BP Claims

[MargaretMort]

I live along the Gulf Coast and, though we weren't directly affected by the oil spill last year, the loss of business because of the publicity was a big factor in the economy of the area.

My son is a realtor and applied for BP payout. He received some money and a 1099 Misc. with the money in Box 7. I followed the rules and showed the funds on his Sch. C.

Today he attended a briefing for realtors by a local CPA firm. They said they are putting these payouts in other income, Line 21, because they think this is a gray area and TPs shouldn't have to pay SE on this income.

I don't quite agree but I am interested in what other Preparers in this area are doing. Any suggestions or thoughts from anyone will be much appreciated. The CPA firm did say the IRS says this is SE income, the CPA firm disagrees.

Thanks, MM

[Lynn EA USTCP in Louisiana]

IMO, how the BP (technically Gulf Oil Spill) $ is shown on the tax return depends on the reason for the claim. If it's for damages to property, then line 21, or schedule D, or decrease in basis (it depends). If it's for lost rental income, schedule E. If it's for lost W2 wages, line 21, not subject to SE income. If it's for lost self-employment income added to the schedule C as other income. I usually ask to see the paperwork filed and any documentation the client may have. I do not agree with the conclusion of the CPA firm which your son referred to. I do have some info distributed by the NO IRS liaison officer; if you'd like a copy just send me an email off-list - [email protected]

Lynn

Lynn Jacobs, EA, FNTPI, NP

Kenner, LA

[MargaretMort]

I agree with you and I thank you for your reply. I will be sending an email shortly. MM

[kcjenkins]

I think Lynn covered it very well. "It depends...." is the only correct answer, of course, but in the case of payments due to lost income from a business, that clearly does belong on the C. Lost rents on the E, etc. I wonder if that CPA firm is going to pay the costs of fighting the IRS when they advise clients to ignore the IRS position?

[MargaretMort]

Yes, I wondered that, too. I haven't told my son yet that I am not going to change my mind on this. I think the CPA firm is incorrect. The speaker told the audience that this was a gray area and the IRS says, in SE cases, the money should go on the Sch C. Perhaps by telling the client this, if the client says go ahead the CPA has covered their behinds. MM