Pajak

01 Oktober 2008

RE: [taxchat] Lawsuit Settlement Award

Marc,

I wouldn’t put it on Schedule C at all since it wasn’t put in box 7. I would put the $20,000 on line 21. The deduction is either going on line 34 as an adjustment or on Schedule A subject to 2%. There was a case a couple years ago decided by the Supreme Court that allowed the deduction as an adjustment from AGI in certain cases (I think discrimination), but in all other cases it had to go on Schedule A. I don’t recall the case off hand, but you might be able to find a reference to it in the Taxbook, or Quickfinder, or some such. Maybe even in Pub 17, or at IRS website.

John Stevens, EA
Stevens Tax & Accounting, Inc., dba Equi-Tax
1870 - 50th St. E., Suite 8
Inver Grove Heights, MN 55077
651-773-5000
FAX 651-457-4529
equitax@unique-software.com
www.equitax.net

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From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Marc Enzi
Sent: 10/01/2008 4:33 PM
To: taxchat@yahoogroups.com
Subject: Re: [taxchat] Lawsuit Settlement Award

I have a client who filed a wrongful termination lawsuit against his employer in 2004.

In 2005 the employer settled the lawsuit out of court with a lumpsum payment of $20,000 which was to be paid to the employee in the form of non wages Other Income 1099-Misc (Not designated Non Employee Compensation on the 1099-MISC).

The recipient of the settlement was paid $11,000 and his attorney was paid $9,000. This was written into the settlement agreement by the recipient's attorney. However the settlement agreent only stated that each was to be sent a 1099-MISC for Other Income. The agreement was silent as to the amount of the 1099-MISC, and client has no way of ascertaining if the attorney received a 1099-MISC or not.

On the 1040 there is an Other Income line21 which could easily handle the $20,000, but the attorney took $9,000 and I can't get both of these transactions on Line 21.

The IRS rejected the clients tax return showing only $11,000 on line 21 stating that he has $20,000 in income.

I suppose I could put this on a Schedule C with a legal expense of $9,000. However, I don't think this award should trigger self employment taxes, this is not self employment, it is an award specifically designated non wage compensation Other Income.

should I put $20,000 on Line 21 and list a Schedule C expense of $9,000 which woudl then flow to line 12 as a Negative $9,000?

Thanks for any advice on this one.

Marc

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RE: [taxchat] Renting to himself: I think I know he can't but I can't explain Why

Marc,

He can rent a portion of his house to his S Corp but Sec 280A(c)(6) says he can’t deduct any expenses except for RE taxes and mtg interest. Instead of renting, the way this is normally handled is to have the company reimburse him under an accountable plan for the pro-rata share of his housing expenses based on square footage.

From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Marc Enzi
Sent: 10/01/2008 4:48 PM
To: taxchat@yahoogroups.com
Subject: RE: [taxchat] Renting to himself: I think I know he can't but I can't explain Why

I have a client who has an S-Corp of which he is the sole owner.

He claims that he rents his S-Corp a portion of his personal home.

I seem to remember some reason he caon't do this, but I can't remeber the citation or section of the code. After thinking about it forawhile, I did not really see any reason for not doing it, except that it will make his tax return have a schedule E, and make it a bit more complicated and he will lose a section 121 exclusion for htat portion of his home and after all is said and done, he gains nothing from the transaction and just complicates his tax return.

So, am I imagining that he can not rent his personal residence to his S-Corp, or is there some rule that prohibits this transaction?

Thanks,

Marc

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RE: [taxchat] Hasn't filed a tax return since 1999

You raise a good point, Arnie. The usual situation I see the 3115 for is when a client has been filing returns all along, but for some reason has not claimed depreciation for something (rental building, for example). Clients sometimes think that they don’t have to reduce the basis in the property if they don’t claim the depreciation – wrong! In that instance the 3115 is filed and all the back depreciation is taken on the current year’s return.

Donna’s situation is different. The returns prior to 2002 haven’t been filed, so it raises the question as to whether the missed depreciation for those earlier years is allowable. We know it wasn’t allowed since no returns were filed. So maybe, as you suggest, since no returns were filed, or will be filed, for those old years, her client can’t take that old depreciation on the 2002 return. I think some research needs to be done to answer that one.

John Stevens, EA
Stevens Tax & Accounting, Inc., dba Equi-Tax
1870 - 50th St. E., Suite 8
Inver Grove Heights, MN 55077
651-773-5000
FAX 651-457-4529
equitax@unique-software.com
www.equitax.net

From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Arnold M. Socol
Sent: 10/01/2008 4:23 PM
To: taxchat@yahoogroups.com
Subject: Re: [taxchat] Hasn't filed a tax return since 1999

My guess, No. Allowed and allowable is for accum deprec to date of return. Can't take prior years depreciation if returns are not to be filed. Take only the current years' deprec in the first year, 2002 like John says. (unless John has a cite - and I do appreciate him - thanks John.

----- Original Message -----

From: Donna L Loeffler CPA

To: taxchat@yahoogroups.com

Sent: 10/01/2008 4:58 PM

Subject: Re: [taxchat] Hasn't filed a tax return since 1999
Arnie,
Does the 3115 come into play here, then? Could I take the depreciation not taken if I use that form?
Donna
Donna L. Loeffler, CPA
936 Church Avenue
St. Charles, MN 55972
(507) 251-8119
dllcpa@hbci.com
The information in this message, and any files transmitted with it, is confidential, may be legally privileged, and intended only for the use of the individual(s) named above.  Be aware that the use of any confidential or personal information may be restricted by state and federal privacy laws.  If you are not the intended recipient, do not further disseminate this message.  If this message was received in error, please notify the sender and delete it.
IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
 
Arnold M. Socol wrote:
Donna,

You can back in to the allowed or allowable depreciation. You need the date in service and the basis, then you can go back and run a depreciation schedule from the first year forward.

Arnie
----- Original Message -----

From: Donna L Loeffler CPA

To: taxchat@yahoogroups.com

Sent: 10/01/2008 4:27 PM

Subject: Re: [taxchat] Hasn't filed a tax return since 1999
I really appreciate your thoughtful responses to all of my questions.

He will appreciate that I don't have to file those earlier years. As far as an engagement letter goes, I get engagement letters from all of my clients. I have already gotten a retainer from him, but we haven't agreed on prices yet. I'm thinking I'm going to charge him by the month--that way, he will hurry up and get me everything I need. He tends to give me stuff piece-meal.

I just called the IRS. I have to submit a 4506T to get the tax return. The unfortunate thing is that she said they probably don't have it as far back as 1998. He didn't file in 1999, according to her. It is pretty hard to find a starting point. If he only had personal property depreciating, I wouldn't worry about it, but that real property should have a lot of depreciation left.
Donna
Donna L. Loeffler, CPA
936 Church Avenue
St. Charles, MN 55972
(507) 251-8119
dllcpa@hbci.com
The information in this message, and any files transmitted with it, is confidential, may be legally privileged, and intended only for the use of the individual(s) named above.  Be aware that the use of any confidential or personal information may be restricted by state and federal privacy laws.  If you are not the intended recipient, do not further disseminate this message.  If this message was received in error, please notify the sender and delete it.
IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
 
    
John Stevens, Equi-Tax wrote:
Donna,

IRS Policy 5-133 says that the IRS only wants the past 6 years for a nonfiler, so I would file 2002-2007. The adjusted basis on the real estate will include depreciation “allowed or allowable”, so the basis should be adjusted even for the missing years. One thing you could do, however, is file Form 3115 for 2002 and claim the depreciation that was missed on the 2002 return. Keep in mind that Policy 5-133 is just a policy that IRS follows. It’s not law, and they can change it. One of the reasons for the 6 year aspect of it is that, until recently, wage and income information has been available online (easily retrieved by IRS employees) for only the past 6 years, but they now are able to easily access information back to 1999, and by next year will be able to easily go back 10 years. I’ve been wondering whether they might change the policy, but so far they haven’t.

As a practice management procedure, I always get a substantial deposit from multiple-year nonfilers, and a signed engagement letter. It can be a good niche business, but you need to protect yourself. Nonfilers often don’t like paying taxes or their accountants, or anybody, for that matter. My experience is that most nonfilers experienced some kind of event in their life that threw them a curve (divorce, drugs, alcohol, gambling, self-employment, etc). Many sincerely want to straighten out their taxes, but often wait until the IRS or a state agency backs them into a corner, or levies on their paycheck or bank account, or files liens. Many will follow through with you, but some won’t, so that’s why you want to get some money up front so you don’t wind up spending a lot of time fruitlessly.

John Stevens, EA
Stevens Tax & Accounting, Inc., dba Equi-Tax
1870 - 50th St. E., Suite 8
Inver Grove Heights, MN 55077
651-773-5000
FAX 651-457-4529
equitax@unique-software.com
www.equitax.net

CONFIDENTIALITY NOTICE: The information in this message, and any files transmitted with it, is confidential, may be legally privileged, and intended only for the use of the individual(s) named above. Be aware that the use of any confidential or personal information may be restricted by state and federal privacy laws. If you are not the intended recipient, do not further disseminate this message. If this message was received in error, please notify the sender and delete it.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Donna L Loeffler CPA
Sent: 10/01/2008 12:35 PM
To: taxchat@yahoogroups.com
Subject: Re: [taxchat] Hasn't filed a tax return since 1999
Thank you, John, for the information. So far, the IRS hasn't done anything. Just the State has filed an SFR and that was for 2004.

So, what I understand is that I shouldn't file anything older than 2002.

However, should I calculate the depreciation for the "missing years" and continue to depreciate as though he filed those years? He has a retail business and he has residential rental real estate.
Donna
Donna L. Loeffler, CPA
936 Church Avenue
St. Charles, MN 55972
(507) 251-8119
dllcpa@hbci.com
The information in this message, and any files transmitted with it, is confidential, may be legally privileged, and intended only for the use of the inividual(s) named above.  Be aware that the use of any confidential or personal information may be restricted by state and federal privacy laws.  If you are not the intended recipient, do not further disseminate this message.  If this message was received in error, please notify the sender and delete it.
IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
 
John Stevens, Equi-Tax wrote:

Donna,

IRS Policy Statement 5-133 pertaining to nonfilers says that you only have to file the last 6 years’ returns, which means that you would file for 2002-2007. If, however, the IRS filed “Substitutes for Returns” (SFR) for any period prior to 2002, I would prepare “Corrected Returns” (the taxpayer’s original returns) for those periods to replace the IRS’s SFR’s, in order to start the statutory running of the Collections Statute Expiration Date (CSED), and possibly to lower the tax calculated on the SFR’s by claiming deductions and possibly changing filing status and claiming extra exemptions for dependents. Note that if the IRS filed SFR’s the Corrected Returns need to be sent to a special address, depending on whether he was self-employed. You can get that address from the IRS.

John Stevens, EA
Stevens Tax & Accounting, Inc., dba Equi-Tax
1870 - 50th St. E., Suite 8
Inver Grove Heights, MN 55077
651-773-5000
FAX 651-457-4529
equitax@unique-software.com
www.equitax.net

From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Donna L Loeffler CPA
Sent: 09/30/2008 5:55 PM
To: taxchat@yahoogroups.com
Subject: [taxchat] Hasn't filed a tax return since 1999

I have a client who hasn't filed federal or state income tax returns
since 1999. I am going to order the 1999 tax return from the IRS.
However, I would like any tips from anybody as to what to do and what
not to do before I ask the IRS for copies of anything.

He has a notice from that state that they filed a return for him for
2004. They want the taxes they calculated.

I'm in the middle of a sales tax audit for this guy for 2004-2008. So,
it is really hard to get 2004 done without having the previous years
done first.

I know I sound really disorganized. I feel like I am--I have been
inputting into QuickBooks like crazy, just trying to get a grasp on all
of this financial information that he has been giving me. He gives me
it in pieces as he finds it.

--
Donna
Donna L. Loeffler, CPA
936 Church Avenue
St. Charles, MN 55972
(507) 251-8119
dllcpa@hbci.com
The information in this message, and any files transmitted with it, is confidential, may be legally privileged, and intended only for the use of the individual(s) named above. Be aware that the use of any confidential or personal information may be restricted by state and federal privacy laws. If you are not the intended recipient, do not further disseminate this message. If this message was received in error, please notify the sender and delete it.
IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
 
 
 
  
  
 
 
 
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RE: [taxchat] Charitable Contribs to Non-Profit if officer/director ?

LOL ("i.e., giving").

Thanks, Chuck !

Cheers,

JoJo
..............................................................................................................................................................
Music: http://www.myspace.com/jojozjojo * http://www.new.facebook.com/pages/JoJo-Zawawi/16883556821
Blog: http://www.mysteriousperson.com/MYSTERIOUSPERSON/thezblog/

-----Original Message-----
From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com]On Behalf Of Chuck Warman
Sent: Wednesday, October 01, 2008 2:36 PM
To: taxchat@yahoogroups.com
Subject: RE: [taxchat] Charitable Contribs to Non-Profit if officer/director ?

It’s fine. In fact, it’s usually expected. I’ve served on several non-profit boards, and all board members were more or less required to contribute. When applying for grants, one of the first things the foundation managers ask is, “Do you have 100% board participation (i.e., giving)?”

Chuck

From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of JoJo Zawawi
Sent: Wednesday, October 01, 2008 4:12 PM
To: taxchat@yahoogroups.com
Subject: [taxchat] Charitable Contribs to Non-Profit if officer/director ?

I don't know much of anything about Non-Profit rules. Can a person who is an Officer/Director (in this particular case, it is both) of a non-profit corporation make charitable contributions to that non-profit corp (and write them off on his own Sch A) ? I don't see why not, but wanted to make sure.

Thanks,

JoJo
..............................................................................................................................................................
Music: http://www.myspace.com/jojozjojo * http://www.new.facebook.com/pages/JoJo-Zawawi/16883556821
Blog: http://www.mysteriousperson.com/MYSTERIOUSPERSON/thezblog/

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Re: [taxchat] Lawsuit Settlement Award

This settlement is in lieu of wages and I would do the Sch C thing less the attorneys fees and due the SE thing also. Since this was settled out of court there are no "damages" afforded that might be tax free. Make sure your clients are told to keep you informed when they have legal problems because most lawyers don't even consider "taxes". This one probably only considered his $9K.

----- Original Message -----

From: Marc Enzi

To: taxchat@yahoogroups.com

Sent: 10/01/2008 5:32 PM

Subject: Re: [taxchat] Lawsuit Settlement Award

I have a client who filed a wrongful termination lawsuit against his employer in 2004.

In 2005 the employer settled the lawsuit out of court with a lumpsum payment of $20,000 which was to be paid to the employee in the form of non wages Other Income 1099-Misc (Not designated Non Employee Compensation on the 1099-MISC).

The recipient of the settlement was paid $11,000 and his attorney was paid $9,000. This was written into the settlement agreement by the recipient's attorney. However the settlement agreent only stated that each was to be sent a 1099-MISC for Other Income. The agreement was silent as to the amount of the 1099-MISC, and client has no way of ascertaining if the attorney received a 1099-MISC or not.

On the 1040 there is an Other Income line21 which could easily handle the $20,000, but the attorney took $9,000 and I can't get both of these transactions on Line 21.

The IRS rejected the clients tax return showing only $11,000 on line 21 stating that he has $20,000 in income.

I suppose I could put this on a Schedule C with a legal expense of $9,000. However, I don't think this award should trigger self employment taxes, this is not self employment, it is an award specifically designated non wage compensation Other Income.

should I put $20,000 on Line 21 and list a Schedule C expense of $9,000 which woudl then flow to line 12 as a Negative $9,000?

Thanks for any advice on this one.

Marc