Discussion:A whole new headache - comments on the new Sched E

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Discussion Forum Index --> Advanced Tax Questions --> A whole new headache - comments on the new Sched E


Discussion Forum Index --> Tax Questions --> A whole new headache - comments on the new Sched E

Hammock (talk|edits) said:

3 December 2011
I started this based on the thread concerning 1099's. If you review the new Sched E, you will find a series of new questions, concerning 1099's, whether the TP is complying with 1099 filing requirements (assuming they are applicable to the TP, which is another issue), info on QJV, and the type of property (8 choices).

I am just looking for the grief or PITA factor this will add to our upcoming year... particularly in light of the stronger Circ 230 provisions.

JR1 (talk|edits) said:

December 3, 2011
The 1099 provisions were repealed.

Hammock (talk|edits) said:

3 December 2011
The reporting was for all rentals, but there is still debate on which if any rentals will require the 1099 reporting (see other recent post). Note that the 1099 questions will also appear on every other business tax form, from Sched C, F, Form 1065, 1120, ...)

Ckenefick (talk|edits) said:

3 December 2011
I'm with JR1 on this one. I think it's more than reasonable to take the position that no 1099's are required to be issued. But let's say I'm wrong - So, how should we determine if a rental property owner is required to issue 1099's? We would obviously have to examine the facts and circumstances of each case, which to me is ludicrious. If Congress wants rental property owners to issue 1099's, they shouldn't have repealed the "new" law.

Illini (talk|edits) said:

3 December 2011
Bingo Ckenefick!

Death&Taxes (talk|edits) said:

3 December 2011
After seeing landscapers ask me if their check could be written to cash, I am not sure I don't want to give everyone a 1099. We wrote the check to the last guy in the company name. My wife saw the guy at our bank cashing it.

TTMM (talk|edits) said:

3 December 2011
The instructions to Schedule E question A tell you to mark the box if you made any payments that would require you to file 1099s. Then it says go to page 15 of the 1099 publication. When you go to that page it says to file 1099s if you made "payments for services performed for a trade or business". Then it gives an example of payments that require 1099s and one of them is rental property expense payments. So if I have one rental property do I have a trade or business? Let's say that I mark the box no because I don't consider it a trade or business. But I paid the plumber $750. I'm audited. What's the ramifications? Have I made a false statement on the return? They would probably at least assess a failure to file penalty.

If the specific requirement was repealed for rental properties, why is this on the form? Since the repeal was in April, they certainly had time to take this off the return.

JAD (talk|edits) said:

3 December 2011
So you're making the distinction between a person who rents one property and someone who has several properties so that his activity rises to the level of a trade/business? How about the real estate professional? I see your point, but I haven't seen this discussed in anything that I've read. Has anyone else? I just took some CPE this last week, and they mentioned the 1099 repeal, and no one mentioned this potential issue.

RoyDaleOne (talk|edits) said:

3 December 2011
It is a trap.

WEISSEA (talk|edits) said:

4 December 2011
Per Prof J. Connors interpretation in his 5-11 Fed Tax newsletter:

New Legislation: For payments made after Dec. 31, 2011, the Act repeals the Form 1099 reporting provisions for corporations (other than those involved in providing legal services). In addition, for payments made after Dec. 31, 2010, the reporting requirement for landlords is also repealed. In other words, landlords will not be considered to be “engaged in the trade or business of renting property.”

Hammock (talk|edits) said:

4 December 2011
Thanks WEISSEA, I also subscribe to Connors' newsletter, but I don't recall that one. I'm going to send him a question on the RE professional discussion we're having.

For everyone else, although I know answers to the other questions should be known by us, don't you think the new Schedule E is another step in having us as preparers do more work for the IRS, take more responsibility, by expanding the forms? I see it as similar to the Form 990 changes made in 2008.

Death&Taxes (talk|edits) said:

4 December 2011
"Landlord" is a weasel word open to interpretation. If I have my property in the hands of a property manager, who is the landlord? I doubt the tenant would ever see me or be able to describe me as the 'landlord.' Using that word is editorializing, for which I don't blame Connors, for I would believe that Congress intended to let the self-managing owner of a triplex or duplex off the hook, while retaining the requirement for large complexes.

There is much in the other discussion going on about trade or business. Discussion: Argument over 1099s for landlords--repeal, etc....

Harry Boscoe (talk|edits) said:

4 December 2011
I. If Prof. Connors wrote "In other words, landlords will not be considered to be "engaged in the trade or business of renting property"" and nobody howled, I'm surprised.

II. If it turns out that a *larger number* of rental properties creates a "trade or business" I am gonna howl. I have always espoused the theory that it's the level of services provided to tenants/renters/guests that tips the scales in that direction, and not the number of properties.

Hammock (talk|edits) said:

4 December 2011
I did just ask Prof Connors, who replied the following:  "Real estate rentals have been removed from the category of being a "trade or business." So, now, regardless of who the landlord is (REP or not), there is no Form 1099 reporting." My question to him was in the context of 1099s only, so don't read too much into his reply. (REP is real estate professional)

He is one whose opinion I greatly respect, so I'll be doing further research to clarify my understanding, which is certainly less than perfect in this matter.

Spell Czech (talk|edits) said:

4 December 2011
I think that Prof Connors, in his reply to your question, may have oversimplified this just a little bit. It's pretty clear that there are some real estate rentals that are/would be/will be/always have been "trade or business" activities.

What was the question that you posed to him?

Spell Czech (talk|edits) said:

4 December 2011
But not as much as the IRS. Here's what the instructions to Schedule E say, this year, regarding the offending "Question A":

"Generally, you must file Form 1099-MISC if you paid at least $600 in rents, services, prizes, medical and health care payments, and other income payments."

Wow! That might be the biggest "Generally" I have ever read. I am professionally appalled (if there's such a category of appallment). Incroyable!!

RoyDaleOne (talk|edits) said:

4 December 2011
From the Regulations...

"(1) TRADE OR BUSINESS. A trade or business is any trade or business determined by treating the types of activities in section 1.469-4(b)(1) as if they involved the conduct of a trade or business, and any interest in rental real estate, including any interest in rental real estate that gives rise to deductions under section 212."

What say you?

Taxea (talk|edits) said:

5 December 2011
Don't forget that the forms are not in their final stage and the questions may be deleted or only need to be answered by those for whom they apply. Rentals where services are provided are done on Sch C not Sch E and since that is a business then the 1099 may be required. RE professionals who manage rentals do a Sch C.

Hammock (talk|edits) said:

5 December 2011
"Generally" my temporary final opinion is that writing and subsequent repeal of the Act clouded the issue so much that the Service cannot reasonably attempt to enforce penalties, regardless of the other cited authority. But, for my clients that are landlords of multiple commercial properties that having been issuing 1099s, I will not direct them to stop.

Illini (talk|edits) said:

5 December 2011
How many accountants does it take to check a box yes or no? This is entertaining to say the least, but a sad commentary on the administrative burdens our government has placed upon all of our shoulders. Our 1040 update at Bob Jennings indicated we will probably see some last-minute commentary from the IRS about their form instructions. One presenter was in favor of having our landlord clients issue 1099s. I for one, think it is ridiculous (in light of the rescission). Some have advocated leaving "A" and "B" blank on the schedule E this year, others say it is OK to check both boxes "No". Anyone want to buy a tax practice?

Harry Boscoe (talk|edits) said:

5 December 2011
In the other thread related to this topic, WEISSEA quotes an IRS announcement from May of this year to the effect that the several items in the 2011 Schedule E and other IRS instructions dealing with the "new" rules for Landlords and Form 1099 have been rendered moot, retroactively, by the rescission by Congress in April of this year of the changes in IRC Section 6041 made in 2010. Click here to read the IRS's announcement at the source.

The IRS announcement instructs taxpayers to disregard the offending questions on Schedule E. [Later: I may have been wrong in that statement.] "Disregard" in my dictionary means...

Harry Boscoe (talk|edits) said:

5 December 2011
RDO: the Reg you quoted applies *only* for purposes of IRC Section 469, the passive loss rules.

Illini (talk|edits) said:

5 December 2011
Thanks Harry -- I owe you a cold one.

Harry Boscoe (talk|edits) said:

5 December 2011
Send a cold one to WEISSEA; he did the work...

Jtax (talk|edits) said:

14 December 2011
Re: "The instructions to Schedule E question A tell you to mark the box if you made any payments that would require you to file 1099s. Then it says go to page 15 of the 1099 publication... If the specific requirement was repealed for rental properties, why is this on the form? Since the repeal was in April, they certainly had time to take this off the return."

Remember that instructions and publications are not law. If the instructions are wrong you cannot follow them. If you follow erroneous instructions/publications you might have a good-faith argument about abating a penalty, but the statute/regs/cases control. See e.g. Schwieker v. Hasen, 450 U.S. 785 (1981) (implications of allowing administrative estoppel are too broad; misinformation/misconduct by government is not enough to excuse compliance with statute/regulations). (Here it seems to be the opposite. The instructions/pubs are requiring you to jump through hoops not required by the statute).

TTMM (talk|edits) said:

14 December 2011
Harry, the link you gave only says disregard items in the instructions to the 1099MISC. It does not say disregard the questions on Schedule E. Is there a different announcement you're referring to? [Ans: No; I may have been wrong, as above.]

Jtax, that's my question. Why is it still there if there isn't a requirement for rental property owners? The only conclusion I can draw is the situation where you have a single member LLC. I would make the argument that the member is a business even though the IRS disregards the entity. If you just have a rental property, even though you are presumably in it for profit, then I would make an argument that the rental property is an activity. Therefore, a business would have a requirement to file 1099s but the rental property owner would not. That's the best I could come up with and I'm tired of thinking about this. My brain hurts.

Harry Boscoe (talk|edits) said:

14 December 2011
Did I post that link late at night on a weekend?

There's a special category for such posts...

My link may have been in error *and/or* I may have misunderstood what IRS's announcement actually said. Don't trust my description.

Death&Taxes (talk|edits) said:

14 December 2011
What I fear will happen is our software will tell us that we have an error and cannot efile the return until these questions are answered.

Harry Boscoe (talk|edits) said:

14 December 2011
Sad, but that looks like where we're headed. Considering how many of us are not quite on top of this, myself included, there's going to be a storm of confusion when actual filing time comes around.

RoyDaleOne (talk|edits) said:

14 December 2011
See the instructions for 1099 MISC for more information.


http://www.irs.gov/pub/irs-pdf/i1099msc.pdf


Harry, the IRS has defined a trade or business for you.

Harry Boscoe (talk|edits) said:

14 December 2011
Noooooo, I don't think so...

Szptax (talk|edits) said:

15 December 2011
clear as mud

Dhtax (talk|edits) said:

15 December 2011
See below for what TaxBook says. Bottom line: Since the requirement was repealed, check box A "NO"

• Schedule E (Form 1040) instructions

New to the 2011 Schedule E (Form 1040) are Questions A & B. Question A asks: “Did you make any payments in 2011 that would require you to file Form(s) 1099?” Question B asks: “If yes, did you or will you file all required Forms 1099? Under the Small Business Jobs Act of 2010, recipients of rental income from real estate were added to the list of taxpayers subject to the same information reporting requirements as taxpayers engaged in a trade or business. This law was effective for payments made after December 31, 2010. Rental income recipients making payments of $600 or more to service providers in the course of earning rental income were required to issue a Form 1099-MISC to the service provider.

Under the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, signed into law on April 14, 2011, the information return reporting requirements for persons receiving rental income from a real estate rental activity were repealed. Thus, no Form 1099-MISC is required if the taxpayer is engaged in a rental real estate activity and isn’t otherwise considered to be engaged in a trade or business activity.

Author's Comment: This information is not included in the final instructions for the 2011 Schedule E (Form 1040). Thus, unless the taxpayer is otherwise engaged in a trade or business activity, this author will answer “No” for Question A and leave Question B blank.• Schedule E (Form 1040) instructions

RoyDaleOne (talk|edits) said:

15 December 2011
"You are engaged in a trade or business if you operate for gain or profit."

The foregoing is from the instructions for 2011 1099-MISC.


I checked Harry and the IRS has this simple explanation for a TRADE OR BUSINESS. It must be just for you. As I recall you were complaining about not having such a definition. lol lol

Ricky (talk|edits) said:

30 January 2012
I read on another discussion board that the IRS has decided that the "1099 Question" on Schedule E does not need to be answered:

"The questions are on Sch E, but subsequently IRS announced that answering them is not required."

I do not have any proof or link, and mentioning it to see if anyone else has found or heard anything like this?

DaveFogel (talk|edits) said:

30 January 2012
I haven't seen the IRS announcement, but in most software packages, if you don't answer the question, this will be treated as an error, and you won't be able to e-file the return.

Illini (talk|edits) said:

23 February 2012
Our software (Lacerte) automatically answers NO and warns us to change it if necessary to YES.

Jake (talk|edits) said:

24 February 2012
For this and other reasons (one being I will be 70-1/2 next year) this is my final year of tax preparation - I am keeping just a handful of long time clients with very simple returns - enough to turn a small profit over my tax software expense.

Pegoo (talk|edits) said:

24 February 2012
Imagine if the 1099 for all rental properties are required whether trade or not, and all these new schedule-c prep fees subsequent years wooosh.

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