OldJack

Well... If properly authorized with a power of attorney form, signed by the taxpayer, I would have an initial meeting with the IRS auditor to make contact and see what he has to say when you tell him that the taxpayer is in jail and cannot represent himself. Get the auditor to do all the talking and have him tell you what he wants to do about the situation. If the auditor does not fold up and go home, then I would notify him that you would have to contact the taxpayer for advice on how to proceed and his decision as to who would further represent him. This would be a good audit to pass the buck to some lawyer if it has to go forward.

Thanks guys and gals! Don't expect much in wisdom.. I expect to go get drunk if the weekend ever gets here! :)

>>Yes he does. That might be the answer. what do you think?<< Duh!!

Taxxcpa gave a good simple description of OID. In most cases the broker issuing the 1099-OID has correctly calculated the amount you should report as interest income. In your case the result of $12 additional tax makes it not worth the time you might spend fooling with calculating any exclusion.

It sounds like the LLC was first taxed as a partnership that would have/should have issue a W2 when it ended. The LLC then appears to have become a Sole-proprietorship with only a new name. Ownership would not normally change the employee's status and you would expect a continue of the earnings record and only one W2, however, since an LLC is disregarded we really had two entities that should have each issued a W2. I agree that if the taxpayer cannot obtain a W2 from the partnership, this is a case for a substitute W2 (form 4852).

>>Treat it like a long term investment loss.<< I agree with Jainen that this could be considered investment property and a loss could be claimed on 1040 Sch-D. Leave that input field blank.

Remember your basis in the new automobile should only be the net book value of the old vehicle plus the cash paid and debt on the new vehicle. Trade-in value is a bogus number as is the sale price of the new vehicle.

Her employer is probably thinking about the exception in the plan itself that allows someone to take money out due to hardship. There is no exception for hardship for tax purposes. She will have taxable income plus the 10% penalty. She should be happy to pay the tax and penalty if it saves her from home foreclosure, many today do not have a retirement plan to draw from.

>>I don't know why the MaryKay consultant didn't already know that.<< Some clients don't get it, have never gotten it, and never will get it. You just have to tell them every year the same thing and add something to your billing for the frustration.

A return is required since the $7,000 and $26,000 are taxable income.

Tax preparers are just baby sitting and playing with our clients data. Can we put our income on line 21?

From 2008 Small Business Quickfinder Handbook, page M-7: >> Failed Business—Individual Business Start DateFailed Attempt—Individuals If an individual incurs costs to go into business and the attempt fails, the expenses fall into one of two categories. 1)Costs incurred before making a decision to acquire a specific business are personal and non-deductible. This includes costs associated with a general search, preliminary investigation or investment possibility. 2)Costs associated with a failed attempt to acquire a specific business are deductible as miscellaneous itemized deductions subject to the 2% of AGI floor. The taxpayer does not need to actually enter the business to obtain the deduction. [iRC §165©(2) and 67( b ); Rev. Rul. 77-254] <<

Oh Please! That would imply that those of us that are taking RMDs are all elderly and mixed up. I really don't think I am elderly or mixed up, but then again, maybe I am?

I am guessing the LLC will be a partnership by a husband and wife and the LLC will be reported on a 1065 tax form with form 8825, "Rental Real Estate Income and Expenses of a Partnership or S-corp". Form 8825 looks like the 1040 Sch-E. The net profit or loss of the partnership will then flow to the 1040 Sch-E, page 2. That being the case the balance sheet (assets and accumulated depreciation accounts) of the proprietorship (1040 Sch-E entity) just transfers with the same numbers to the LLC as of the date the LLC was organized. If it was not at the first of the year you should have a 1065 report and a 1040 Sch-E part year. Next year there will be no 1040 Sch-E, page 1, just the partnership reported on page 2. There are exceptions to filing a 1065 partnership return, however, since this is a LLC I would want to document the LLC business tax return with a partnership tax return filing.

Assuming this was not in a community property state and that the farm was purchased before she married the husband, I would expect that she qualifies for fair-market-value basis as of the date of death.

>>Why do you not like that method?<< Because it leaves an asset on the depreciation schedule that has really been sold. And if the new asset is sold you have to remember to also deal with the disposition of the old asset when many other assets may have been purchased on lines between the old and new. Its just a detail to keep track of especially if you have several such items on the depreciation schedule over several such years.

I recently had the penalty for a distribution from a deceased IRA account. I filed form 5329 calculating the penalty, did not send payment and attached a request for waiver of the penalty due to reasonable cause. The IRS waved the penalty.

>>He says the checks received in Jan09 are for 2008 distribution<< First determine if he really must take a distribution for the year 2008 or does he simply mean the 2009 distribution he received is calculated on the 2008 balance of accounts. If he was required to take a distribution in 2008 you would need to file Form 5329 filling out part VIII to calculate the penalty due. Then with the form request waiver due to reasonable cause of _____. Distribution are reported on 1099-R in the year actually disbursed and would therefore be taxable in that year. Yes, that can cause two years taxable in one.

>>How should it be input?<< With ATX software: One way is to show the old equipment as a sale/disposition at book value with no gain/loss, then enter the new asset at the full value of the additional purchase price (loan) plus the net book value of the old. Note that the net book value does not qualify for sec. 179. The other way is to leave the old asset on the books and continue with depreciation. Then add the new asset at the loan price and depreciate. Personally I do not like that method.

>>Not fair, JB. If you consider the market in 08, she started at a terrible time.<< I agree with KC. We are only the tax PREPARER and should not try to tell the taxpayer they are not in business when she obviously has gone to great lengths to obtain the necessary license and actions to say she is in business. She says she is in business when she gives the business numbers to you. We are NOT the IRS and should not audit the tax return as an IRS agent. I would expect any new business starting in 2008 to show a small profit or loss. The fact that there were no sales is irrelevant to deducting actual business expenses (loss). Startup expense classification is limited to only certain expenses incurred BEFORE starting business and has nothing to do with when sale/income are recognized. Like TaxBilly said tho you need to verify that her business expenses qualify for deduction.

>>This is not a sale, more like, deed in lieu of foreclosure.<< Well.. I don't believe there is a foreclosure as such legal procedures have probably not been initiated. I think what is overlooked in this post is the fact that this is a S-corp and not a proprietorship. Removal of inventory as discussed in the IRS publication is with regards to a proprietorship or partnership. Removal of inventory for a S-corp is a distribution/sale of property at fair-market-value just as though it was sold to any customer. Therefore, it is a taxable sale with cost of goods sold and removal of inventory as would be for any sale to customers. The only difference in the transaction is the S-corp debits the debt owed to the shareholder rather than debit a receivable due from the shareholder.

It does not require and should not result in 2 separate 1120S tax returns since it is the same S-corp. The effect and allocation of tax attributes are only on the individual shareholders 1120S-K1.

>> know in this area they are charging the $29. to have your return done by others reviewed.<< I guess that is what the "second look" in their dumb "one-eyed" commercial is all about?

Keep at it Terry and you too can become "ATX Supreme Master". I doubt I will ever get there unless there is a cheat card like with games. :D

The guy is the one that always pays! :(