he gives a discount to clients that will let him file extensions.

There is no signature block on a paper form 7004 extension now days. Who woulda thought it.

Blended Annual Rates for Demand Loans (Current through December 2009) Under section 7872 of the Internal Revenue Code, there is interest imputed to "below market loans" between family members, employers and employees, corporations and shareholders, and in other situations. For a loan payable on demand, the short-term applicable federal rate would apply for the purpose of calculating any foregone interest, and because that rate can change monthly, the calculation of interest would have to be month-by-month, with monthly compounding of accrued interest. To simplify calculations of interest for demand loans, I.R.C. section 7872( e )(2) allows the use of a "blended annual rate" for demand loans with a fixed principal amount outstanding for an entire calendar year. According to Rev. Rul. 86-17, 1986-1 C.B. 377, the blended annual rate is the product of ( a ) one half of the January semiannual short-term applicable federal rate times ( B ) one half of the July semiannual short-term applicable federal rate. This blended annual rate is published by the Internal Revenue Service in a Revenue Ruling every June, based on the relevant rates for January and July of that year. The following is a chart of the blended annual rates from 1985 to the present. For the interest rates to apply to low-interest (or interest-free) demand loans before 1985, see Rev. Proc. 85-46, 1985-2 C.B. 507. Blended Annual Rates under Section 7872 Calendar Year Blended Annual Rate 1985 9.24% 1986 7.77% 1987 6.81% 1988 7.72% 1989 8.94% 1990 8.19% 1991 7.11% 1992 4.98% 1993 4.16% 1994 4.80% 1995 6.58% 1996 5.77% 1997 5.85% 1998 5.63% 1999 4.94% 2000 6.24% 2001 4.98% 2002 2.78% 2003 1.52% 2004 1.98% 2005 3.11% 2006 4.71% 2007 4.92% 2008 2.80% 2009 0.82%

Well... imputed interest is at the Applicable Federal Rate (AFR) which is less than 1%. I'm not sure amending anything is going to change much of anything.

1040 Sch-C: "1. Gross receipts or sales. Caution. See page C-4 and check the box if:" Remember the above line reads "Gross". Its not nice to net anything or not report receipts on line 1. The taxpayer should report all he receives on line 1 which includes reimbursements he bill the client. He then takes his expenses on the other lines of 1040 Sch-C. If the taxpayer bills the customer on a per diem basis it must be included on line 1 and then take is actual expenses in the expense section. The only good thing about billing the client for travel meals is that the taxpayer then does not have to disallow 50% of the expense as the customer that was billed has to disallow the 50%. I fail to understand the self-employment issue since the Sch-E and SE net profit should have been the same if you netted the reimbursements from income and didn't claim the expense.

No, it is not directly reported or taxed on a 1040 of anyone and nothing you mention gets nomineed out as you call it. Think of a 1041 form as the same as a 1040 for the decedent's income after the date of death to the end of the year. A required minimum distribution on form 1099-R to the decedent's name is income in respect of a decedent (IRD, after-death income). ---- From the 2010 RIA Federal Tax Handbook, paragraph 3967, page 643: >> Income in respect of a decedent Income in respect of a decedent (IRD) covers income (including capital gain) which a decedent had a right to receive but that: (1) wasn't actually or constructively received by a cash basis decedent, or (2) wasn't accrued by an accrual basis decedent. IRD includes insurance renewal commissions, a monthly pension paid to deceased employee's widow, taxable distributions from a qualified employee plan or IRA, a death benefit under a deferred annuity contract, partnership income of a deceased partner (reg 1.742-1) and S corporation income of a deceased shareholder. (code Sec. 1374( b )(4). << ---- From the 2009 Small Business Quickfinder Handbook, page H-5: >> Income in Respect of a Decedent (IRD) Income in respect of a decedent is gross income the decedent had a right to receive that is not includible in his or her final return. For a cash basis decedent, IRD is income earned but not received prior to death. If IRD is paid to the estate, it is reported on Form 1041. If IRD is paid directly to a beneficiary, it is reported on the beneficiary's tax return. <<

>>I THINK under both the following scenarios neither would qualify << I agree with your thinking.

I think maybe you are mixing apples and oranges in your thinking. The estate will not deal with any 1099-R reporting in this case as the bank as trustee of the IRA will do that as the individual beneficiary receives the distributions. You are only reporting estate income on a 1041, if any, and declaring the estate value on the 706 estate return. Basically think of a 1041 only passing estate taxable amounts to the beneficiary and the 706 only declaring amounts. Distributions from the estate are not normally accounted for by any tax documents issued to the beneficiaries (ie: 1099-R). Compare how distributions from a Sub-S are not taxable/accounted for as the profit is what is reported. Much the same with an estate, the income is passed on a k1, or taxed on the 1041, and distributions are not reported to the beneficiary. However, since the bank issued a 1099-R to the deceased the estate will have to report the same as income on the 1041 and pass to the beneficiary for taxes or the estate pay the tax. The fact that it was deposited in a joint bank account is irrelevant.

Since it was not specific as to what he was being paid for, my first thought is that it is rental income the same as he has been reporting.

>> If the numbers were reversed, the taxpayer would be expected to pay taxes on the income. << Generally proceeds from a life insurance policy are not taxable except in a case where a portion represents interest income. A decrease in value represents payment of premiums due/paid and not a tax loss.

>>I would agree that this is not a complete or even optimum solution, but it is a start. << Yes its just a start. It will obviously get worse as a few want to control the actions of others. We have many laws that a few have gotten passed to control others already.. this is just another law to do the same.

>>Is this just another area of double taxation?<< The required minimum distribution is ignored (or you could say added back) for valuation purposes since it was distributed after the date of death. Its not double tax as the proceeds have never been taxed, but will be now. Make sure there is not a beneficiary other than the estate when it comes to reporting the interest income. Most IRA plans have a beneficiary other than the estate thereby keeping the income off of a 1041 fudiciary return.

>>What if the escrow account goes negative due to the loan being past due? << Its still deductible if the bank issued a 1098.

That is irrelevant to the fact that the estate must file a 1041 tax return to report the income and expense before the probate court ruled. I did advise the poster as to the tax law as that is what you are also supposed to do. There is nothing practical about preparing tax returns incorrectly and calling it practical. The fact is you must not have know better or you prefer to prepare tax returns incorrectly. There is nothing to keep up unless you have more incorrect statements you would like to make. With regards to ugly and personal.. I only corrected your mistakes. We all make mistakes, most of us admit our mistakes and don't get all bent out of shape about it. .

There is nothing in any post of this thread except yours about a 754. Well... you also need to study the tax code. Code sec. 754 is only about partnership tax basis and has nothing to do with this case as was posted with only the deceased on the title. See Code sec. 754 clip below. The actual code sec for step-up basis to FMV of a desceased is code sec. 1014 (a)(1). See below. You really need to check your facts before replies and quit giving incorrect answers. OldJack ------------------------------------------------------------------------ 26 USC Sec. 754 01/08/2008 -EXPCITE- TITLE 26 - INTERNAL REVENUE CODE Subtitle A - Income Taxes CHAPTER 1 - NORMAL TAXES AND SURTAXES Subchapter K - Partners and Partnerships PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS Subpart D - Provisions Common to Other Subparts -HEAD- Sec. 754. Manner of electing optional adjustment to basis of partnership property -STATUTE- If a partnership files an election, in accordance with regulations prescribed by the Secretary, the basis of partnership property shall be adjusted, in the case of a distribution of property, in the manner provided in section 734 and, in the case of a transfer of a partnership interest, in the manner provided in section 743. Such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which such election was filed and all subsequent taxable years. Such election may be revoked by the partnership, subject to such limitations as may be provided by regulations prescribed by the Secretary. ------------------------------------------------------------------------ 26 USC Sec. 1014 01/08/2008 -EXPCITE- TITLE 26 - INTERNAL REVENUE CODE Subtitle A - Income Taxes CHAPTER 1 - NORMAL TAXES AND SURTAXES Subchapter O - Gain or Loss on Disposition of Property PART II - BASIS RULES OF GENERAL APPLICATION -HEAD- Sec. 1014. Basis of property acquired from a decedent -STATUTE- (a) In general Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be - (1) the fair market value of the property at the date of the decedent's death,..............................

The wife does not get a distribution from the estate prior to her obtaining legal title upon probate judge declaration. Any income tax on the 1041 that is owed prior to the probate judge date is paid by the estate not any beneficiary listed in a will. This is all because the "will" might be contested and wife may not receive the property in probate court. Your substance over form is not professional and could get you sued for malpractice if the wife did not receive title in probate. You can't distribute estate assets including income without probate passing title and that is when the "deed" is changed, not before in the case of probate assets. Even if the probate court was to say it passed title as of the date of death, that changes nothing with regards to the estate filing any estate income tax return that was due at the time and paying any tax owed. You really need to study the subject of estate and fiduciary taxes. Oh, what the hello has a 754 got to do with this and what is a 754 anyway?

From the date of death to the probate judge decision the estate calculates yearly depreciation on the step-up basis prorated for the number of months and deducted on form 1041. The beneficiary wife takes the remaining months of the year on her 1040 and continues the stepped-up depreciation in future years. A beneficiary always receives the step-up basis "from the estate" even if the estate is not required to file an estate tax return and show a step-up. A beneficiary never steps-up the tax basis. There is always an estate of a deceased even if it is zero. An estate exists until all assets are transferred to beneficiaries. This estate has income and expense so in order to file a 1041 you must get a FEIN. I would calculate any tax effect on the 2008 tax returns as filed and then consider if I would file amended forms or let a dead dog lie.

I totally disagree! For tax purposes the wife did not own the property until the date the probate judge ruled it was hers regardless of possession. Income and expenses before the judge ruled belongs on a 1041 tax return. That is why the mortgage company reported to the estate. Duh!! And oh, step-up in basis is always on the estate (its only passed to a beneficiary) not when the probate judge rules, therefore, the 1041 should show a part year depreciation if depreciation was being taken before death.

Well... he probably operated loose and never held his business out as a corporation. If he didn't have a checking account with a corporation ID# and nothing to indicate to the public as a corporate activity, I would consider filing a zero form 1120 and report his business on a 1040 Sch-C. And, if you are going to do taxes for the public you need to learn how to do all business, trusts, and estate type tax returns.

>>So they are entitled to the EIC<< I agree, their tax return would not be correct if they did not claim the EIC. In past years I have seen millionaires get EIC. EIC, like Obamacare, should be repealed.

>>Democrat or Republican -- it's all the same<< Hog wash! If they were the same there would not have been such a fight over Obamacare.

I hope Obamacare is repealed. Yes, we need a better health care for citizens of this country, but not the law that was just signed.

>> How do you characterize this transaction?<< Stupid! Only a client that is a fool and an ignorant banker would do such. >>What are the tax consequences to both entities?<< It could be considered that the C-corp made a $500,000 taxable dividend to its shareholder. It could be considered that the LLC-Partnership has forgiveness of debt income of $450,000. >>the C corp is making the payments.<< Again payments could be considered as taxable dividends to shareholders if the debt was not as stated above or if the C-corp has a receivable loan from the LLC to cover the $450,000. Who got the extra $50,000? You need to review all the paperwork to see how the C-corp and LLC have booked this transaction.