East Bay EAs NEWS List

Additional SHREDFEST information

2012-01-24T14:08:29Z

This pdf flyer was accidentally left out of the Shredfest notification. Please pass it on to your clients and colleagues.

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Useful IRS Resources

2009-01-12T16:11:24Z

Here's most of the links etc you'll need from IRS, in one handy-dandy clickable document. Save this where you can get to it quickly.

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Lacerte Error on Form 5329

2007-02-08T13:36:54Z

This is from a Lacerte user:

I discovered an error in the Lacerte program regarding the computation of the form 5329 10% Penalty on a early distribution of an IRA. No penalty was computed.

I have talked with Lacerte and they confirm the error when there is only a partial conversion to a Roth of an early IRA distribution (subject to penalty). The Lacerte tech who called me said he checked prior years' software and found the error has been there for several years. Lacerte plans to correct the error with future versions of the 2006 program.

While waiting for the Lacerte fix, if you have an early IRA distribution with only a partial conversion to a Roth be sure to check the penalty computation. An entry on input page 41 (Retirement Plan Taxes), code 31 ("Early distributions included in income [O]" - O is for Override), will force the form 5329 with the penalty to be correctly computed on the amount entered in code 31.

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Tons of goodies from IRS

2007-02-05T15:43:23Z

Here's a 775kB zip file of many goodies from IRS. If your email system strips off attachments, please contact another Chapter member and ask them to send you the relevant file(s). If you do not know how to unzip a file, please go to Google and search on Winzip, and you will find the free download page for this essential piece of software.

The following are the January 24th Oakland Practitioner Liaison Meeting (PLM) minutes (NOTE: We are awaiting information from FTB - Statistical data and notices):
<<OAK PLM Minutes 012407.pdf>>

...and supporting handout materials:
<<SBSE Org Chart.pdf>> <<Stakeholder Liaison (CLD) Presentation.pdf>> <<The Tax Gap.htm>> <<Tax Gap Chart .pdf>> <<Exam Initial Taxpayer Contact Checksheet.pdf>> <<arc-exec_summary-2006.pdf>>

Issue Management Resolution System (IMRS) Monthly Overviews - October, November and December 2006:
<<IMRS Monthly Overview Oct 06.doc>> <<IMRS Monthly Overview - Nov 06.doc>> <<IMRS Monthly Overview - Dec 06.doc>>

Updated Directories (PDF version as of 1/30/2007) - Note extensive realignment within Exam:
<<CA Directory for Tax Pros 012007.pdf>> <<Commonly Used Telephone Numbers and Websites.doc>>

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Is AUR ignoring your POA?

2007-02-05T15:40:22Z

Back in November, I sent a message regarding IRS's new Issue Management Resolution System, including summaries of recent activity (this message is available through the list archive). This is a pretty cool system, which is essentially a suggestion/complaint box for practitioners which allows us to see two very important things:
1) someone with some authority at IRS is actually listening to our issues, and
2) someone with some authority at IRS is actually DOING something about <some> of our issues!

Gerry Kelly-Brenner (our best buddy at local IRS) has asked for our help in addressing a particular issue (please respond directly to her at Geraldine.Kelly-Brenner@irs.gov):

Please let me know if you are not receiving correspondence from any of the Automated Underreporter (AUR) Units although you either submit a Form 2848 or have one on file as a POA representing a client in regards to CP2000 notices.

If you are experiencing this problem, please do NOT email your clients' SSN or EIN or any of the correspondence, including letters and notices. However, please do provide responses to the following:

Which Campus AUR Units have seemed to ignore your Form 2848?
Approximately how many times or what % of the time has this happened to you?
Did you mail a copy of the Form 2848 along with the correspondence and/or substantiation that you sent to the AUR Unit or had you submitted a POA form to the CAF Unit or Practitioner Priority Service (PPS) previously?
Please provide any other information that you believe to be pertinent, but do NOT disclose any identification information about your client(s) at this time. If we need it for follow up, I will let you know and you can fax it to me.

Gerry Kelly-Brenner
ID #94-06950
Senior Stakeholder Liaison Specialist
SBSE Communication, Liaison & Disclosure
Email: Geraldine.Kelly-Brenner@irs.gov

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Useful site from IRS

2006-11-21T11:11:03Z

If you have not recently checked out the Issue Management Resolution System from IRS, you might want to spend a few minutes and give it a look. As an outgrowth of grass-roots efforts like our own local Practitioner Panel, IRS has created a systemic approach to identifying and solving miscellaneous issues. This page will link you to the monthly reports on items reported and items resolved. Many of these items will not be particularly relevant to you, but some will be downright gems, real eye-openers. Keep this page in mind when you're waiting on hold or you have a few minutes during lunch.

Here's the main IRS page:

http://www.irs.gov/businesses/small/article/0,,id=158507,00.html

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IRS Erroneously Denies Form 4868 Extensions

2006-06-02T01:13:34Z

The following information is being provided by the IRS Fresno Campus Submission Processing Unit regarding the denied Forms 4868 that were timely filed:

The Service recently became aware that some taxpayers may have been erroneously denied an extension of time to file their tax return. A human error occurred in affixing the proper date stamp to certain Form 4868 extension requests at the IRS Fresno Campus. Most of the impacted forms were transmitted in bulk from paid preparers. The IRS estimates that 45,000 - 50,000 taxpayers may be affected.

The IRS is now reviewing all of the denied extensions to determine which ones were accurately denied. In cases where the IRS can identify the paid preparer who bulk-mailed the extensions which were incorrectly denied, the IRS will notify the practitioner. If IRS cannot identify a paid preparer then the taxpayer will receive a letter advising them that their extension is approved and that they may ignore the previous, incorrect correspondence. The IRS estimates its review of the denied extensions and subsequent mailings to taxpayers and practitioners will be completed before the end of June.

Taxpayers who believe their extension was improperly denied by the IRS Fresno Campus need take no action at this time. If the taxpayer received a denial letter and does not receive further correspondence by the end of June, the taxpayer may request a reconsideration of their case by following the instructions in the denial letter. Since the IRS is already reviewing their case, the Service asks all taxpayers who mailed an extension request to Fresno to wait until the end of June before taking any action.

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New TIPRA legal summary

2006-05-23T11:58:11Z

Here's a good capsule summary of some of what's in TIPRA, or the Tax Increase Prevention and Reconciliation Act of 2005 (carries a 2005 designation because it's a carryover from last year's budget) which was signed into law last week. This is from CCH (who produce the wonderful Master Tax Guides) but it was forwarded by IRS, so I do not think there is a copyright issue

http://tax.cchgroup.com/Legislation/TIPRA.pdf

AMT extension, capital gains extension, Roth IRA conversions expanded, "Kiddie tax" expanded...all sorts of goodies in this bill!

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New IRS Telephone Directory!!!

2006-05-20T17:00:04Z

Hot off the presses from our good friend Gerry Kelly-Brenner at local IRS is the updated IRS California telephone directory for practitioners. This is a four page .pdf file. Enjoy!

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Followup to IRS Panel Trust question

2006-03-31T06:45:56Z

An insightful followup was received from Peter Lingane for one of the Panel's answers. The issues raised were of sufficient import as to merit rebroadcast. The complete question and commentary are included below. You may cut-and-paste this into your file copy if you downloaded the Word version of the file, or you may access the revised version from the online archive, which you can get to by clicking the "subscribe" link and then clicking on the name of the mailing list.

22) TRUST K-1 TO BENEFICIARIES
Trust Estate, date of death 10/24/2004, 706 was timely filed. This is a large estate and we will have 2 years of trust estate returns. Fiscal year is 11/04 to 10/05. We forgot to file by February 15th and will file by the end of March. No heirs received any distribution in the fiscal year but the estate earned $60K that first year in DNI. Do the heirs have to claim their 2004 K-1 on their 2005 tax return or can they claim it on the 2006 tax return when they actually receive the money? Will I have a penalty on the 1041 with no taxes due (all passed thru to heirs)?
Joe: Income goes through in 2005 for beneficiaries. Chances are no penalty due to no tax due on a 1041 with pass-through.
Phil clarifies: As the FYE is in 05, the K-1s will therefore be reported on the beneficiaries’ 05 returns. I believe you have till 65 days after the FYE to distribute the DNI, so the fact that they did not get the $ in 05 may not be relevant if they get paid within 65 days of 2/15/06. I have to say that many of my own 1041 clients have distributed after the 65 day period, I don’t think the Service looks at it much. Further clarification, the fact that the 1041 had 60K of DNI gives it in essence a deduction for that, so the estate’s taxable income would end up at zero.

FOLLOWUP FROM PETER LINGANE:

The fiscal year of an estate must end no later than the last day of the month of the month before death. If death was 10/24, the longest fiscal year is 10/24/04 through 9/30/05. The tax return is due 3.5 months later or 1/15/06, not 2/1/506 as stated. The fiscal year is determined by the choice on the first return filed, not what it says on the SS4. Thus whether the IRS issued an EIN for a 11/30 year end is not relevant.

An estate is allowed to deduct income distributed during the tax year or within 65 days of the end of the tax year and any income it is required to distribute, whether or not distributed. While not stated in the problem, I assume that the estate was not required to distribute all income. The distribution period ended in mid December 2005. There were no distributions before mid December 2005. Thus all income is taxed at the trust level. No income is reported on the beneficiaries' returns.

The tax liability paid at the trust level is probably but not necessarily somewhat higher than the liability if the income had been distributed and reported on the beneficiaries' returns. I expect failure to file and failure to pay penalties and interest. There should be no underpayment penalties since an estate is not required to make estimated payments during its first two years.

I suspect that Phil was misquoted. An EA who recommends that an executor knowingly claim an income distribution deduction for a distribution after 65 days has probably recommended fraud and deserves to prosecuted to the full extent of the law. If the failure to distribute in a timely manner was caused by the oversight of the attorney or tax preparer, I would encourage the executor to seek redress from the attorney or tax preparer for any incremental tax and for all penalties.

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IRS Tax Panel Answers - Complete text (revised 3/31/06)

2006-03-23T02:27:44Z

Here is the complete list of questions and answers from the March 15 EBAEA Dinner meeting IRS Tax Panel. WARNING: THIS RUNS TO NINE PAGES IN MICROSOFT WORD. Because some members can't get long emails, and others can't get attachments, I am sending this out twice in two different formats. This time, it's the whole text. Many, many thanks to Joe Calderaro and Karen Brosi!
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Questions submitted to the East Bay Association of Enrolled Agents March 15, 2006 IRS Tax Panel. Panel members: Joe Calderaro (IRS joseph.calderaro@irs.gov), Karen Brosi (EA, CFP), and the odd comment by Phil Feigler and Lonnie Gary. Answers transcribed by Duncan Sandiland, who did the best he could but probably made some mistakes, so use these answers at your own risk!

1) RENTALS
Rental is a condo and homeowner's association is assessing each owner $10,000 for roof repairs in one lump sum. Is $10,000 deductible as association dues or must it be capitalized and if capitalized, is it 27.5 years?
Karen: It’s not HOA dues, if capitalize, it IS 27.5 years, but it COULD be a repair if not total replacement but just upgrading a leaky roof – Tax Court mixed.
Joe: $10K is substantial and adding to the value of the property – definitely capital improvement.
Phil: There was a court case last year or the year before where the court allowed a “repair” of 200K. Judges ruled that it was maintaining the value of the rental building in order that it can continue to produce income, therefore keeping it in working condition.

Rental is an older house. Plumbing beneath the house is corroding and needs to be replaced for $7200. Is this a repair or improvement?
Karen: Improvement.

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2) 1031 TIMING
Can people who buy real estate for investment, ie purchase, fix-up and sell within a few months, do a 1031 exchange with that property? If so, how would you report it, just on the 8824?
Joe: If you’re doing this on a regular basis, it becomes inventory and would not qualify for a 1031, as it goes on a Schedule C and is subject to self-employment tax. If it is an occasional issue, at least two years holding period, 1031 is OK.

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3) NAME CHANGE
Client files returns for 1996 and 1997 under married name as head of household. IRS sends refund. Later IRS sends letter stating name and social security number do not match. IRS revises returns denying both personal exemption and head of household filing status. I called IRS and was told they could not correct returns and that she had to go to Social Security to have new card issued. I explained that she could not legally do that as she had since remarried. They, in effect, said "tough luck." How can I resolve this issue?
Joe: This was generated by a CP-2000, so ask for an Appeals hearing with a face-to-face meeting.

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4) EXPATRIATE FILINGS
We have several clients who are expatriates living outside the United States. In the past, we have always told them that they could file their U.S. tax return at the U.S. Embassy in the country that they are living in and that the date stamped on the return by the U.S. Embassy is the date the IRS considers the return received. Last year, we gave this advice to a couple in the Netherlands. They went to the U.S. Embassy and were told that the Embassy no longer accepts U.S. tax returns. Is this a new policy? And, if the U.S. Embassies no longer accept tax returns, will the IRS recognize foreign postal service date stamps as timely filing? If not, what do you recommend that we tell our overseas clients about the best way to file their return?
Joe: Efile or file it early, or use DHL or one of the other accepted delivery services.

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5) WRONG CP2000 NOTICES
Why is the IRS suddenly sending out CP2000 notices claiming 1099-MISC forms with an amount as "RENTS" in Box 1 are actually "Non-employee Compensation" in Box 7? I will bring you two of my clients notices and the amounts are clearly in "rents" box 1.
Karen: This is localized to Oakland Housing Authority, and the problem seems to be with their magnetic media transmissions.

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6) 1099-Q (QUALIFIED TUITION PROGRAM)
Now that these are coming out, what on earth are we supposed to do with them? My software doesn’t yet support this.
Karen: Line 21 item with a statement attached to zero out the “income” against the qualified expenses, so you wind up with “0” and “SEE STATEMENT” on the 1040. If issued to a dependent, it MAY be under the filing requirement.

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7) LIEN RELEASE
I have determined that a lien should be removed. How do I go about doing this: what is the normal processing period, who do I contact, what forms do I file, how do I check up on it?
Joe: Lien Release desk is now in Cincinnati, so go to irs.gov and get instructions. If you run into problems, call PPS or Taxpayer Advocate.

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8) FINAL 941
501(c)(3) organization had an employee once upon a time and filed 940 and 941 returns. There are no employees now and none in the foreseeable future, but IRS is requesting that 941's be filed. The IRS-provided solution is to file returns for all prior quarters indicating zero salaries paid for each and then "giving up" the organization's ID number. I'm missing something. Is there more than one ID? Isn't the ID necessary for things other than the 941? How does the organization get out of the 941 loop without giving up its ID number?
Joe: Confused by IRS response – it should be enough to just write a letter saying no more employees and keep sending the letter back until IRS gives in.

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9) CAPITAL LOSS CARRYFORWARD
Taxpayer sold stock in 2005, resulting in loss of $10,000. The stock sale was the only reportable item for 2005. In 2006 there is no anticipated income of any kind. What is the proper thing to do in order to document the loss carry forward? Must/should the taxpayer file a return for 2006?
Karen: Not required to file, the carryforward continues regardless of return filing, but watch your software for the carryforward falling off.
Joe: But watch out for interim capital gains which could erode the carryforward.
Karen: For ALL carryforwards – you use up standard deduction and personal exemption first, then if not negative return, use carryforwards. If negative return after SD and PE but before carryforwards, carryforwards are NOT used during that year.

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10) MOVING EXPENSE
Taxpayer is a "product manager" for a bank. She received a W-2 from the bank but works from her home most of the time. She does not have an office at the bank. Recently she moved to Washington state. Still works for the same employer and she still works from her home office. Her personal belongings were moved to Washington; her home office furniture and equipment were moved to Washington. The "x- miles closer..." test does not fit. Is she in anyway entitled to claim moving expense? The employer did not require her to move. But, then again, she did move her office...
Joe: Yes, she did move her office, but this hinges on where is her principal place of business. Maybe she should be taking home office on 1040 if she can get requirement by employer to qualify the home office, then it will definitely be deductible.

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11) 1031 EXCHANGE
A) Taxpayer did a 1031 exchange in 2003 - office building for residential rental. There have been attempts to rent - online advertising and realtors, but to date the "rental" has been rented for about a month as the tenant was evicted shortly after moving in. Any suggestions for the taxpayer? Without tenants it's not a rental. Should she start claiming is as a second residence? Should she go back and amend the 2003 return and claim the gain on the sale?
Karen: Lack of tenants does not disqualify as rental property, must have INTENT to hold out as a rental, and her attempts show profit motive, so 1031 is valid.

B) When you do a 1031 exchange how do you handle the new loan fees? Are they reduced by a percentage of the deferred gain?
Karen: No, it’s like any loan fee, amortized over the life of the loan.

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12) ACCIDENTAL 401(k) DISTRIBUTION
Senior citizen taxpayers were beneficiaries of son's 401(k). Son died in 2005 and company distributed 401(k) all plan monies (about $200K) to parents who now face a $50K+ tax bill. They are totally puzzled and in shock. The money went into their bank account in mid-2005 and it looks like a done deal. Could they have had the company roll it to a beneficiary IRA so they could take it out a bit at a time? What could/should they have done? Is there ANY remedy possible at this late date?
Joe: No relief available. Audience comment: Sue the advisor or administrator!

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13) Canadian RRSP (IRA look-a-likes)
In past years, we had to file Form TD F 90.22-1 (Report of Foreign Bank and Financial Accounts) for clients that had these accounts. Last year, IRS introduced Form 8891 (US Info Return for Beneficiaries of Certain Canadian Registered Retirement Plans). Does the TD form still need to be filed, or is the IRS form adequate?
Joe: If the account is over $10K, yes you do.

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14) CHARITABLE CONTRIBUTIONS
My customer donated wine which had appreciated in value to a charity auction.

1. The receipt provided by the charity does not address the issue of goods and services provided as a result of this donation. Is it OK to ignore the goods and services issue?
Karen: Only if there weren’t any goods/services provided – just because they didn’t say so doesn’t mean it wasn’t so.

2. My customer valued the wine at $2000 but the high bid was $1500. Is the auction price the best measure of FMV?
Karen: Issue is moot due to the rest of question.

3. My customer paid $1000 for the wine. IRS Pub 526 says the stamp collections are capital gains property so presumably wine collections are also capital gains property. That suggests that the charitable contribution is the appreciated FMV. However, there is the rule that says the deduction is limited to basis if the contributed property is tangible personal property that is put to an "unrelated use" by the charity. Pub 526 Example: If a painting contributed to an educational institution is used by that organization for educational purposes by being placed in its library for display and study by art students, the use is not an unrelated use. But if the painting is sold and the proceeds are used by the organization for educational purposes, the use is an unrelated use. Is the donation of wine to be sold at a charitable auction an unrelated use? Can the taxpayer claim FMV or are they limited to basis?
Karen: Basis.

4. Customer bid $5000 for different wine at the auction. They bid "too much because it was for a good cause." Can they claim the excess of the price paid over the appraised value as a charitable contribution?
Karen: Yes, absolutely.

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15) KATRINA RELIEF
As part of a church group the taxpayer went to New Orleans to help. Can taxpayer deduct per diem for meals and, if so, half or all of the per diem for meals?
Joe: Out-of-pocket expenses under a 501(c)(3) umbrella means full per diem is deductible.

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16) TUITION
Taxpayer paid $8000 tuition to University in New Orleans which was destroyed by Katrina. The money that was paid for tuition was not recovered in full. Maybe the university will reopen in the future. In the meantime the student has to pay tuition at another college. What can be done about the unrecovered portion of the original payment?
Karen/Joe: It’s a deduction under Sec 222 tuition paid for enrollment in a university, but must attend classes either this year or beginning within the first three months of the next year. Otherwise, not a tuition deduction, and not casualty loss because you don’t know how much will be refunded (not fixed and determinable). When the refund is finalized, then at that time it’s a loss.

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17) C CORP INSTALLMENT SALE
Can a shareholder of a closely held C Corporation, who is retiring from the corporation, engage in an installment sale to sell his stock? Shareholder is selling the shares back to the other 3 shareholders. Before the sale, each one of the four owned 25% of the outstanding stock. The terms are $450,000, of which $250K is paid at time of sale and $200K is on a 5-year note at 6%. I believe this is possible provided that the securities are not tradable on an established securities market.
Joe: Yes, you can do this.

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18) S CORP HEALTH INSURANCE DEDUCTION
S Corp pays Health Insurance for an employee/shareholder who is >2% shareholder. The payment by the Corp has been booked as a distribution, and I have taken the SE health Insurance deduction on the Shareholder's Individual return. I have also seen the same treatment on all the K-1s for individual clients who are S Corp >2% shareholder/employees and another practitioner prepared the S Corp return. It seems that the rule in this case is that the insurance payments by the Corp should be considered as compensation (not subject to FICA) and included in the employee/shareholder's W-2. They are supposed to be delineated in Box 14 of the W-2 and the shareholder may still deduct them as an adjustment on 1040. If I did that, the corporation would have an additional deduction for wages, and the employee would have the same amount of additional income via increased wages. If it is a distribution, the Corp's income is now larger by the same amount, as they did not receive a wage deduction. The TP's income still increases by the same amount (still not subject to FICA), as his K-1 increases by the same amount due to the fact that the Corp's income was that much larger without the wage deduction. Do you see a problem with this treatment?
Karen: It’s not a distribution, it should be declared as wages (not subject to FICA).

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19) REFILING OLD RETURNS
I have a client with 1996 & 1997 issues. They filed timely (so they say) for both years but the IRS never rec’d the returns. We resubmitted the returns with cover letters in 2004 and again in 2006. The IRS says they never rec’d our 2004 pkg. Their response to our 2006 package was a copy of the transcript prepared by the IRS, followed by notices of intent to levy. I was referred after numerous phone calls to the ASFR Unit in New York and the phone has been busy non stop. So, I faxed the packages to the Holtsville fax number. I cannot get through via telephone to find out if they received it and what my next step is. Help please.
Joe: Call the collection agent assigned to the account. If that doesn’t work, file a Collection Due Process notice to get to a real person. Maybe an OIC-Doubt as to Liability or requesting audit recon would get it out to the field.

*********************************************************
20) CANADIAN PENSION
Canadian citizen who has lived most of his life in the USA receives a pension from the Canadian government. He is not a US citizen. Does he have to claim the income?
Karen: Yes! Resident in US has to report.

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21) FAILED RMD
Senior citizen over age 70 1/2 moves his IRA brokerage account and new broker forgets to call him re RMD so it does not get distributed for 2005 and he receives it in 2006. Any grounds for abatement of penalties and interest? Even if he told the broker when he moved it? Use Form 843 if he wants to try for abatement?
Karen: Unless the RMD was really huge, make sure he takes his 2006 RMD and report all the distributions received in 2006 on the 2006 return, then wait. Note that we know that’s not technically correct, but it should produce the desired result: tax on distribution but abatement or non-assessment of penalty.
Joe: Some preparers will put it on the 2005 return but not pay it, then wait for the penalty notice and write the whiny-crying letter, which almost always results in abatement. IRS really tries to honor these requests.

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22) TRUST K-1 TO BENEFICIARIES
Trust Estate, date of death 10/24/2004, 706 was timely filed. This is a large estate and we will have 2 years of trust estate returns. Fiscal year is 11/04 to 10/05. We forgot to file by February 15th and will file by the end of March. No heirs received any distribution in the fiscal year but the estate earned $60K that first year in DNI. Do the heirs have to claim their 2004 K-1 on their 2005 tax return or can they claim it on the 2006 tax return when they actually receive the money? Will I have a penalty on the 1041 with no taxes due (all passed thru to heirs)?
Joe: Income goes through in 2005 for beneficiaries. Chances are no penalty due to no tax due on a 1041 with pass-through.
Phil clarifies: As the FYE is in 05, the K-1s will therefore be reported on the beneficiaries’ 05 returns. I believe you have till 65 days after the FYE to distribute the DNI, so the fact that they did not get the $ in 05 may not be relevant if they get paid within 65 days of 2/15/06. I have to say that many of my own 1041 clients have distributed after the 65 day period, I don’t think the Service looks at it much. Further clarification, the fact that the 1041 had 60K of DNI gives it in essence a deduction for that, so the estate’s taxable income would end up at zero.

FOLLOWUP FROM PETER LINGANE:

The fiscal year of an estate must end no later than the last day of the month of the month before death. If death was 10/24, the longest fiscal year is 10/24/04 through 9/30/05. The tax return is due 3.5 months later or 1/15/06, not 2/1/506 as stated. The fiscal year is determined by the choice on the first return filed, not what it says on the SS4. Thus whether the IRS issued an EIN for a 11/30 year end is not relevant.

An estate is allowed to deduct income distributed during the tax year or within 65 days of the end of the tax year and any income it is required to distribute, whether or not distributed. While not stated in the problem, I assume that the estate was not required to distribute all income. The distribution period ended in mid December 2005. There were no distributions before mid December 2005. Thus all income is taxed at the trust level. No income is reported on the beneficiaries' returns.

The tax liability paid at the trust level is probably but not necessarily somewhat higher than the liability if the income had been distributed and reported on the beneficiaries' returns. I expect failure to file and failure to pay penalties and interest. There should be no underpayment penalties since an estate is not required to make estimated payments during its first two years.

I suspect that Phil was misquoted. An EA who recommends that an executor knowingly claim an income distribution deduction for a distribution after 65 days has probably recommended fraud and deserves to prosecuted to the full extent of the law. If the failure to distribute in a timely manner was caused by the oversight of the attorney or tax preparer, I would encourage the executor to seek redress from the attorney or tax preparer for any incremental tax and for all penalties.

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23) SCHEDULE C
When and how can a cell phone be deductible as a business expense on a Schedule C?
Karen: Cell-phone usage log, just like a mileage log.

What is the latest IRS position on tax prep fees on a Schedule C – does it need to be allocated?
Karen: Can take it all on Sch C or E (taxpayer wouldn’t have ANY preparation expense if he didn’t have that business/etc), do not need to allocate, but use some prudence here.

Can a professional education course be a deductible Schedule C deduction AND get a Lifetime Learning Credit?
Joe: No, can’t double-dip.

Is a Starbucks gift card a 50% meal or a 100% gift?
Joe: If $25 or less, it’s a 100% gift.

*********************************************************
24) 1031 and related
Could interest on the excess of a >$1,000,000 personal residence loan be counted as basis on the sale of a personal residence?
Joe: No, it’s personal interest, assuming the Home Equity provision is exhausted.

Could a 1031 exchange be with a foreign property?
Lonnie: No, foreign property is not like-kind.

What does the IRS think about 1031 exchanges into TIC pooling scheme?
Joe: Rental-rental, investment-investment, etc is no problem.

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25) MFS/HH FILING STATUS
If you are married and taking your grandchild as a dependent, are you eligible for HH status, or does it have to be your child (not grandchild)?
Karen: Grandchild does count as qualifying child, and that works for HH status if married but meet the living separately rules.

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26) MORTGAGE INTEREST DEDUCTION FOR RENTAL
Client owns rental and wants to borrow $50K from rental and use as a down payment for a 2nd rental. Can the mortgage interest be deducted on a 2nd rental since the $50K was used to purchase the 2nd rental? I assume I can not deduct mortgage interest against income on 1st rental since the funds were not used on the first rental.
Joe: Tracing rules prevail. Trace the interest to the activity and deduct it there.

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27) TRADITIONAL IRAS WITH PROBABLE BASIS
What is the best and easiest way to get basis without 8606 or old tax returns? Is there a secret to do this?
Karen: Do the best you can, you can’t make it up.

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28) SWITCHING BETWEEN STANDARD MILEAGE AND ACTUAL EXPENSES
If a taxpayer uses standard mileage in first year of business use of an auto and never takes MACRS depreciation on it, may he switch back & forth in later years, depending upon which is most favorable? Recently an auditor and his supervisor interpreted the IRC to mean that a TP may make one switch only (for the lifetime of the vehicle). I need a written reference.
Joe: Revenue Procedure 2005-78 provides the authority to use actual after using the standard mileage rate. Section 2005-78 section 5.06
Karen: Try Revenue Procedure 2003-76
Phil: If you use standard miles in Y1 you may optimize from then on, and use whichever method is best in any given year. BUT – you must use SL depreciation instead of regular MACRS (Lacerte users – method 56). You also must not depreciate the car beyond basis, and have to take into account the depreciation component of standard miles when figuring this out (17 cents in 2005). You may not use standard mileage if operating more than 5 vehicles (this used to be 2 until a few years ago) or if you have a fleet. If you use Actual expenses in Y1 at all, regardless of depreciation method, you may not use standard miles ever for that vehicle. As far what Joe said, I went back to a 97 Quickfinder and as far as I can see, there was no prohibition against changing from year to year provided you followed the rules above. The primary changes, which I believe occurred in 99 (don’t quote me on the year) were: Number of vehicles allowed went from 2 to 5. Also for the first time, you were allowed to use miles on a leased vehicle, provided: You make the election in Y1 and you must then continue to use miles for the remainder of the lease term. Joe, perhaps this is what you were thinking of? You may not optimize and switch to actual expenses in a future year. Further observation by me – those with a leased vehicle will rarely come out better using standard miles.

*********************************************************
29) EFILING ACKNOWLEDGEMENT
Does the actual form that states IRS has received the tax return on XX date have to be sent or can a letter with pertinent info be used in its place? And what constitutes pertinent info? Date, DCN?
Karen: A letter is fine.

*********************************************************
30) CHARITABLE CONTRIBUTIONS
Katrina contributions made after 8/27/05 by individuals do not need to be designated but corporations must (phasing out itemized deductions). Is this an oversight?
Joe: No knowledge of this issue.
Karen: I don’t think it was an oversight. It was specifically written that corporate donations had to be in relief of Katrina disaster, but individual donations were not so restricted.

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31) PROP 13 AND REAL ESTATE TAX DEDUCTIBILITY
Ad valorem real estate taxes are deductible to the homeowner (of qualified primary residence). CA’s Prop 13 has resulted in many flat parcel taxes and fixed assessments being added to property tax bills. These would seem not to be deductible. Can we get firm guidance?
Joe: The additional fees are not deductible. Practice may be different, but that’s the law.

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32) INVESTMENT EXPENSES
Client owns property in Brazil, holding it as investment property (never rented) and planning to sell it in the future. They hire a caretaker to stay at the property and maintain it. Can they deduct cost of caretaker on Schedule A as investment expenses?
Joe: Yes.

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33) BASIS OF PERSONAL RESIDENCE
Taxpayer is 100% shareholder of S-corp that develops real estate. Taxpayer built a personal residence that cost $1M, $600K of the construction cost was paid by the S-corp and $400K from his personal funds. Taxpayer only has basis of $100K in the S-corp. Taxpayer sold the personal residence for $1.5M, took the $500K exclusion and reported no gain. Does taxpayer get basis in his personal residence for the $600K paid by the S-corp? Taxpayer never reported any income or distributions from the S-corp.
Karen: He gets basis in the residence only to the extent he reported the distribution on his 1040 (and was taxed for receiving a distribution in excess for his S-corporation basis), otherwise no basis.

*********************************************************
34) CLAIMING 1098 INTEREST
Daughter lives with mother and pays all expenses (daughter claims mom as dependent). 1098 interest paid by daughter has mother’s SSN. Can daughter claim on Schedule A?
Joe: If the daughter is the beneficial owner, she can claim it. If mom is the owner, how can mom be a dependent?

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35) NON-COMMUNITY PROPERTY BASIS
California residents own rental property in non-community state. Spouse dies. Does step-up in basis increased to FMV of both spouses under Section 1016 or does local law prevail with step-up only on dead spouse’s FMV?
Karen: The latter, the location of the property is the prevailing law.

*********************************************************
36) NONACCOUNTABLE PLAN
Client works for a Belgian company. They give him a monthly $400 allowance for vehicle and other Form 2106 expenses. He gets a simple W-2, with no box 12 or 14 items, and gets a 1099-MISC showing either box 3 or box 7 for $4800. We take it off Form 2106 reducing 2106 expenses to nearly zero, which worked before efiling, now it’s wrong every year. What should we do?
Joe: That’s the proper way to do it, but efiling bumps it because it doesn’t show on line 21 as miscellaneous income. Employer should treat this as additional wage income because it’s not accountable plan.
Karen: You can put it on and back it out of line 21, then do the 2106 properly.

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37) PARTNERSHIP TO SCHEDULE C
Clients are a husband and wife who work in a mom and pop business, she sells and does books and he builds products. They were always a Schedule C. A few years ago they changed to a partnership and got a new EIN. They are now getting 1099s with his SSN, her SSN and the EIN. They are February filers, so most 1099s don’t get to them until now. How should we handle this?
Karen: Now mom & pop can be a Schedule C so the partnership is unnecessary. The best you can do is keep a stack of W-9s handy and send that with every invoice so payers can correct then. For remaining 1099s, make a Schedule C with all the income, and nominee it out on line 27.

*********************************************************
38) PHONY SSN
A guy with a phony SSN slipped his W-2 past me last year. Efile accepted it somehow. What should I do, call IRS, SSA or my insurer?
Joe: Don’t lose sleep over it. It’s the employer’s responsibility to ensure the correct info.

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39) FORM 1099-LTC
Attached is a Form 1099-LTC received by a 97-year old client in nursing care home. I’ve never seen a 1099-LTC. Is this a report of income to be entered on the 1040? Is this taxable income?
Karen: Taxable to the extent proceeds not used to pay for long-term care expenses – on line 21 with a statement backing out the amount used for LTC expenses.

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40) POACHING DEPENDENT
2005 is the third time in five years taxpayer’s return has been rejected due to ex-spouse filing earlier and incorrectly claiming child. Will IRS ever fix this or is the only answer to file immediately and amend later to get the return correct?
Joe: Yes, the best way is to file his return first.

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CA LLC Fee Refunds?

2006-03-23T01:59:10Z

The following blurb came from Spidell. Yes, it's a blatant advertisement, but it's also the only mention I've seen of what could be a VITAL issue for any California LLCs. If you have any in your practice, please consider reading on to get this time-critical information:
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Grab this great opportunity to get your clients a refund! Order Spidell’s free special report and you’ll find out about a recent court decision that has declared California’s LLC fee unconstitutional. This means that you should file a protective claim for refund on their behalf by April 17, 2006 (for the 2001 through 2005 years).

All you have to do is go to www.caltax.com and click on the “Free St. Patrick’s Day Gift!” ad located above the Hot Tax Topics box. Add the special report “LLC Fee is Unconstitutional – File for Refund” to your cart and click on the “Checkout” button at the bottom of the page. Follow the prompts to check out. You will need to register as a user on the site. Enter your desired user name and click on the “Register” button on the right side of the page. Fill out the required information and click “Submit.” Complete the order process and at the completion of your order, you will receive an e-mail with the link to the special report.

Because you are a valued customer, at the end of the special report we have included a $10 coupon for our Accounting, Summer and Las Vegas seminars. Dates and other information are included and also available at http://www.caltax.com/SpidellWeb/Seminars/.

If you have any questions, please call us at (714) 776-7850.

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To view the special report, you will need Adobe® Acrobat® Reader. If you do not have this software, you can download it for free at http://www.adobe.com/products/acrobat/readermain.html.

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The preceding is not intended as legal advice. We urge you to do additional research before acting on the information contained in this message. For more information visit www.caltax.com

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NorCal Disaster Tax Relief and EFTPS

2006-03-08T22:24:26Z

This just in from local IRS, and I haven't seen it published elsewhere, so I hope this may be of use to you:

Additional clarification was requested for how the tax relief noted in the California Disaster News Release issued on February 14, 2006 affects taxpayers who make payments, such as estimated tax payments for the fourth quarter, by the April 3, 2006 extended deadline through the Electronic Federal Tax Payment System (EFTPS).

The following notification has been provided from the Customer Assistance Service (CAS) Submission Processing Center, Tax Payment Management Branch and Communication, Liaison and Disclosure, Stakeholder Liaison Headquarters, Payroll and Practitioner Liaison:

There is no indicator necessary on EFTPS tax payments. Any allowance for penalty relief will be provided at the time the return is filed. Taxpayers should continue to pay using EFTPS as usual. Then annotate their tax return with the appropriate disaster language for penalty relief consideration. In the case of the Northern California floods, landslides and mudslides that occurred between December 17, 2005 and January 3, 2006 in the counties under the Presidentially declared disaster area, "Severe Storms, Floods, Mudslides and Landslides - CA" should be written in red ink at the top of their tax forms or any other documents filed with the IRS.

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EBAEA FTB Panel answers

2006-02-26T14:49:49Z

Sorry for the delay in sending this out. Tax season, ya know... Anyhow, the attached document is a three page Microsoft Word document which contains the text of these answers in a much prettier and more useful format than this email will allow.

Notes from East Bay Enrolled Agents February 2006 Dinner meeting, featuring Karen Brosi (EA, CFP) and Steve Sims (FTB direct line 916-845-7565). These notes were compiled by Duncan Sandiland, who is fully responsible for any errors. Use at your own risk.
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Domestic partners: My customers are domestic partners who are registered with the California Secretary of State. One partner has wages of $200,000 while the other has wages of $40,000.

1. Has the FTB issued regulations or other guidance which address how wage income is to be reported on the separate California returns of registered domestic partners?
Steve: report separate income on separate tax return when it’s EARNED income.

2. The partners own a home jointly and they are jointly responsible for the mortgage. Mortgage interest is $60,000 and payments are made from the joint checking account into which they deposit their paychecks. Has the FTB issued regulations or other guidance which address how this mortgage interest is to be reported on the partners' separate California returns?
Steve: The way the question is worded, domestic partners don’t matter – two people split the interest on their returns. Specifically addressing the domestic partnership issue: generally treat as MFS, splitting medical, etc deductions essentially as if they were both single. As for other issues, FTB has no answer as FTB is waiting on IRS rulings. R&TC does not address community property; that is covered by Family Code.
Karen: CA will follow whatever IRS rules in these cases, so until IRS rules, there is no clear answer for CA. In this case, clearly joint property etc, they should split this – IRS is not going to accept tracing based on %age contribution, so just split 50/50.
Karen real world: two unrelated taxpayers pool assets into joint account and by property – it’s not a partnership so they can split as they wish.

3. If the FTB has not issued regulations or other guidance that address these issues, what steps should the taxpayers take to protect themselves from penalties in the event that FTB successfully challenges their return positions?
Karen: You can’t protect yourself from an incorrect position.
Steve: Err on the side that pays the most tax and FTB won’t bother you!

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Refund statute: 1) What is the official CA time limit for requesting a refund? Is there any possibility of going way back and requesting a refund? Brief Scenario: Taxpayer did not file tax return for 1994. FTB assessed tax - $4994. Taxpayer made some payments in 97-99 (approx $2700). FTB garnished wages starting in 2000 and collected $11464.90 for tax, penalties, collection costs, interest etc. throughout 2000 and 2001 and declared the year closed. Taxpayer filed the 1994 return under the CA amnesty program - total CA tax liability $108. Ca treated the income as wages. The company treated the employee as independent contractor, but made him pay rent for using company trucks and charged all types of fees that FTB did not consider in their calculations. Taxpayer is hard working, but suffering type - truck driver, young, high school education. Is any appeal for "fairness" possible anywhere?
Karen: No, if the statute of limitations has run, there is no hope.

2) Related question. There are other years beside 1994 for which tax returns were filed under the CA amnesty program. Date of filing 5/28/05. What payments should the taxpayer be able to get as refund? Is there a one-year limit? If so, does the one-year go back from the filing date of the return or some other date? Is the return considered a request for refund or what else needs to be done? Taxpayer has received some money back, but I do not understand how FTB arrived at the figures. Who can I talk to?
Karen: Anything paid in amnesty stays in amnesty, you can still amend the return but you cannot get any money back. If the statute is still open on other years and there were overpayments thereon, FTB will refund. If the statute is closed on those returns, there is no hope for refund.

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Leasing: When a business client leases a vehicle and pays down the lease by $5000 to reduce the monthly lease expense, is this considered a payment or should the $5000 be amortized over the life of the lease?
Karen: IRC sec 178 says amortize it over the life of the lease.

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Confused about Head of Household: Qualified Child in college under age 24 earning income but less than ½ own support. Is it limited income amount?
Karen: Yes, Qualifying Child test is met because college is a temporary absence. The amount of child’s income does not matter for a full-time student under age 24. The income test only applies when testing for Qualifying Relative. NOTE that “Qualifying Relative” is just the old test for a dependent, so don’t be put off by the new labels.

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Corporate Dissolution: TP attempted a corporate dissolution in December. Documents were received at Secretary of State on 12/27. Corp had no activity after 4/05. On the Certificate of Dissolution, the assumer’s name was listed but address was left off. The request for tax clearance accompanying the docs had both name and address of the assumer. SoS denied dissolution because certificate had no address. Now corp is on the hook for $800 tax. Is there any remedy?
Karen: Nope, you’re stuck. SoS can be extremely picky. (Comment from audience – EA pulled exact corporate name from SoS website search, but that did not match the name (punctuation) as originally filed, so SoS rejected the filing. Moral of the story: go back to the original Articles to get the corp name.)

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CA Reference books: Is there any comprehensive reference book for CA income tax published by the state or private publisher? Pub X by the state does not afford easy access to any info.
Karen: Spidell’s CA analysis (supported by general acclaim from the room). Also CCH, RIA etc tax guides.

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State tax refund: Is a state tax refund received in 2005 taxable to IRS if the refund did not have a tax effect either because the refund was larger than the difference between the state tax deduction and a potential sales tax deduction, even if the deduction was taken to deduct income tax, or because the taxpayer was subject to AMT (and the entire state tax deduction did not reduce tax liability).
Karen: Got state income tax refund but was subject to AMT so got no benefit from the “deduction”, therefore refund not taxable for 2005, BUT make sure there really was no tax benefit.
HOWEVER, if you deducted state income tax but could have deducted sales tax, you only have to include the income tax refund to the extent it exceeds the amount of sales tax which could have been deducted.

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E-services: What does FTB have available?
Steve: Transcripts are not currently available online at www.ftb.ca.gov. With taxpayer’s CSN, you can get certain things online.
Karen: You can get ES payments online, plus estimated and actual balance due. The FTB site is much easier to use than irs.gov. All you need to access FTB is SSN and last year’s AGI in order to get the CSN, which changes each year.

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Offsetting refund: Can you offset balance due and refund returns if past statute date?
Steve: Only if there’s a specific offset available. Otherwise, you lose the refund, but you can use interest netting to reduce the amount of penalties and interest.

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Mortgage interest: "I have a client that wants to buy a home with his life partner. One has a 750 fico, the other has a 615. I want to drop the 615 guy from the loan, put him on the title, and have them pay the mortgage payment from a joint account. Would they then be able to split the interest tax deduction, is this paper trail good enough for the IRS? Please advise, because the 615 guy makes a lot more money.”
Karen/Steve: Yes, they can split, but they would need to split the deductions equally to avoid charges of gaming. (After the meeting Karen provided the following additional information:)
Reg. §1.163-1(b) provides, in pertinent part: Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.
In Golder v. Commissioner,(79-2 USTC 9451), the Court of Appeals for the Ninth Circuit acknowledged that Reg. §1.163-1(b) allows the deduction of interest by the taxpayer, even though the taxpayer is not personally liable for the mortgage as, for example, where the mortgage is nonrecourse, or where the taxpayer purchases property subject to a mortgage. In such situations, although the taxpayer is not directly liable on the debt, since the mortgage creditor may look only to the mortgaged property for payment, and the taxpayer stands to lose the property if the mortgage is not paid, the taxpayer must pay the mortgage to avoid foreclosure. Thus, Reg. §1.163-1(b) recognizes the economic substance of nonrecourse borrowing and allows an interest deduction to a taxpayer, who, in the situations contemplated in that regulation, is not directly liable on the mortgage indebtedness.
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Miscellaneous notes from FTB:
1) Automatic installment agreement now available – up to $25K balance if paid off in 5 years. File online through e-services.
2) Installment agreements now available for businesses.
3) LLCs out-of-state must also file in CA. Make sure you download and file LLC-2 to register and then file the 568 for CA LLC.

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Casualty Losses for California's Presidentially Declared Disaster Areas

2006-02-06T19:58:30Z

Local IRS gets credit for this one:

As many of you have heard, several counties in California were identified as Presidentially declared disaster areas. The following link to the FEMA web site specifies the designated counties, the incident types, and incident period covered: http://www.fema.gov/news/eventcounties.fema?id=5925

Additional FEMA news addressing this issue may be found at http://www.fema.gov/news/newsrelease.fema?id=23241

And for IRS information regarding tax relief for Presidentially declared disaster areas, visit IRS.gov at http://www.irs.gov/taxtopics/tc515.html

Remember, the incident period, for the disasters related to the California storms, is between December 17, 2005 and January 3, 2006. If a taxpayer suffered a loss in 2005, the election to deduct a 2005 disaster loss on a 2004 return must be made on or before the due date (without extensions) of the 2005 return.

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IRS e-Services Hints

2006-02-02T01:49:28Z

If you are on the IRS subscription list, you already received this. If not, this is a .pdf (Adobe Acrobat) file with 5 pages of Q&A/hints about how to use the e-services program. Most of us should find at least one or two useful things in here. Note that you have to click on the file to download it - so watch out because I know SOMEONE is going to click on "unsubscribe" instead. If that turns out to be you, just follow the directions below and you'll be OK.

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State income vs. sales tax deduction

2006-02-02T00:14:44Z

This came in a few days ago from CFS, the makers of the wonderful TaxTools and other utility software. I have not yet seen this information broadcast by any other source, and it was news to me, so here it is (hopefully) for your benefit and the benefit of your clients:

Recent IRS Clarification Affects Tax Benefit Rule

Modified tax benefit rule and state income vs. sales tax deduction

Recent IRS worksheets have modified the calculation of the taxable portion of the state income tax refund to be reported in 2005 & 2006. The taxable portion of the state income tax refund is limited to the difference between the amount of state income tax deducted and the amount of state and local sales tax that could have been deducted.

This changes the initial analysis in the TaxTools worksheet State/Local Sales Tax Deduction Calculation and Comparison to State Income Tax Deduction. Before these clarifications it wasn't clear that the following year's taxable state income tax refund was limited to the difference between the state income tax and state sales tax deduction. Recent IRS instructions for 1040 line 10 and Pub 525 clarify that the taxable portion is limited.

Some taxpayers would have been penalized for choosing to deduct state income tax and not looking at the net two-year tax benefit. Example: For 2004 taxpayer can choose a $9,000 state income tax deduction or an $8,000 state sales tax deduction. Taxpayer chooses to deduct the state income tax. In 2005, taxpayer receives a $2,500 state income tax refund. Before the new clarifications, taxpayer would have included the entire $2,500 refund in his 2005 income. This may have resulted in a lower two-year tax benefit for the taxpayer than if he would have chosen to deduct state sales tax. The new clarifications state that the taxpayer only needs to include $1,000 of the refund since he could have deducted $8,000 in state sales tax.

Because of these changes, we have restored last year's module to TaxTools 2006. This will allow tax preparers that did not calculate the allowable state sales tax deduction for 2004 to limit the taxable portion of the 2005 state income tax refund to the difference between the deductible state income tax and state sales tax. The 2006 module also displays a message stating that the 2006 taxable state income tax refund to be entered is limited to the difference between the amount of the state income tax deduction and the amount of the state and local sales tax deduction.

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Misc IRS items - Charity and Efiling

2006-01-22T03:18:27Z

Here are a few potentially useful bits that I have yet to see come down from any of the usual channels. Hope at least one of them does you some good:

VEHICLE DONATIONS:
The new form 1098-C must be attached to 2005 tax returns.
Paper Form 1040 - Attach form 1098-C
E-Filed Form 1040 - Use Form 8453 and attach from 1098-C and mail to IRS (see addresses below).

EFILE:
CANNOT use Form 8879, Authorization to e-file form 1040 that is not sent to IRS, (aka paperless e-file) when filing any of the following forms.

Taxpayers who are required to file the following forms, MUST be attached the form to Form 8453, AND mail the Form 8453 and required attached form to IRS.

NEW FOR 2005
Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes
(or acceptable documentation/required Donor Documentation)
Form 3115, Application for Change in Accounting Method
Form 3468, Computation of Investment Credit (if Historic Structure Certificate is required)
Form 4136, Credit for Federal Tax paid on Fuels
Form 5713, International Boycott Report
Form 8283, Non-Cash Charitable Contributions (if using Section B – Donated Property Over $5,000)
Form 8332, Release of Claim to Exemption for Children of Divorced or Separated Parents
Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities·
Form 8864, Biodiesel and Renewable Diesel Fuels Credit (if Certification and/or reseller statement is required)
Form 8885, Health Coverage Tax Credit
Source of information:
IRS web site for “Practitioner PIN Method for e-file” at www.irs.gov/efile/article/0,,id=119998,00.html#Pract1 1/13/06)
(California Returns – California forms 8453 and 8879 are not mailed to FTB.)

MAIL FORM 8453 TO:

IF the efile was transmitted to: THEN mail Form 8453 to:
Andover or Kansas City Internal Revenue Service
Submission Processing Center Attn: Shipping and Receiving, 0254
Receipt and Control Operations
Andover, MA 05544-0254

Austin, Fresno, or Philadelphia Internal Revenue Service
Submission Processing Center Attn: Shipping and Receiving, 0254
Receipt and Control Operations
Austin, TX 73344-0254

Do not send Forms W-2, W-2G, or 1099-R with the Form 8453.

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Schedule D Clarification

2006-01-15T13:25:47Z

Two weeks ago, ever-vigilant Chapter member Peter Lingane brought this issue to my attention (thank you Peter). In the last few days, IRS has publicly addressed the issue and several sources, including NAEA, have reported the news. However, I do not think anyone has addressed the issue as well as Peter. In case you share my concern about the spotty reporting and, more importantly, the grey areas of what we're supposed to do with this IRS "clarification", I am reprinting the NAEA article (and links) below, and I am attaching an analysis Peter sent me. Note that the analysis is copyright RIA. I am not attempting to subvert RIA's intellectual property by sending this on. If anything, this might serve as a good advertisement for their research services.

FROM NAEA E@lert for January 13, 2006:
New Schedule D Instructions—update
Last week NAEA President Frank Degen sent IRS Commissioner Everson a letter outlining EAs' concerns (the AICPA sent a similar letter). NAEA's Sr. Director Government Relations has been in touch with IRS officials, who report that Commissioner Everson plans a written response.

In the interim, IRS has issued two clarifications of the Schedule D instructions. The first is a Sched. D instruction website clarification
http://www.magnetmail.net/images/clients/NAEA/attach/1040D_Instructions_Clarification.doc
(buried so deep that E@lert needed IRS assistance in finding it!) and the second is a Q&A document issued earlier today. http://www.magnetmail.net/images/clients/NAEA/attach/QA_Schedule_D_Instructions.doc

The pearls of wisdom from the two documents:

"The instructions on page D-3 for traders (and investors) have been unchanged since the year 2000. The new instructions on page D-6 were meant to highlight and clarify these rules, not to change them. Therefore, taxpayers may continue to use a substitute statement to provide all of the same information and in a similar format to lines 1 and 8 of Schedules D and D-1. They are not required to use the official version of Schedules D and D-1 to provide the details on each transaction. However, the details of each transaction still must be provided with the tax return and not just upon request."
"For electronically filed returns, filers may attach any necessary Schedules D-1, or acceptable substitutes for Schedule D-1, to the Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return."

For the RIA analysis, please make sure you click on the correct spot to download the page instead of unsubscribing from this list.

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IRS Website Guide

2005-12-30T00:10:48Z

This is too cool for words. Just got this from Gerry Kelly-Brenner at IRS and I'll let her do the talking:

"I received the following document from our Northwest Stakeholder Liaison Area Manager. It is a one-page sheet of the most relevant e-file, e-Services, e-Pay and e-Communications links from irs.gov.

It was piloted with a number of practitioners in the Northwest, and the feedback was 100% favorable. All the practitioners found it useful or very useful. Some commented that they had difficulty finding things on the website and this simplified things. "

I thought I knew my way around the IRS website, but the attached Word document will stay on my desktop so I can quickly get to it during tax season. There are too many useful shortcuts there that I didn't know about!

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IRS Intake sheet

2005-12-16T19:40:23Z

As promised, here is the fill-and-print IRS Form 13614 Intake and Interview Sheet. I am also including a link to the VITA portion of Golden Gate chapter's website:

http://www.goldengate-ea.org/vita/

If you scroll down to the third resource link (Earn It! Keep It! Save It!) you can go to a customized version of the IRS form which can be used as an interview. You'll have to disregard pages 4 and 5, and a few VITA-specific questions, but it's pretty neat nonetheless.

Thanks to Deb Torres of IRS for the IRS form, and thanks to Ed Sutton of Golden Gate chapter for the customized version.

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REVISED IRS Efile and Goodies seminars

2005-12-05T22:21:48Z

NOTE: The previous message on this topic had an incorrect email reply address. The address has been corrected below and all the information has been updated. Please delete the previous message to avoid any possible confusion.

If you are already an e-Filing pro AND you are up to speed on the Transcript Delivery and similar services, then ignore this. Otherwise...

We are offering FREE IRS e-Services Seminars in San Francisco and Oakland in preparation of the busy upcoming Filing Season. Learn how to improve your efficiency and increase your customer service to your clients by utilizing IRS e-Services in your tax practice!

IRS e-Services Seminars in San Francisco & Oakland

Tax practitioners are invited to attend FREE two-hour seminars in San Francisco and Oakland discussing IRS e-Services. Learn how to use the Internet to view your clients' IRS tax records and resolve tax issues electronically from the convenience of your personal computer!

Dates and Locations:

Monday, January 9, 2006
Small Business Administration, Entrepreneur Center, 455 Market Street, 6th Floor, San Francisco

Tuesday, January 10, 2006
Oakland Federal Building, 1301 Clay Street, North Tower Auditorium, 3rd Floor, Oakland

Time and Topics (same for both locations):

9:00 - 11:00 a.m. E-Services Registration, Delegation & Disclosure Authorization
Learn how to register for and delegate access to IRS electronic services, including how to use our new Disclosure Authorization application (online POAs instantly processed and approved!).

1:00 - 3:00 p.m. Transcript Delivery System & Electronic Account Resolution
Learn how to use our new e-Services applications for the Transcript Delivery System and Electronic Account Resolution system. Use the Internet to access your clients' IRS tax account information and resolve notice, refund and payment problems online!

Space is limited, so please register by email today at SBEDOakland@irs.gov
In your email message, please provide: (1) Your Name, (2) the Name of your Company, (3) a Daytime Phone Number where you can be reached, (4) the Date and Location for the Seminar, and (5) which Time(s) and Topic(s) you are interested in attending.

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IRS Announces 2006 Standard Mileage Rates

2005-12-02T16:02:01Z

IRS Announces 2006 Standard Mileage Rates
IR-2005-138, Dec. 2, 2005

WASHINGTON — The Internal Revenue Service today issued the 2006 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2006, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
• 44.5 cents per mile for business miles driven;
• 18 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.

The new rate for business miles compares to a rate of 40.5 cents per mile for the first eight months of 2005. In September, the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gas prices, which topped $3 a gallon.

“The IRS took the extraordinary step of temporarily increasing the standard mileage rates in the aftermath of Hurricane Katrina,” IRS Commissioner Mark W. Everson said. “We promised to continue closely monitoring the situation. The 2006 mileage rates reflect that gas prices have dropped.”

The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. Runzheimer International, an independent contractor, conducted the study for the IRS. The mileage rate for charitable miles is set by statute.

For the first eight months of 2005, the standard rate for miles driven for medical or moving purposes was 15 cents per mile, and, except for special Hurricane Katrina rates, the standard rate for miles driven in service of a charitable organization was 14 cents per mile.
For the last four months of 2005, the agency raised the standard rate for miles driven for medical or moving purposes to 22 cents per mile. The standard rate for charitable miles remained at 14 cents per mile––except for charitable miles relating to Hurricane Katrina.

Congress this year also approved special rates in connection with miles driven in service of charities providing Hurricane Katrina relief.
For the period Aug. 25 to Aug. 31, 2005, the rate for miles driven for charities providing Hurricane Katrina relief is 29 cents, for deduction purposes, and 40.5 cents, for reimbursement purposes. For the months of September through December 2005, the special Katrina-related rates are 34 cents for deductions and 48.5 cents for reimbursements.
For 2006, these Katrina-related charitable rates will be 32 cents per mile for deduction purposes and 44.5 cents per mile for reimbursement purposes.

Revenue Procedure 2005-78 contains additional information and limitations on the use of the standard mileage rates.

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Tax Help Wanted/Help Available list

2005-11-17T11:33:15Z

Each year, we get calls from Members who needed tax staff and who are available to staff, and we attempt to help match up those needs. This year, we'd like to get a jump-start on that, so there is more time for interviews and training. If you or anyone you know is looking for part-time/full-time tax help (or any other kind of help), or if you are looking for any kind of tax work, please send me an email with a one-paragraph description of your needs. Please include the following critical information:
1) The location of your office or the regions to which you are willing to travel
2) The approximate # of hours and schedule needed/available
3) The particular skills you are looking for/can offer
4) Contact information, either phone number or email address. Names are not needed.

I will put together the list and send it out every two weeks to this distro list, and we will also try to get it into the paper Bulletin.

Send your submissions to ebaea@ebaea.org. I reserve the right to edit submissions for clarity. Duncan

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Service Center Stat Notices

2005-08-26T14:26:52Z

You may remember attorney Bill Taggart from his enlightening talk on Qualified Offers a few years ago. I have had the privilege of serving with him on the IRS Practitioner Panel for several years, and he is constantly working on ways to make IRS more responsive. He has asked for our help on his latest project.

Have any of your clients received a Stat Notice from a Service Center as a result of a taxpayer not timely, or adequately, responding to information inquiries - 1099 matching, etc. (usually a CP-2000)? If so, have you tried to rescind or otherwise delay the Stat Notice? Have you had any success?

Bill has an opportunity to raise this issue at a higher level than our
Area 13 Practitioners' Panel. He would like to have a better idea
whether the cases he has encountered are unique. If you have any information which you think might be helpful, please email Bill at wetaggart@tagghawk.com or call him at 510-893-9999 (voice).

Thanks!

Duncan

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Tax Court secrecy

2005-08-02T10:55:24Z

This article comes courtesy of Bob McKenzie. It provides an interesting discussion of the strange secrecy rules surrounding some Tax Court decisions. Draw your own conclusions...

Remember to click on the file name to download it (it's a standard .pdf file). If you accidentally click on the unsubscribe button, just click on it again to resubscribe.

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