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Contents

Welcome

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Business gifts

Hello Riley2

Thanks for your input on the business gifts issue. I labelled it as promotion on my client's tax return.

Holly Halvorsen EA Illinois

inherited IRA

Thank you Riley2! You confirmed what I had found out. I really appreciate and respect your opinion!

-TaxAssistCPA

Mileage case

Riley2 thank you very much for your many responses. Could you point me/us in the direction where I would find details of CROWTHER v. COMM., 4 AFTR 2d 5295 (269 F.2d 292), (CA9) as you mentioned in a discussion about whether mileage was deductible. Thank you.

Riley2

Hello Riley2, just wanted to say thanks for all your input. You always manage to give clear, concise answers. Was wondering, is most of your knowledge from experience in the field. I'm assuming so, but also wondering if there is any one resource you use for your research, etc. Thanks again.

Skhyatt 17:28, 3 February 2006 (CST)

Child Tax Credit in case of divorce

Riley2:

I have read several of your posts and you seem to be very knowledgable.

This is a new one on me. Mom and dad are divorced. Court decree says dad gets exemption and that mom can take the child tax credit. Child lives with mom all year.

Can she in fact take the child tax credit?

Thank you.

Ron Pickrell

Research material

Interested to see that you use the PPC deskbooks. I currently have the CCH MTG and of course use the online resources here. I was considering subscribing to the PPC 1040 deskbook online version. Being that I'm just now getting back into preparing taxes, I don't want to go overboard on my spending, but would you say the PPC program is a worthwhile investment?

Extraterritorial Income Exclusion

Thanks for your reply under Section 927 the partnership would qualify to the deduction. All of the nuts were sold within one year.

Rental Property Write Off of Balance of Points and Escrow Fees\

HELLLLLLLLLLLLLLLLLLLLP!

Hi, I've been reading your answers to various subjects and need some of your exptertise. Can you please read my question in the discussions about the Rental Property amortization problem and the writing off of such. I can't seem to find an answer anywhere.

Thank you so much. Diana Fields

Depreciation Recapture

Please address when you have time. Thanks. --Solomon 20:32, 7 February 2006 (CST)

Passive loss carryover

Thanks for your reply Rely2.

I read that in 469 (i)1 also.What stumped me is that when it discusses the active participation requirement it states in () "and if any portion of the loss or credit arose in another taxable year, (they must have been active)in such other taxable year"

Since he was active when the loss arose, I was thinking he might qualify.

I appreciate your help.

Lsuper

Ps This is the first time I am using Tax Almanac- I hope you get this response.

To File a Fake SSN or ITIN

One of my clients is an iligal alien, but she worked in the united states using her name and a Fake Social Security Number,

She did have some income in 2005 She want's me to fill out form W-7 and get her a ITIN. How do I go about this her W-2 shows the fake SSN. do I submit this Number or leave it blank and atach form W-7 to the return.

HOH TP paying 100%of both homes

Riley, thanks, I do agree that that is the interpretation. Taxpayer did however live in the Maryland home, was in the military and claimed HOH last year, this year however he is running his own business in San Diego. It just seems a bit unfair since he is paying 100% of costs for both households, not married and never been. The reason why children are in Maryland

Taxing Lady i.e. cruise ship wages

Taxing Lady i.e. cruise ship wages

Thanks for the input, this is same conclusion I had reached, but appreciate the code info. 12:19, 14 February 2006 (CST)

Truck Exchange

Would appreciate addressing this. Thanks.


Riley2, Thanks for answering my question about tax implications of the non-qualified annuity that my wife and I received an inheritance from. In your response you said, "amounts received in excess of basis". I assume "basis" means what he paid to purchase the annuities....is that correct? Thanks again for your responses!

clients younger brother is under 19

hi riley i posted the issue of whether a brother or sister who is married here in the u.s. can take his or brother has dependent on their tax return. they told me they have sent the required money to mexico for the exemption, i was leary in giving them a straight answer. thank you rac

Trust filing

I have a client that turned all stocks and bonds over to a trust a 'guarentor trust' he called it. I looked it up on irs website and it says that this particular trust can be filled under a 1040 if all income is claimed by idividual. However, the lawyer that set up the trust had the trust establish its own EIN#. So do I file this under the individual or the trust?

Thanks from Lexbrooklynae

Thank you for taking the time to answer my last inquiry concerning redemptions. I appreciate it.

ALCPA

The departing partners were bought out by the partnership.

3115

Question. Have a client changing from accrual to cash. Net adjustment will be a decrease in income by $53,000. Can he take in all in one year as a 481(a) adjustment?

Mike Emerson

Zero Coupon Bonds

Thank you, Riley2 for the quick response. I am grateful for your help. Chaser

A general Thank you

Riley2, thank you for your participation in this discussion forum. Being a sole practitioner, your technical references and answers almost give the feeling of having a partner to bounce off of. Browsing the forum has provided many links for researching answers for client's, how do you keep the code sections so readily available in your mind? Thank you!

Hello Riley2 -

Can you please help me. We own an undivided interest in some land with many family members. When we sell the land, can we each individually do a 1031 exchange?

Thanks, ax158 Mary

1031 Like Kind Exchange

Hello Riley2 -

Can you please help me. We own an undivided interest in some land with many family members. When we sell the land, can we each individually do a 1031 exchange?

Thanks, ax158 Mary

Vermont taxes--thanks

Thanks for your help on the Vermont Property Transfer Tax. My research materials (Kleinrock) were a little foggy on the area.

Have a great day. Tom Kissinger, CPA; trkcpa@gmail.com

Land Purchase

Would appreciate your knowledge. Solomon--Solomon 18:46, 9 March 2006 (CST)

thank you for your response.

military reserve related travel

Hi Riley, Thank you for your answer-but where do I find Sec. 62(a)(2)(E)? I tried the irs code but couldn't locate it. naejhcokNaejhcok 17:26, 15 March 2006 (CST)

Hi Riley2. I read your response and want to make sure I understood what you said. It sounded like you said a receipient of UK National Pension who is a resident in US is exempt from taxation here. Sec 17 of the treaty provides that a US resident receiving such a pension (similar to our soc sec)is required to report such income on her Form 1040. I confirmed this with the IRS. The treaty does not relieve the US from taxing such pension income and it is irrelevant that the pension would not be taxable had the taxpayer resided in Britian. The treaty is designed to prevent double taxation and states that any tax imposed will be where the taxapayer is a resident. You may be saying the same thing but I just wanted to clarify it. Thanks. HSpeck

E1 vs H1 Visas

First of all, I want to thank you for all your valuable answers you post to this website - you have a wealth of knowledge that I both value and admire.

Where can I find information on the different types of visas?

I have a few Norwegian clients, some with E1 visas, and one with an H1 visa. He is going back to Norway at the end of this month and I have to file 2005 taxes and (I think) prepare a 1044C for him to leave the country.

Is there another good publication that you can point me to besides the US-Norway treaty and IRS Publ 519?

Thanks, Brenda Sandefur Brensan 22:06, 18 March 2006 (CST)

ESA To 529

Thanks for the info! Denise

Lawsuit

Thank you for your response. The lawsuit was due to an employee claiming back injury, causing the employer (self-employed but now an S-corp) to pay out attorney fees, medical expenses and a settlement. I was just wondering if this would be deductible. Thank you again for your help. Diane

SECTION 179 PASS THROUGH

Riley2,

In a previous discussion you indicated that Section 179 could be used against an individuals other business income unless in came through a pass through.

I had understood that a partnership could pass section 179 deductions through to partners in excess of operating income, as long as the partners had other business income, even wages??

Can you expand further on your understanding as to when, or when not this excess can be passed though???

Any help at all, Thanks, Wimmercpa

sep catchup

I was under the impression that "elective deferrals" were not the same as "catch up contributions".therefore, i am still confused. Anyone have any ideas to help me out?

Can preparer sign return for Tax Payer

Thanks a lotInagpurwala 23:12, 31 March 2006 (CST)

Hats off to you

Riley2, I envy your tax/accounting knowledge. Your responses are insightful and thorough. I'm amazed that you can reel off IRC sections and the like. Most of us have a grasp on certain tax related issues, but your command of the tax code is extraordinary. Is there any tax topic that you don't feel comfortable discussing? I don't think I'm alone in saying that a lot of us defer to your expertise. By the way, how long have you've been practicing? chris2laneChris2lane 15:43, 2 April 2006 (CDT)

Non-cash Charitable deduction

Hello Riley2, Question concerning Timeshare contribution. Would Use of Property- Partial Interest not apply here because the donor does not own the property, he owns shares that gives him the privilege to stay at a place for, say, one week? I would be inclined to take the deduction. Haven't looked at any court cases though.

Max 401k

Riley2, How do I compute the amount for elective deferrals based on the 80k wages paid to sole shareholder s corp employee for 2006. What is the max deductible for corp. Thank you.

Riley, I love you. You have solved my problem

1031 and go zone...

Riley- You are one of the most knowlegable persons on this site....I just wish you were closer to B'ham,Al so you could be my accountant! here is my question: I placed a 1Br condo in 1/97 into a rental activity with an AMT basis of 87,000. I would like to sell it(I can expect to get 450,000 (less a mortgage payoff of 100,000) and exchange it (WITH A 3RD PARTY AGENT) on a newer/bigger 2Br unit. The new unit is "go zone eligible" - it will be finished and be placed into a rental in feb 2007. It is under construction and i would be buying at this time a unit owned by a "pre-construction buyer"...the developer will title it to me when it is finished in feb at which time i would put a mortgage on it for 300,ooo. What would be my basis starting out on the new unit? Would I still be able to take the one time 50% depreciation based on the this amount?...I am somewhat hesitant because of recapture rules.(its alot of $$ to recapture) Also, is there a "tax-free" way to convert this 4-5 years later as a primary residence? Thanks--Gordons1 21:09, 15 April 2006 (CDT)

1031 and go zone...

Riley- You are one of the most knowlegable persons on this site....I just wish you were closer to B'ham,Al so you could be my accountant! here is my question: I placed a 1Br condo in 1/97 into a rental activity with an AMT basis of 87,000. I would like to sell it(I can expect to get 450,000 (less a mortgage payoff of 100,000) and exchange it (WITH A 3RD PARTY AGENT) on a newer/bigger 2Br unit. The new unit is "go zone eligible" - it will be finished and be placed into a rental in feb 2007. It is under construction and i would be buying at this time a unit owned by a "pre-construction buyer"...the developer will title it to me when it is finished in feb at which time i would put a mortgage on it for 300,ooo. What would be my basis starting out on the new unit? Would I still be able to take the one time 50% depreciation based on the this amount?...I am somewhat hesitant because of recapture rules.(its alot of $$ to recapture) Also, is there a "tax-free" way to convert this 4-5 years later as a primary residence? Thanks--Gordons1 21:09, 15 April 2006 (CDT)

1031 Exchange Basis

Thank you for your response. I thought the assumption of $50,000.00 should be added to the adjusted basis of property 1 but, the client said, "He was told? You know how that goes. I agree with you know I have support thanks again for your response. LEE

Self-charged interest

Dear Riley2,

Thank you for your response. You always answer my questions with conciseness and clarity. Thanks.


Howardlcpa 20:10, 31 May 2006 (CDT) HowardLCPA

K-1 Passive Income and Loss

When a shareholder has an interest in two S-Corps and is considering prior year passive losses from one entity to net against current year passive income for another entity, would you consider the shareholder's basis at each entity separately for recognizing losses or consider the basis for both entities combined? The shareholder does not have sufficient basis on the S-Corp that has produced losses, but does have sufficient basis on the S-Corp with income and sufficient basis when viewed in aggregate.

Any thoughts? Thanks.

K-1 Passive Income and Loss

When a shareholder has an interest in two S-Corps and is considering prior year passive losses from one entity to net against current year passive income for another entity, would you consider the shareholder's basis at each entity separately for recognizing losses or consider the basis for both entities combined? The shareholder does not have sufficient basis on the S-Corp that has produced losses, but does have sufficient basis on the S-Corp with income and sufficient basis when viewed in aggregate.

Thanks,

Michael Nichols

TAX TOOLS

HOW DO YOU GET THE OCCUPATIONAL TAX TOOLS

depreciation error

Riley2

I am woundering what your opinion is on this topic I placed a couple of weeks ago. I have presented my case to the client and he does not want to file the amended return for 2003 because he does not want to reextend the statue for 3 more years. I want to file the amended return and disclose it error made by me, adjust the nol c/f at that time. Client want me to just adjust the nol c/f on the 2005 1120. Asset was sold in 05/2006. ps - the missed depreciation for 2002 is $23,988 and 2003 is $36,755.

link to post

http://www.taxalmanac.org/index.php/Discussion:Depreciation_calculation_error

Thank you Michael Michaelstar 20:29, 5 June 2006 (CDT)

Long Term Gain on Intangibles

Thanks for that quick response.

Steve DeReus Steved@bao.com 11:11, 6 June 2006 (CDT)

Answer to my question regarding limitation on defined benefit plan

Riley2

Thanks from Beth for your answer to my question on limitation for deductions re: defined benefit plan. Looked in 404(a)(8)(c) and there it was.

I am still trying to manuever myself around on this website so I hope you actually get this message.

Thanks again Riley2Beth 20:42, 8 June 2006 (CDT)

I was reading your answer to the LLC s question. I have a two clients who formed LLC and the did the check the box and an s election. They are LLC taxed as s's. They now want to form an LLC to run operations of both LLC's (they are painters) all personal property will be transfered to the new LLC and all wages of the painters will be paid from the new LLC and the old LLC's will received payments for manangement of the new LLC and then each owner of the old LLC's will be paid salary.

Do you have any thoughts on this as far as it being ok to have the new LLC pay the old LLC so manage and the old LLC's pay salary to the managers (owners ).

thanks again

Cparev 16:34, 13 June 2006 (CDT)

Can an S corp own an LLC

Hi Riley2:

Thank you very much for your response. It appears that you take the time to answer many of our questions. It is greatly appreciated. How did you know this answer? I searched several data bases and could not get a clear cut answer.

Marcenia 12:18, 14 June 2006 (CDT)Marcenia

U.S. Workers Overseas: Hired Guards

Is it possible for a consultant, performing services in a foreign country for a United States based agency, to avoid the imposition and tax expense of witnessing an increase in compenstation in order to cover a U.S. Embassy mandated security requirement. The responsibility for obtaining and paying security guards is a stated agency requirement.

The agency maintains that the IRS directed the procedure of adding the cost of providing security in the compensation of the consultant, thereby increasing overall income for tax purposes. It was suggested that a new law or code established this requirement. I have never heard of a U.S. Tax code that dictates such. Does such a regulation exist? If so, can you direct me to it?MARIKAI 22:24, 19 June 2006 (CDT)

Ponzi Scheme

Thanks for the feedback. My inclination was to treat the loss as a casualty loss. No claims have been filed. Its a complicated mess! Client received some payments in 2005. Then discovered the scam in 2006. Borrowed money to make the investment. Etc... Why do they never listen to the CPA!

Riley2:

I really need help on this one. Todate I cannot determine if there are any regulations regarding this issue. Moreover, no one seems to know if the U.S. Tax Code dictates in this area. Is it possible for a consultant, performing services in a foreign country for a United States based agency, to avoid the imposition and tax expense of having his income increased in order to allow the firm to pay for the expense of the armed guards. Since it is a U.S. Embassy mandate the consultant cannot refuse the protection. The responsibility for obtaining and paying security guards is a stated agency requirement.

The agency maintains that the IRS directed that they (agency) add the cost of providing security in the consultant's compensation; the result of course is in increase in income for tax purposes, without benefit of a deduction. It was also suggested that a new law or code established this requirement. Does such a regulation exist? If so, can you direct me to it? I am really flying blind here. Thanks. MARIKAI 21:22, 22 June 2006 (CDT)

Form 8910 Alternative Motot Vehicle Credit

I am concerned for 3 reasons. 1) The vehicle I am looking at purchasing does not appear to have any incremental cost differece (all the suburbans can burn E85). 2) The energy code says methanol not ethanol. 3) The energy code says only cabable of operation on alternative fuel. Not sure if this mean only capible or capible of only burning alternative fuel.

Lastly how do I come up with the credit amount? There is no incremental value that I am aware of, do I use the max (5000)or??

Any help would be greatly appreciated.

Deductability of below FMV rent question?

Can you tell me exactly where this is stated in the regulations? Account Lady Accountlady 08:15, 8 July 2006 (CDT)

Followup on answer for Widow home sale

The property was purchased prior to 1976. How does this change the outcome?

Thanks! Beth

CANCELLATION OF DEBT

WOULD YOU EXPLAIN WHAT YOU MEANT BY YOUR RESPONSE ABOUT THE COMPROMISE OF DEBT? IF THE DEBTORS CAME TO AN AGREEMENT FOR SETTLEMENT CAN THEY ISSUE THE CANCELLATION OF DEBT NOTICE?

LLC FILINGS

your answer to my question was; no to the 1065 and yes to the 568. Does this mean that you would not allocate the interest and taxes through either entity and just file a blank 568? thanks for your help.

Ken k

hi Riley2

I noticed your comments on foreign gift tax and they were right on!!!!

Can i ask you some few follow up questions?

1) you have said that if foreign gift (from non US person to US person) occured in the US (U.S Situs) then it is subject to U.S gift tax law

2) therefore I assume foreigner must pay gift tax for gift over $11000 annually (say occured from 2002-2005)

3) but if the foreigner never sets his foot on US soil and has no other assests in the US

4) Will US be able to collect the balance from the donee (US citizen)? or how else can US collect the difference?

hi Riley2

I noticed your comments on foreign gift tax and they were right on!!!!

Can i ask you some few follow up questions?

1) you have said that if foreign gift (from non US person to US person) occured in the US (U.S Situs) then it is subject to U.S gift tax law

2) therefore I assume foreigner must pay gift tax for gift over $11000 annually (say occured from 2002-2005)

3) but if the foreigner never sets his foot on US soil and has no other assests in the US

4) Will US be able to collect the balance from the donee (US citizen)? or how else can US collect the difference?

hi Riley2, can you help? I read your reply, you are super Knowledgeable!

So what happens when nonresident alien's gift is subject to US gift tax and said nonresident never sets foot in US and has no assets in US? Does that mean IRS can go after the resident donee? Is this codified in the IRC?

Type of Entity

--Solomon 20:45, 20 August 2006 (CDT)

Riley, would appreciate your advise. My son just formed a C corp and bought a rental - residental- property. He will be buying another 10 to 15 rentals little by little. These are not financed. He is the sole stockholder.

Profits mostly will go into acquiring other properties so if he remained a C corp probably would not have a problem with accumulated earnings tax.

Assuming both ways - he will have someone manage them so he would not have much participation or he will manage them and materially participate.

Would he be better off staying as a C or electing S corp status or go to an LLC. Thanks so much for your help.

Type of Entity

--Solomon 20:52, 20 August 2006 (CDT)

He will be managing them.

Catch-Up IRA

Thanks a lot for your answer. Do you happen to know what IRS code, or publication that I can find the rulings that catch-up IRA is NOT tax deductible. Thanks again for your help in this matter.


Can A Purchase Contract Be Exchanged

Three years ago I bought several "presale" condominium units in a project in Las Vegas. I planned to keep these units as investment property. During this period I bought and maintained several other investment units that were in fact placed in service (evidence of my intent to also keep the pre-construction condos as investment properties). However, due to market conditions I exchanged the units into property in another state, and now want to exchange the purchase contracts as well. It is my belief that I CAN exchange the purchase contracts because I clearly bought the units as investment property three years ago. I cannot find clear guidance on the subject in IRS regs, but in the Starker case [Starker v. U.S. 602 F2d 1342 (9th Cir 1979)] the court concluded that a contract to acquire property (which itself is a bundle of rights) should be treated as equivalent to the rights associated with ownership of real property. Do you agree?

Thank you in advance.

dan lowenthal

Goodwill

Do you have a tax code section to support the sale of created goodwill being a capital asset? I am looking for concrete documentation and can not lay my hands on a definative code section.

ThanksRoy 12:20, 27 September 2006 (CDT)

Appreciation

I just want to thank you for all your help on the board. --Solomon 08:59, 1 October 2006 (CDT)

Thanks!

Thank you senor for your wise and kind comments re: my client with foreign source pension income!

Bobbybill

NOL carryover

Riley2 - I would really appreciate your infinite wisdom. If you have time, could you look at my post titled NOL carryover? Thanks in advance!

Is a SEP and ERISA covered plan

Hi there, I noticed you made a comment on 7/27 which says a SEP is an ERISA covered plan. Can you share with me any resources where this is documented? The dept of labor is willing to help me with a specific matter IF I'm able to prove to them that SEP's are covered under ERISA. Any pointers would be GREATLY appreciated!!! Thanks in advance. Plz send your reply to adrienne_custode@hotmail.com.

Date of Death

Hello Riley

I am a investment advisor in Arkansas I have a client that owns around $290,000 of WMT stock, I am looking into her cost of selling this stock in taxes, I understand the cap. gains but her husband died early this year 06, they bought this stock in the early 80's so they have almost a 0 basis in this stock. the stock was held in a joint Ten. account at the time of death and now only in her name, my question is does she get a stepped up base on half of the stock to the date of death making her basis in the stock about half of 290,000 (145,ooo) now, Customer also lives in Arkansas. Thanks for any advise you can give.

annuity 1035 exchange

Your input on Feb 22 06 reguarding the tax on an annuity was just what I am looking for a client. I have not been able to locate Greene v. Commissioner, 85 TC 1024. Please point me in the right direction.

Thank you, David

Looking for a CPA to validate S/W package I am building

Hi Riley,

I was browsing this forum for CPA's that really understand Real Estate related tax matters (depreciation 1031 exchanges,...).

I am S/W executive that has started a S/W startup focused on RE investors (We are still in stealth mode). Our first set of applications are focused on helping investors with RE Tax related process.

I am looking for an accountant to spend a day or so to try out our product and give their professional opinion on the validity of our approach calculations.

Is that something you'd be interested in. If so please leave me your contact info like an (e-mail and/or phone #) at my e-mail address.

Thanks.

bookkeeper3wks@yahoo.com

loo

Your response to liquidating assets

Your response regarding liquidating assets was 'Truthseeker, to summarize -- unless the LLC makes a check the box election to be taxed as a corporation, the state law conversion of the corporation to an LLC (interspecies conversion) is treated as a liquidation of the corporation for tax purposes. This means all the assets of the corporation are treated as being sold at FMV, then distributed to the shareholders as a taxable liquidating dividend.'

My question: How is this recorded? If assets at cost are 1500 and accumulated depreciation is 1000 then how do you record the distribution as well as the asset sale?

Db Accum Dep 1000 Db Loss 500 Cr Asset 1500

Db Retained earnings 1500 Cr ?

I am very confused about how to record this transaction. Please help. Also, does the shareholder receive a 1099-DIV for a liquidating dividend? Please excuse my ignorance, but I have never dealt with this issue before.Rudolphacctg 20:00, 17 December 2006 (CST)

like kind exchanges

yes, if you know the citation that would be great! Thanks Jkalseim jami@cpa1.net

Regulation 1.161-1(b)

Riley,

Thanks for the post in my thread on divorce & mortgage interest. Quick question, is Regulation 1.161-1(b) in the wiki somewhere to your knowledge? I'd love to put a hyperlink to it in the thread.

--Lostbyirs 22:32, 29 December 2006 (CST)

capital gains

My client is a non-resident of Puerto Rico and wants to sell her property there. Can she defer capital gains taxes by reinvesting in PR or the mainland US?

Thanks

Riley2,

THANKS for the guidance on the S-Corp bankruptcy. For some stupid reason, we cannot get anyone to give us a quote on these returns and no one seems too interested in doing them! We have 3 years' worth to file. So, since I am a CPA and do do tax work on the side (away from my full-time job of essentially a "controller" without that specific title), I have decided to attempt the preparation of these returns. I was not aware that there was not a separate taxable entity created in this situation! I mostly deal with individual income tax return in my tax practice. So, I am going to try to work on these 3 returns in the next week or so before I get crazy with individuals!!

Thanks Cathy "countesst" Countessa 00:38, 24 January 2007 (CST)

1099-c forgiveness

Thank you for your reply. It was extrememly helpful.

Will

Partnership Interest

Riley2, thanks for your help w/my question on Partnership Interest. Maybe you can provide insight into this more detailed question regarding the same transaction???

Two unrelated parties formed a 50/50 Real Estate Partnership (AB Partnership) last year. I will call him Partner A and the other person is Partner B. During Year 1, each Partner contributed $145K in Cash, secured total Recourse Debt in the amount of $880K (or $440K each), each withdrew cash in the amount of $165K and had a Tax Loss in the amount of $30K (or $15K each). So, each had a tax basis in the Partnership of $405K inclusive of recourse debt or a negative -$35K on the K-1.

During Year 2, Partner A exchanged his 50% Share to Partner C for zero dollars while old Partner B & new Partner C refinanced the Recourse Debt so that Partner A was removed. I am not sure it matters but Partner A & Partner C are brothers.

Based on the above scenario, I plan on filing two separate 1065's for 2006 under the same FEIN# and Partnership name. The first will be a short year w/Partners A & B and the second a short year w/Partners B & C both filed under Partnership AB. I drew this conclusion from reading Sec. 1.708-1 and Sec. 301.6109-1(d) (2) (iii). Also, the new Partnership AB and Partners B & C will get the tax basis of Assets and Capital Accounts from the old Partnership (Sec. 1.704-3 (a)(3)(i).

1)Can you confirm or provide insight into the effective or constructive termination of the Partnership as a result of a 50% exchange by Partner A? Does it matter that Partner A & C are brothers and no money was exchanged?

2)Also, it appear that Sec. 704 (c) property does not apply because neither Partner contributed property (other than Cash) to the original Partnership. Can you confirm my proposed treatment of Assets & Capital Accounts for new AB Partnership?

3) Does the exchange described above create a tax Gain or Loss for Partner A on his personal tax return? If so, what is the deemed Gain/Loss from the above numbers?

4)Could I eliminate the personal Gain w/a 754 election by stepping up the basis to cover the negative capital account? Does it present any other issues?

5) Does Form 8308 "Sale or Exchange of Certain Partnership Interests" accompany the first Partnership Tax Return.

Restitution Payments

Back in April of '06 I posted a question concerning restitution payments and whether or not they are deductible. You said if they were pursuant to a criminal penalty, they were not deductible. Does that remain the case if the tax returns were amended and the income was claimed that is being repaid through restitution? It doesn't seem right that the restitution and the tax should be being paid?

EMPLOYMENT TAX ON QUALIFIED ISO's

Thank You, Riley2 - Just to clarify - Is the "spread" between the grant price & the exercise price, ie, the "deemed compensation" in the year of excercise, subject to FICA/M'CARE tax. in the year of exercise.

Riley,

And if the loss is from a K1 partnership.

Will that count or not?

Thank you.

Minister's housing allowance and Additional child tax credit

Riley - are you saying that the Pub 972 worksheet is incorrect? My software is working off of Pub 972 worksheet. No mention of minister's housing allowance anywhere. I spoke to Lacerte and they mentioned I could override the earned income amount by adding the Housing allowance in an override section of their program -- they were non-committal about doing it though (ie. they don't give tax advice, but will show tax preparers way to get a different answer if they feel they need to override the program.)

In your posts, you mentioned EIC and Child Tax Credit definitions of earned income. However, you did not mention Additional Child Tax Credit definition of earned income. Logic would say it is the same as Child Tax Credit, but perhaps they have a third definition to cover Additional Child Tax Credit earned income?

Thanks, Illini

Illini 11:53, 12 February 2007 (CST)

CORP STOCK

HELLO RILEY2

YOU WROTE A US corporation's stock has US situs for estate tax purposes, but not for gift tax purposes. ITS IS VERY INTERSTING CAN YOU ADVISE ME THE SOURCE WERE I CAN LOOK IT UP WE HAVE A U.S. C CORPORATION WITH A FEW FOREIGN OWNERS AND WE WOULD LIKE TO TANSFER IT TO A TRUST IS THERE NO GIFT TAX

Where can I read the text of Greene v. Commissioner, 85 TC 1024.

1035 Exchange

You recently directed someone to Greene v. Commissioner, 85 TC 1024. I cannot find this on the web. Can you direct me to a link where I can read the text?

chuckutter

code V on w-2

one of our client has code v on w-2, that amount on code v is already included in his w-2 income, how should we report it ?, He has other espp shares which he sold last year in 2006, but employer did not report all the transaction on code V on w-2, only a part of it reported on w-2 as code V. Question is why they did not report all transaction on code v though all of income from sale of espp stock is included in w-2 income ? do we need to do anything else diffrent for the amount reported as code V ? pl. advise, thank you.

Box 14 DCP-CAS, not decutable as an itimized deduction?

Riley2, to confirm, box 14 dcp-cas is not an amount that can be an itemized deduction? I am a little confused becuase many items that can be listed in box 14 can be itemized such as charitable contributions and CA SDI, correct?

Thanks!

Profile

Riley, you have obviously been contributing to this forum for a long time, and very valuable insights. Could you please fill in something in your [profile] so that others will be encouraged to do the same? Thanks Kevinh5

Joint ownership of condo with brothers

I have joint ownership of a condo with my two brothers. One of my brothers has asked the other two of us to buy him out. We have owned the property since 2004. The two of us that still live in the condo took over payments in October of 2006. The brother that wants to be bought out wants to know how much equity he has in the property. What is the best way to determine his equity, and how would we go about paying him? Additionally what is the best way for the three of us to split up the home mortgage interest. Each one of us would take the standard deduction if we did not claim the mortgage interest. If it were split up equally between the three of us, we would still take the standard deduction. If one of us takes the full mortgage interest, how can I determine the splitting of the return equally. Note: The ones not taking the mortgage interest will still get a return if they do not itemize.

Quick Question

Hi - I saw that you were very helpful on other persons inquiries, maybe you can help me

My wife had a primary residence, but we sold it and separated in June 2006. My divorce was finalized by year end 2006. The mortgage was in both our names and it was paid from a joint account (i was primary). The house payments were made from my income only. She did not make any deposits into that account (i can prove that).


We had a separation agreement put into place that separated our assets and addressed tax issues. I reviewed the agreement today and it doesnt address property that we sold; rather it addresses property that we jointly own at time of tax filing. While its not in writing anywhere, i told her that she could deduct 50% of our mortgage interest based on this separation agreement (we both misunderstood what the sep agreement said).

Do IRS regulations permit her to deduct this 50% interest expense, even though she did not contribute any money towards those payments? We lived in Maryland.Sctybones 15:12, 19 February 2007 (CST)

thanks

thanks very much for the quick response!

THANKS FOR ANSWER

Hi:

Thanks for clear concise answer on aggregation rules. I was unaware.

I appreciate your help

Marvin Nasses

Heal of Household

Thanks for your answer on 2/28/07 regarding the my client who has a grandchild living with her along with her daughter claims the child, but cannot be a HH. I thought possibly the the grandmother would have a qualifying child for HH since she maintains the household, but cannot claim the exemption since the daughter needs the exemption. Is there any situation where the grandmother could be HH and not take exemption? Thanks for all your help.Teddy1 23:00, 28 February 2007 (CST)

CALIFORNIA TRUST

Thanks for the info. I assume you are a CA CPA. True? john@frankcpa.net Jf-okla 09:44, 2 March 2007 (CST)

Your research

Riley,

I know you are a bank of information. Do you have a research database you get this info showing the code? I know a lot of it is from past experience but I was wondering if you have a good database or keep a spreadsheet of codes and pubs relating to certain topics.

Thanks,

Brian

EITC credit and housing allowance

Hi Riley2, I was wondering if you would answer another question regarding EITC and ministers housing allowance. I am puting together resource notes on the subject of ministers and wanted to know what happened in 2002 or what changed to allow ministers to exclude housing allowance from EITC calculation if they had an approved form 4361? Was there a new ruling?

I also wanted to thank you for answering my questions with precise info, it's a great help during tax season.

   TLF

754

Hello Riley,

How do you record on the tax return a disposition of an asset that has a 754 step-up associated with it?

Assume the non-754 adjusted cost basis for the asset: a building, land & improvements along with associated depreciation gets recorded via 4797 but how do you dispose of the remaining 754 - seems ackward to run it through the 4797 - it is subject to depreciation?

I know the annual depreciation is specifically allocate, in this case, to one partner, an estate. 754 via inheritance.

I also know that the 754 will eventually reduce the 1231 gain allocable to the estate.

Another interesting item - if the 754 basis reduction turns a gain into a loss - is there limitations on the loss - seems like the IRS would not want high valuations on buildings & land for estates in which the estate can subsequently turn around & upon disposition sell the asset for a loss??

Also you noted in the discussion forum that a partnership does not record the increase on the balance sheet but was also unclear about this if the tax return's K-1 are tax basis or gaap.

If you do not record the adjustment on the tax return balance sheet than how would you get it off in a disposition - it is recorded on the balance sheet??

Thank you in advance for any help.

can a sole prop. owner or his wife or his kids be considered as employee and issue w-2

hi i came across a case that one bookkeeper is putting the owner and his wife as employees of the same business. as far as i remember that sole prop can not be employee of his/her business. can u please give any reference for so that i can explain it better. thanks a lot

Pushpinder Kumar

early bird?

It looks like your most recent post was about three hours ago. I think you're on the East coast, so that would mean the time you posted it was about 3 a.m.? Am I close? It makes laugh when I realize I'm still working at 12 or 1 a.m. and I see these early-bird posts from the other side of the U.S. Natalie 05:10, 14 March 2007 (CST)Natalie

My client received a SSA-1099 issued to her child's SSN (age 10). Do I need to report on mother's return or child's return or non-taxable for both?

It would be appreciated you will reply.

married in 06 sold 2 homes in 2 years

I was looking for specific information on my situation and this discussion seemed close but not exact. Could I resurrect an old topic? My husband and I married in 2006 and we each had our own home which we lived in for 4 years respectively. We put our homes on the market shortly after we married and we never lived in each other's home (we moved in to a family member's home). We meet the regulations for code 121 individually but my home sold in Nov 2006 and his home didn't sell until Jan 2007. So the question is do we file MFS for 2006 and 2007 so that I can use my 250k exclusion this year and he can use his 250k in 2007???? We don't want to file jointly and then miss out on the exclusion for his sale next year. (What makes this more frustrating is that the homes took so long to sell and his buyer kept extending the closing date - so it fell into the next year!) Your help is greatly appreciated.

UUGGGHH HOW I HATE TO DISAGEE

I usually just go my merry way...hehe

I thought however that non government pensions were taxed in the country of origin, but the government pensions were taxable in the US by US residents....I don't do ANY of these, but this was my understanding of the law as it pertains to resident aliens...please do let me know if I am wrong....international tax is what I am trying to specialize in due to my involvement with many....thank you my friend :)

Sandysea

Payments for foreign exchange students

Riley,

In response to your posting on this issue, if the taxpayer doesn't have documentation on his out of pocket costs, is there some other way of determining whether there is taxable income? New client receives $1200/month from the parents of two foreign exchange students and doesn't have receipts on his actual costs. Any reference to the IRS code?

Waynecpa 11:50, 22 March 2007 (CST)Wayne

Thanks

Thanks for the infoJeffcpa@comcast.net 15:04, 23 March 2007 (CST)

I'm kinda new here, today was was second post, not having much luck getting responses to my post, any suggestions?

clarification of an old discussion

I hope you don't mind me contacting you directly, but I was reading an old discussion, and I've gotten my hand slapped for rejuvenating old discussions before. The discussion: www.taxalmanac.org/index.php/Discussion:Repairs_on_Investment_Property You and Taxref and Blubby had a very informative thread going, but there were a couple of references that I wish it would have said more about. Blubby's comment: To the contrary, it appears to me that Carey must make an election to capitalize on the 2005 return or take the expenses as an itemized deduction in 2005, or the benefit will be lost. I am interested in learning more about how to make this election. I have a client who started an LLC to fix up houses and resell them. Hence, this is a business, and there is no question of Schedule C vs D. However, since he purchased the house in 2006 and has not sold it yet, I would like to capitalize everything I possibly can. From reading the above thread, it seems to confirm that I can capitalize repairs as well as improvements. The above excerpt seems to indicate that I can make an election the 2006 return to also capitalize mortgage interest and property taxes. If I am reading this correctly, are you aware of such an election? I have tried to contact Blubby and Taxref with no luck. Thanks in advance, and if this post was too intrusive of me, I apologize. WWTaxes Wwtaxes 15:57, 31 March 2007 (CST)wwtaxes

50% support of dependent

Thanks for the help.Mark Eason 23:25, 2 April 2007 (CDT)

recapture of depreciation on business rental property being sold

my client has commercial small mall that that is totaly rented to small stores, do we have to recapture depreciation, he has owned this for 5 years, if so how do we do thisRrschmitter@netsync.net 10:10, 7 April 2007 (CDT)

                                                                thank you
                                                                Bob

Installment Sale and Unstated Interest

Hi Riley2:

I hate to bother you, but I posted a question on the board and was hoping you would respond. Forgive me, if this is not the proper thing to do. And, if so, just ignore this.

I have an installment sale going. Rental property sold to a buyer that is using it for personal-use.

I am reading under SEC 483.. Unstated Interest and Original Issue Discount. It says that the treatment of unstated interest and OID rules do not apply to a debt given in consideration for a sale of personal-use-property. I don't think I have ever read that before. Does that mean that if the buyer is using the property as a personal residence, that you do not have to charge interest?

To further complicate, the buyer did not make any payment in 2006. Is there anything that I have to do? Just show no payment and carry the F6252 into 2007? I feel like I should put in a statement or something. No reposession at this time. I just don't want to miss anything with this return. Thank you so much for all the help you have given me. I really appreciate it.

Bell

Simple IRA Limit

Riley, You answered my question a year ago regarding Simple IRA limit to the 3% matching (Thank you very much). You referred me to S Rept No. 104-281 (PL 104-188), p.70. Pardon my ignorance, but where do I go to find that research? I'm not sure what that refers to. Thank you for all you contribute to Tax Almanac. -Susan77 Email susanpaynecpa@comcast.net

Resident alien/Non Resident alien

Hi Riley.

HELP!!! Under the subject "Can I file as married filing joing with a non resident alien wife living with me" (1/30/06) you stated you can file as head of household if your wife is on a J, Q, F, or M Visa. My client - husband on H-1 visa - resident alien. Wife J-1 visa - has been here since 2004. She plans on staying working for 2 years in a disadvantage area. They have a child born in 2006, with SS#. Can I file HOH for the husband? and 1040NR for the spouse?

Appreciate your comments - I can explain more if necessary.

CTurner555

Non resident/resident alien

Hi Riley2.

Just realized I didn't at the tildes so that you could respond to my question; trying so now; thanks again CTurner555Cindy 16:26, 13 April 2007 (CDT)

Tax Treatment of Addional Income as a Result of Cash-Basis to Accrual-Basis Accounting Methods

Riley,

So it is true you can spread out the additional tax over 4 years?

Clay

LLC Liquidation

Hi Riley 2, Bill Crowe of this message board emailed me that I should contact you because you might know about the ins and outs of liquidation of an LLC. Are you willing to communicate with me regarding a CA LLC that went out of business 12/31/06? I am a tax professional, EA. Have been preparing this LLCs tax returns for a few years. Thanks for your reply. Don't want to bug you if you don't have the time nor inclination to get down to brass tacks with me. Thanks, Robi

U.S. Supreme Court

I did not know if permissible to post this link on the board. When you have time, would you believe this decision would apply to an oil rig worker - thus keeping his tax home at his residence rather than the rig. I know in general a mariner's tax home is his residence rather than the vessel. If worthy of your consideration, perhaps you would post a response on the board. Thank you. McDermott vs Wilander

--Solomon 20:12, 21 April 2007 (CDT)

Hi Riley, Could you please comment on a post?

Here; http://www.taxalmanac.org/index.php/Discussion:Turbotax_Business:_Distributions_Reduces_Stock_Basis%3F

(JR1 mentioned that you may know why distributions from paid in capital are not allowed).

Thanks! Viking 18:56, 24 April 2007 (CDT)

Capital Contribution Question

Hi Riley,

I need your help. If a particular LLC had 2 Capital contributions as follows:

$120,000 Partner A $100 Partner B

But the Operating agreement specified 50/50 is the ownership percentage. Then the partnship had losses of $121k.

How does this affect the LLC's Tax return and the K1??

The Capital Contribution is $121,000 correct ?

Under K1 section L of Partner A what would be his percentags of Income/ Loss/ Capital ? would it be 50% or 99% ?

What about section N of Partner A: What would be capital account for the guy who put in 120K ?? would it be 120k or 50% of 121k ?



Thanks very much.

Surface Damage ??

I'm sorry to bother you but I read one of your comments in regards to surface damage. I have a client who received a check for $20,000 for surface damage and their basis in the land is $75,000 before the damages. I am confused as to whether I report the $20,000 as ordinary income or just reduce their basis to (75,000-20,000) = $55,000. I tried searching for the below case you mentioned but I was unable to find it. Any help would be greatly appreciated. You are really one of the only ones I pay attention to on this site...


Lawrence v. U.S., (1983, DC WY) 53 AFTR 2d 84-1489 , 574 F Supp 177 , 84-1 USTC 9138 , affd & revd(1987, CA10) 59 AFTR 2d 87-424 , 808 F2d 1374 , 87-1 USTC 9116.

Bankruptcy and gain on abandonment of property

In several discussion posts you have noted the difference between the Cancellation of Debt income and the gain created on abandonment of property. Whether the debt is recourse or not determines the breakdown of what is COD and what is taxable gain. A chapter 7 bankruptcy does effectively make the COD income non-taxable, but in the process wipes out all the basis of the property abandoned. As a result, this leaves a gain on abandonment that I believe you define as taxable on form 4797 even in title 11 cases.

In my research I came across the following:

"According to the majority of courts that have decided or considered this issue, particularly the Eighth Circuit, an abandonment of property from an estate while the bankruptcy case is still pending does not result in a taxable sale, exchange, or other disposition. In the leading case from the Eighth Circuit, the bankruptcy court determined that an abandonment of property constituted a transfer upon the termination of the estate within the meaning of Code Section 1398(f)(2). In re Olson, 100 B.R. 458, 463 (Bankr. N.D. Iowa 1989), aff'd, 930 F.2d 6 (8th Cir. 1991). Courts favoring the majority position generally follow the reasoning set forth in In re Olson. The IRS follows the holding of In re Olsen as well.

OBSERVATION: The government benefits from this treatment because it shifts the tax burden to the debtor who, upon the subsequent disposition of the abandoned property, may recognize a taxable gain that will result in a non-dischargeable, post-petition tax liability."

This seems to indicate in this circumstance that the 4797 gain is excluded as well and reported on form 982 along with the COD income. My confusion comes from whether the individual has the right to exclude or only the estate - or does it matter? The 1099-A came in under the debtor's SSN and the bankruptcy trustee did not file a 1041 because "the estate had no items of income".

Do you agree with the above interpretation, or am I just looking for the answer I want too hard?

Bgcpa 11:47, 14 May 2007 (CDT)

Stepped Up Basis

Just wanted to say thanks...my research leaned on yes but it wasn't black and white...just wanted to hear it from another source.

Hotel Transfer

Just wanted to say thanks so much for your response to my question and sorry I was so long responding. When I went to get more information and we discussed it more thoroughly I think the issue has now been resolved. But thanks again . . . greatly appreciated!

CowTownCPA

ADA disabled access credit

Hmm - thanks for the info. I don't think what my client is purchasing has anything to do with access for the disabled. He's asking about a purchase of a defibrillator and if there is some tax benefit on his 1120S for that purchase. Other than depreciation, I don't see what else there could be. ? Well, gotta give him credit for trying.

LLC To S Corporation - Debt Exceeds Basis

On June 16, 2006 you replied the to the article regarding Debt exceeding basis. Your reply stated the Ninth Circuit Allows a trasferor to issue a self-created note to increase basis in a Section 351 transfer situation. Do you have the citation of that particular case. Thanks

Work Opportunity Tax Credits

Regular Tax 586,243 and AMT Tax 539,671 . Thank You

Louis

Riley2,

Thank you for helping me clarify my questions with regards to the excess Roth IRA contributions. This is my first time using the discussion form.

Thank you again, Dan

Retrieved from "http://www.TaxAlmanac.org/index.php/User:Riley2"

Recharacterization of excess contribution to Roth Ira

A taxpayer who files their return by the due date (Apr 15) has six months (1Oct 15) to recharacterize the excess contribution and allocable net income/loss.

My question is do they also have to file a 1040x in addition to to Form 8606?


Dan

You mentioned 2002-9 and 2004-11 and that the allowed or allowable rules have been softened. I reviewed both and the form 3115, bur I am not sure what to do. Got a client who sold duplex in 2006. Duplex was not reported on Sch E for any year that it was owned (2004-2006), apparently because the losses would not have increased the refund to the client, so the preparer saved them the preparation fee of preparing Sch E. Now I am left picking up the pieces. I was going to calculate the depreciation allowable and recapture, but I noticed your post and I heard something through the grapevine that things may be changing on this. Thanks! 16:14, 1 August 2007 (CDT)~~

Allowed or allowable

You mentioned 2002-9 and 2004-11 and that the allowed or allowable rules have been softened. I reviewed both and the form 3115, bur I am not sure what to do. Got a client who sold duplex in 2006. Duplex was not reported on Sch E for any year that it was owned (2004-2006), apparently because the losses would not have increased the refund to the client, so the preparer saved them the preparation fee of preparing Sch E. Now I am left picking up the pieces. I was going to calculate the depreciation allowable and recapture, but I noticed your post and I heard something through the grapevine that things may be changing on this. Thanks! 16:14, 1 August 2007 (CDT)~~

Gift Tax: Gift / Sale of partial interest in real estate


Hello Riley2

I have been reading a lot of the gift tax discussions on this forum and keep seeing your name coming up and you seem to be consistently providing answers with which I agree. If you would be so kind to comment on this post I would be very pleased to hear your thoughts

http://www.taxalmanac.org/index.php/Discussion:Gift_Tax:_Partial_interest_of_real_estate

Thanks in advance.

Best Regards,

Brad G BradleyCPA 09:35, 14 August 2007 (CDT) Dallas

Please help with topic

Hello Riley2,

Although I've never posted to this forum until today, I frequently search the topics to resolve tax questions that I have, and you seem to be the guru that everyone looks to for answers. I'm sorry if I'm not following forum etiquette, but I posted a question earlier today titled "COD - Reduction of Tax Attributes", and I'm desperate for an answer. I work alone, and don't have as many resources as I did when I worked with other practitioners. I've searched Kleinrock pretty extensively, and I think I'm handling the situation correctly, but I'm nervous about getting caught in a net of technicality. If you have time, will you please read my post and reply?

Many thanks! Melanie

hi Riley2,

i just posted a new message on the following discusstion link to ask you a question:

http://www.taxalmanac.org/index.php/Discussion:Inheritance_or_gift_from_foreign_national


it is rather urgent as i am currently in China and don't know what to do. thank you for giving me some suggestions.

cck

Settlement for emotional distress

My client is receiving a structured settlement for emotional distress. She is only receiving a percentage and her attorneys are receiving the rest. Is she required to include their portion in her income? Also, is she only required to report the amount received in the current year?

Thanks for any help!

Form 4797 Residential Rental Sale

Hi Riley2. I have a quick (and likley embarrassingly easy) question for you regarding Form 4797. I have a client that sold a residential rental that is subject to unrecaptured 1250 gain. I am new at Proseries and used the asset diposition worksheet for Sched E. It linked the gain to Part III of Form 4797 as if it were Section 1250 property, but shouldn't it go to Part I? The rental was purchased in 1996 and sold in 2005 so it should be Section 1231 property shouldn't it? I can't figure out if I made a mistake with Proseries. Thanks very much for any assistance you can provide.

Thank you

Thanks for helping me out regarding the reporting method for the CCorp contractor. You're awesome, Riley. BethAZ 01:41, 13 September 2007 (CDT)

passive losses

Thanks for your reply for my discussion about suspended losses. This taxpayer is materially and actively participates. He has over 12 properties and spends probably 60 hours per week on them. So the question can he deduct the suspended losses on a property that was converted to 1031. All current losses are deductible on the real estate. bob Fendrick (bobfend@bellsouth.net) Bobfend 13:00, 25 September 2007 (CDT)

Riley, are you in the Academy

Off all topics note: I wondered if Dennis and you may be in academia? It's admirable how you have gotten so comfortable in that most opaque of Codes, the IRC. Were you a reporter for a Congressional committee for tax writing? Not being nosy, but there is a technique and talent for it that only comes with long and intense practice. It's fascinating how people approach questions on this forum. I'm basically trained to see what I can make the law to be (as we are allowed to do in common law), some here, particularly Kevin, are extremely rigid (I'm not casting aspersions on that, it's the foundation). Well, I admire your responses, they are truly surgical in precision; they get me motivated to spend some time actually reading that Code (note, not looking up, but reading the darn thing). Ciao.

Collectible definition

Riley, I have a question for you regarding the definition of a "collectible" pursuant to section 408(m). A wedding invitation is not explicitly named in the statute, but I was wondering how you would interpret 408(m)(2)(F) ("any other tangible personal property specified by the Secretary for purposes of this subsection"). What exactly does that mean? As an aside, perhaps a 50-year old wedding invitation might be considered an antique, and thus fall within the plain-meaning of the statute? I would be interested to hear you thoughts. BTW - who is Dennis?

Foreign tax question - Please help.

Hello Riley2;

I have read some of your comments on the foreign tax forums and I was very impressed with your answers and your knowledge on the subject. I would like to know how to get in touch with you as I have a personal foreign tax issue to deal with and would like to speak with someone who knows what they are talking about... I have tried talking to 2 other CPA's who just didn't have any experience with foreign tax issues and were not able to provide me with straight answers. Please reply to voleygirl184@hotmail.com if you could give me your office number or your direct email I would greatly appreciate it.

Thank You; Jessica.

repo 121 property

Riley2 do you have to do an amended 1040x if not sold within 1 year of repo since you are no longer taking the 121 and are reporting all income on the Sch D

Section 1033

Riley - thanks a bunch. I spent a long time looking for what you provided.JRohle 15:24, 6 November 2007 (CST)

wow--you were right on. I cannot thank you enough.

--tom2

Gift of the entire bank account

Hi Riley2,

I really appreciate if you can help me on this. I want to ask your comment on 30 January 2007 (pasted below) I want to know how "gift of the entire bank account" should be done. Does it mean the donor can wire transfer the entire amount to the donee and close the account? Or any other ways of making a gift of the bank account? My local bank does not know what I exactly I should do.

Thank you.

==

Riley2 (talk|edits) said: 30 January 2007 I believe that cash on deposit in the United States is considered to be intangible property under Internal Revenue Code ยง 2511(b)(2)(A). However, cash in a safe deposit box is considered to be tangible property. See Rev. Ruling 55-143. I believe that a check drawn on a U.S. bank and presented for payment in the United States becomes tangible property when it is presented for payment and honored by the bank. The obvious solution to the check problem is to simply make a gift of the entire bank account.

Gift Tax

Riley,

This year exemption is 12K. Here is the qiestion if non-US citizen/resident wire transfer into US bank account to US citizen/resident 12K in dec of one year as a gift. Also will wire transfer additional 12K in Jan. of the second year as a gift, would exemption apply to both years. Is there any holding period should be between wire transfers. What needs to be filed with IRS?


I was reading your post about California quasi trust rule. Could you point me towards more info on this. When I search the web I find your post. I am dealing with a property sale that has two tennants holding a Life estate.

Thanks

PAP

my "problem client" post

Hello Riley,

Can you please help me understand your comment about a preparer not completing a 1045a for an NOL generated on a 2005 return?

Are you saying that because a TP is not required to claim an NOL even if there is one?

If no 1045a was filed with the 05 return, can the client use that NOL in 2006? Does '05 have to be amended first?

Thanks for your help. I can be reached at newtaxguy@yahoo.com

The New Tax Guy

mortgage interest deduction

I was wondering if you do tax returns. I have a unique situation about Mortgage/Living together condition. My buddy has the mortgage in his name, however Im on the title only. I pay 53%, and think Im entitled to the mortgage int deduction. Curious for more info if possible. I will supply my email/phone number if you can help

thanks mike

G4 capital gain

Hi I am buying property from a Pers

Question regarding OIC & SOL

Hi Riley2;

Could you please email me at nicki112233@gmail.com so I may get some information as to how to contact you outside this forum. I have been doing a lot of research & am in need of tax help. The only way to get in contact with you, (as I don't know who you are) was to "join" this website & send you this message. I am NOT a tax professional & really don't know how to get my username OFF of this site, but my main goal was to find you & ask where you are & if you can help me with my issues...they date back to 1996. Sorry for the subterfuge.


Thanks,

Nicki Wade

LLC with foreign members

Riley2

I have read over some of your posts concerning foreign members of an LLC. I thought you would be a good person to correct my understanding of the requirements if necessary. I have 2 different scenarios but will start with this one. Here is the situation:

We have potential clients; almost all are Canadians, creating Delaware LLCs for business in the states. Most will be single member LLCs but the occasional LLC could hold multiple members (2 or 3). All members in any case will be foreigners (Canadians). The typical business that they are conducting is online sales of tangible goods utilizing drop shippers in the US. They want to create US LLCs to deal with US banks and US suppliers. The customer base for the LLCs will be both in the states and everywhere else as the businesses are web based.

The application for an ITIN will take place as part of their initial tax return filing. It will be accompanied by the required W7 and documentation.

First based on the type of business that they are conducting it would appear that all income is classified as ECI.

My concern is the NRA withholding, W-8s and the quarterly submissions to the IRS based on the ECI. Since all the income is ECI it would seem that the income will be taxed at graduated rates applicable to US citizens rather than utilizing the NRA withholding. All income would then be reported in their US personal tax return.

However, certain wording within the IRS documentation confuses me as it details any EFI allocable to foreign partners is generally required to withhold tax under section 1446. It seems to be conflicting information. So the question would be do they submit the 35% tax on income derived to them upon distributions from the LLC through out the year; or do they simply file all income from the LLC in the non-resident 1040 each year (and corresponding 1065 if necessary)?

As all members of the LLC are foreign, they will not use any type of withholding agent.

Thanks for any light you can shed on this for me. I may post this in the general forum as well.

Back on June 15, 2006, you answered Rikramer re: life insurance policy question. Can I ask you a question?

This is what your response was to Rikramer: "In the typical split-dollar collateral assignment arrangement, the employee is only taxed on any premiums paid by the employer that exceed the loan amount. In other words, the employee is only taxed on the amount that he is not expected to repay from the death benefit. See Reg section 1.7872-15.

The coprooration may not claim a deduction for any of these premiums since the corporation is a co-beneficiary of the policy, and internal Revenue Code seciton 264 would apply."

OK. I understand there is a portion of the income that needs to be reported. The question is: WHERE?!?!

It's been put on 1099 MISC in the past; why can't it stay being reported on the 1099 MISC? But should it be considered income to the employee and therefore go on the W-2? If you want to put it on the 1099 MISC for the employee, do you have to pay SE tax? If it does go on the W-2, WHERE?!?!?! Box 11? Box 12? Code Y? Code Z?

If it does go onto the W-2, and the company has already filed the 941, then do they have to amend and adjust for this which we received values for in late Jan/early Feb?

Can an S corporation file an amended return for 2008, at this time,to make a deemed dividend election? Thanks!

Rental Converted to Personal with PAL

Hi Riley2

I have a client that converted a rental to their personal residence. They rented it for 2 years and then lived there for 3 years. Sold the home at a loss. They received a 1099S for the sale.

They had suspended passive losses. I read your posts that the sale of a primary residence should allow the passive losses to be released. In this case the home was sold for a loss, so do you think that makes a difference? I will be reporting the sale on Sch D with no gain or loss since there was a 1099s.

If the PAL carryover could be released in 2010, it looks like I would have to include a schedule E on the 2010 tax return. The sch E would have no activity, and the loss goes on line 23. I don't think the 8582 is required based on the instructions - page 1, exception 1, #4. It looks odd to have a sch E in this situation. Do you think this is the correct way to report? Thanks. Birdman 15:46, 22 March 2011 (UTC)

deemed dividend election

1.1368-1 (f)(5) (iii) says the deemed dividend election can be made on a timely filed with extensions or amended return... All the publications I read say the same language. One pubication on S Corps says "this election may even be filed on an amended return, if all the shareholders conform their personal tax returns." I want that to mean we can now do the elction on an amended 2008 1120S. What do you think?

I can't find anyone that's ever done it.

Thank-you! Greatday.

I have been doing some research and see your name a lot. I have posted a question "Joint Tenant of TIC - title to real estate". In hope of getting a quick answer I thought I would send you a copy of the post. If this is improper I apologize.

Parents are buying condo for daughter. Parents are giving the daughter money for down payment and are co-signing on the loan. The parents only want the daughter on the deed/title as it will be her condo. However, the bank requires the parents to be on the deed/title. The parents are using their annual gift tax exclusion and gift splitting to give the daughter the funds for the down payment. The daughter will be making the mortgage payments but the parents may help out each year if needed. My question is how should the parties hold title. The property and taxpayers are located in Califonia. My concern is how to make sure that any profit on sale goes soleley to the daughter. Joint Tenants - assumes each joint tenant has an equal interest and in this case it would be 50/50 ownership. Mortgage interest and property taxes can be deducted by the party making the payment so that is not an issue but the gain on sale would be split 50/50. TIC - again, mortgage interest and property taxes can be deducted by the party making the payment and the gain would would be split based on each parties undivided percentage interest. I guess title could be TIC with the parents holding .01% and the daughter owning 99.9% but that seems a strange way to hold title. I assume that a lot of parents have co-signed on loans to help their children buy a home, with the intent that the home be that of the child. I want to keep it simple and stay away from other forms of co-ownership such as partnership, LLC, sub S, corporation, trusts, etc. One advantage of Joint Tenancy is that is provides for right of survivorship and would avoid probate but it has the disadvantage that the joint tenants own equal interests. usergeoffUsergeoff 20:02, 1 April 2011 (UTC)

Client Referral...

Hi Riley2, would you be willing to forward me your contact information? I was interested in discussing a potential referral client with you (based in CA) to see if they would be a match for you. Thanks much

Riley2, I have really respected your responses to the discussions on here. Do you happen to have a blog that you write? Just curious. Thanks.


yctaxmanYctaxman 16:20, 14 February 2012 (UTC)

Early distribution by a living trust administrator from annuity

I have a client that is over the age of 70 and is the administrator of her Living Trust. She made an early withdrawal from her annuity. her 1099 shows a code 1 for taxable. Is it taxable if the annuity is in the trust? But what if the annuity is not in the trust. The check was made out in her name not the trust - any difference.?

Early distribution by a living trust administrator from annuity

I have a client that is over the age of 70 and is the administrator of her Living Trust. She made an early withdrawal from her annuity. her 1099 shows a code 1 for taxable. Is it taxable if the annuity is in the trust? But what if the annuity is not in the trust. The check was made out in her name not the trust - any difference.?

distributee

Hey Riley, quick question. In an old discussion on Coverdell ESA distributions, there was a question to whom the early distribution was taxable--the parent or the beneficiary/son. You cited a code section and stated that the money was taxable to "the distributee". I am assuming by distributee, you are referring to the child in who's name and SSN the account is listed? Please confirm. Thanks!

distributee part 2

Hey Riley, quick question. In an old discussion on Coverdell ESA distributions, there was a question to whom the early distribution was taxable--the parent or the beneficiary/son. You cited a code section and stated that the money was taxable to "the distributee". I am assuming by distributee, you are referring to the child in who's name and SSN the account is listed? Please confirm. Thanks! (This time I'll sign my name!...so you know who to respond to!) Anchorman 14:04, 9 April 2012 (UTC)Anchorman

Hi Riley. I have to say I have been reading your post for quite some time now and really enjoyed the fact of how much you participate in the general discussions board for tax individuals and very muich enjoy reading the help you give people. I set up an account years ago but forgot the password and had to re-create and account this morning after it would not recognize my name. I have a tax question and instead of posting a general question I thought I could just ask you directly. Here is my issue...I am not sure on how to go about treating this transaction and was hoping you could help me. I have a general partnership with 1 son (Joe) (80% prof/loss), 1 father (John) (1% p/l) and 1 father in-law (Steve) (19% p/l). The one son has lost a tremendous amount of money in 2003 and the father in law (Steve) offered to step in and contributed money to help in the business continue becoming a 19% partner, prior it was split 50/50 between son and father. Well as of 2011, it was determined that there was no way the son (Joe) could continue the business based on his management abilities and the father-in-law (Steve) determined that he would have his other son (Mike) come help run the business with him. His son (Mike) could also contributed cash to help clean up some past due vendors and run the company in a positive direction. It was agreed that at the end of 2011 the original son (Joe) would be completely removed from the partnership along with the his father (John) as well who was inactive and provided nothing to the partnership. Both the Joe and John would surrendering their capital accounts to the father in law for no value. At that time original son and capital account was negative and the father's capital accounts was positive and the father in-law (Steve) agreed he would assume their capital accounts with no deficit restoration on the one son, since he had no money. My questions is the one son's (Joe) capital account was negative ($1,000,000) and the father's (John)$300,000 positive, but agreed to walk away with no value. I have credited the son (Joe) capital account ($1,000,000) to zero him out and debited the fathers capital (John) $300,000 to zero them out and the offset $700,000 debit to the father in law (Steve) . I also picked up a negative capital account restoration on Joes return. My question is now I have 1 father-in-law and his son running the business, but based on my trascations to remove the son his capital account reduced by $700,000 net. My guess is I need to make a 754 electrion, but not sure on what to spread this amount to. They currently have cash, a/r, leasehold improvements, equipment, inventory, production equipment and some other general assets. If I am hitting the father in law for 700,000k to the negative and having the son account for that on his tax return, how do I rectifiy this for the father in-law, do I just spread the 700k evenly over all the assets, leasehold improvements too?. What about the a/r for the son removed from the partnership?, do I need to capture that on his tax return as ordinary income, or not cause he simply was not bought out. I will also be helping the 1 son set up an offer and compromise for federal and state tax owed as they have no ability to pay the taxes owed on the negative capital. Riley...thank you for any help you can provide.

Hi Riley. I have to say I have been reading your post for quite some time now and really enjoyed the fact of how much you participate in the general discussions board for tax individuals and very muich enjoy reading the help you give people. I set up an account years ago but forgot the password and had to re-create and account this morning after it would not recognize my name. I have a tax question and instead of posting a general question I thought I could just ask you directly. Here is my issue...I am not sure on how to go about treating this transaction and was hoping you could help me. I have a general partnership with 1 son (Joe) (80% prof/loss), 1 father (John) (1% p/l) and 1 father in-law (Steve) (19% p/l). The one son has lost a tremendous amount of money in 2003 and the father in law (Steve) offered to step in and contributed money to help in the business continue becoming a 19% partner, prior it was split 50/50 between son and father. Well as of 2011, it was determined that there was no way the son (Joe) could continue the business based on his management abilities and the father-in-law (Steve) determined that he would have his other son (Mike) come help run the business with him. His son (Mike) could also contributed cash to help clean up some past due vendors and run the company in a positive direction. It was agreed that at the end of 2011 the original son (Joe) would be completely removed from the partnership along with the his father (John) as well who was inactive and provided nothing to the partnership. Both the Joe and John would surrendering their capital accounts to the father in law for no value. At that time original son and capital account was negative and the father's capital accounts was positive and the father in-law (Steve) agreed he would assume their capital accounts with no deficit restoration on the one son, since he had no money. My questions is the one son's (Joe) capital account was negative ($1,000,000) and the father's (John)$300,000 positive, but agreed to walk away with no value. I have credited the son (Joe) capital account ($1,000,000) to zero him out and debited the fathers capital (John) $300,000 to zero them out and the offset $700,000 debit to the father in law (Steve) . I also picked up a negative capital account restoration on Joes return. My question is now I have 1 father-in-law and his son running the business, but based on my trascations to remove the son his capital account reduced by $700,000 net. My guess is I need to make a 754 electrion, but not sure on what to spread this amount to. They currently have cash, a/r, leasehold improvements, equipment, inventory, production equipment and some other general assets. If I am hitting the father in law for 700,000k to the negative and having the son account for that on his tax return, how do I rectifiy this for the father in-law, do I just spread the 700k evenly over all the assets, leasehold improvements too?. What about the a/r for the son removed from the partnership?, do I need to capture that on his tax return as ordinary income, or not cause he simply was not bought out. I will also be helping the 1 son set up an offer and compromise for federal and state tax owed as they have no ability to pay the taxes owed on the negative capital. Riley...thank you for any help you can provide.

CPAguy 17:41, 13 April 2012 (UTC)CPAguy

Son leaving partnership and father in law to assume negative capital account

Hi Riley. I have to say I have been reading your post for quite some time now and really enjoyed the fact of how much you participate in the general discussions board for tax individuals and very muich enjoy reading the help you give people. I set up an account years ago but forgot the password and had to re-create and account this morning after it would not recognize my name. I have a tax question and instead of posting a general question I thought I could just ask you directly. Here is my issue...I am not sure on how to go about treating this transaction and was hoping you could help me. I have a general partnership with 1 son (Joe) (80% prof/loss), 1 father (John) (1% p/l) and 1 father in-law (Steve) (19% p/l). The one son has lost a tremendous amount of money in 2003 and the father in law (Steve) offered to step in and contributed money to help in the business continue becoming a 19% partner, prior it was split 50/50 between son and father. Well as of 2011, it was determined that there was no way the son (Joe) could continue the business based on his management abilities and the father-in-law (Steve) determined that he would have his other son (Mike) come help run the business with him. His son (Mike) could also contributed cash to help clean up some past due vendors and run the company in a positive direction. It was agreed that at the end of 2011 the original son (Joe) would be completely removed from the partnership along with the his father (John) as well who was inactive and provided nothing to the partnership. Both the Joe and John would surrendering their capital accounts to the father in law for no value. At that time original son and capital account was negative and the father's capital accounts was positive and the father in-law (Steve) agreed he would assume their capital accounts with no deficit restoration on the one son, since he had no money. My questions is the one son's (Joe) capital account was negative ($1,000,000) and the father's (John)$300,000 positive, but agreed to walk away with no value. I have credited the son (Joe) capital account ($1,000,000) to zero him out and debited the fathers capital (John) $300,000 to zero them out and the offset $700,000 debit to the father in law (Steve) . I also picked up a negative capital account restoration on Joes return. My question is now I have 1 father-in-law and his son running the business, but based on my trascations to remove the son his capital account reduced by $700,000 net. My guess is I need to make a 754 electrion, but not sure on what to spread this amount to. They currently have cash, a/r, leasehold improvements, equipment, inventory, production equipment and some other general assets. If I am hitting the father in law for 700,000k to the negative and having the son account for that on his tax return, how do I rectifiy this for the father in-law, do I just spread the 700k evenly over all the assets, leasehold improvements too?. What about the a/r for the son removed from the partnership?, do I need to capture that on his tax return as ordinary income, or not cause he simply was not bought out. I will also be helping the 1 son set up an offer and compromise for federal and state tax owed as they have no ability to pay the taxes owed on the negative capital. Riley...thank you for any help you can provide.


CPAguy 17:42, 13 April 2012 (UTC)CPAguy

C Corporation issues

Hello Riley 2,

I have two questions/issues:

1) I have a LLC (calendar year) who now owns a C Corporation with a fiscal year end (9/30). (Death of shareholder, transferred from single member LLC to Trust to LLC with mulitiple members). BTW....VERY complicated estate. I've been reporting the C Corp separately.... can't I continue to do so?? I noticed that when posed with the question in the oppositte direction, you suggested that the fiscal entity was disregarded. (The parent year end controlled).

2) The C Corporation (reported at FMV on "elected" Estate tax return) had assets that included a brokerage account (appreciation at approximately $300K). After death, the C Corporation distributed the brokerage account to the LLC. I believe that I need to report a deemed sale at the C Corp level (FMV at $1M) on the appreciated assets. How do I record the distribution? It is really like a tranfer to a parent....or like a Sec 351 Transfer... I don't see a taxable event to the LLC members???

I've been researching, but am just not getting my hands around anything definite. I would sincerely appreciate any advice or referrals to code sections, etc. Thanks so much,

Jdabrook 16:34, 16 May 2012 (UTC)

Private review for a fee

Riley

I am a CPA in Texas. I was wondering if you would be interested in advising/ reviewing some of my more complicated issues for me from time to time for a fee.

If you are not interested, could you recommend someone? I want someone who is knowledgeable yet not afraid of defend-able but aggressive positions.

Thanks

Beancount Beancount 18:09, 10 July 2012 (UTC)

NONRESIDENT ALIEN S.E. TAX

IF A NONRESIDENT ALIEN FILES A JOINT RETURN WITH AMERICAN SPOUSE IS HE ALSO SUBJECT TO SE TAX WHERE THERE IS NO TOTALIZATION AGREEMENT WITH THE FOREIGN COUNTRY THAT THE NONRESIDENT ALIEN IS A CITIZEN OF?

Firefighter meals

I was wondering if I could get your feedback on a comment you had

"If the firefighter is required to contribute to the firehouse mess fund as a condition of his employment and the funds are in the custody of his employer, then he can claim an above the line exclusion on line 21 or a misc itemized deduction on Sch. A"

In what situation would one take a deduction on Sch A vs line 21?

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