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Welcome to TaxAlmanac

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Trillium 20:25, 8 September 2009 (CDT)

California law marijuana dispensary

Hi, i have a few questions regarding California law marijuana dispensary. If you would be willing to answer them you can e-mail me at or call me on 714-224-8889. Your help will be appreciated.

Thanks Tushar

thanks for your replyAzmscpa1 16:02, 14 September 2009 (CDT)

Corporate Bankruptcy Taxes

Other than Publication 908, is there any other resource available for completing a bankrupt corporate return? thanks for your assistance.Azmscpa1 16:07, 14 September 2009 (CDT)

thanks for your reply. I thought I might send a message directly to you. I am hoping that you will answer and provide some additional guidance.

Taxpayer has a an NOL carryforward to 2008 of 72,063 arising from 2006 & 2007 losses. I don't know what the 1041 looks like - I am not even sure the trustee filed it. The amount forgiven in bankruptcy - ch 7 - is approximately 329K including the following: $170K of business related debt (schedule C), includes business loan & credit cards $109K of home mortgage various other items - car loan, credit cards etc

All of the NOL is related to the taxpayer's business for the 2006 & 2007 years.

I'm not sure what to do... my inclination is that the trustee should have filed the 1041/1040/982 to indicated the reduction of tax attributes. I have put in another request to the client for whatever she can provide about this. I will say that she has told me that nothing was filed, though I am not sure if I trust that answer.

or... Should I perpare the 982 with the return & eliminate the NOL, business debt, adjust the home basis etc?

Perhaps its just late, but I keep changing my mind and second guessing here.

Thanks fo whatever guidance you can provide.

Thank you Riley. Much appreciated Iaklein 23:03, 12 October 2009 (CDT) Ira

Hi R2 Could you please help?

Hi R2, I am getting hung up on a couple points and was wondering if you would be so kind as to lend a hand:

My client has 1st loan on his California rental of 270,000 and 2nd for 50,000. Total debt 320,000. This is a recourse loan. The house will short sale by end of 2009 for 170,000. He would have cancellation of debt of 150,000. He is insolvent by 50,000 so I believe 100,000 is going to be taxable cancellation of debt income on line 21 of 1040. When calculating the sale of the rental property on form 4797 the sale price will be 170,000 and the original cost basis was 248,000. Depreciation taken will be 25,000. Also he has suspended passive activity losses (rental losses from prior tax years) of $38,000. Plus I'm sure about $15-$20,000 in (operating) rental losses in 2009.

My questions are this:

In reducing tax attributes, would I reduce the original cost basis of 248,000 by the canceled debt of 100,000 reducing his basis to 148,000 thereby causing him to have a phantom gain of 22,000? I read somewhere that when the rental is short saled, you reduce the costs basis immediately prior to sale and not the following year.

Or do I...

reduce the passive activity loss of $38,000 and then reduce the basis by the leftover amount?

I'm not sure that this would qualify as QRPI because my client just had this one rental and it was not a business as he was employed elsewhere. What do you think.

I'm sorry to trouble you, but I've checked the forums and could not resolve this.


Thanks, R2. I suspected so, and that was my gut reaction. I honestly need to re-vamp all of my research skills!

I used to practice in the Bay area until family matters interferred. I truly miss the weather there.

2009-52 response to your answer

R2, I did not make a timely election for an ESB from the ARRA because at the time the client did not qualify so I carried back to the 2 year. So I should be okay to do a second Form 1045 with an election pursuant to Rev. Proc. 2009-52 right?

Hi R2,

Thanks so much. Judging from what I am reading, my client doesn't have an income recognition issue, and the funds will simply reduce his basis. It looks like sec. 118 sets forth the disclosure requirements and 362 addresses the recording logistics. Is there an election to be made for this?

I really appreciate your answering my question.  :)

--JP 14:15, 28 November 2009 (CST)

982 and Bankruptcy Question Hello, I'm sorry to bother you because you have been kind enough to answer my question. But I'm still confused by your answer. Does the T/P get the benefit of the net capital loss on the current year tax return and the carryover is lost as part of the reduction in tax attributes? thank you

Tax consulting

Hi R2,

I am a fellow CPA, and sole practitioner, and was curious if I could buy your services on an hourly/other basis, as needed. In the past, I've used a tax attorney when I have questions regarding client tax issues. He is ready to retire shortly so he won't be a resource any longer.

Most client issues I would run by you are probably pretty simple but involve areas I don't deal with very often. I envision most questions I would ask of you would likely be in a format similar to posted questions here on the Tax Forum where you answer using your knowledge and experience.

Occasionally other issues might be more complex but, in those cases, I would ask to involve you for direction only.

I genuinely respect your opinion and would like to buy your time, experience and advice as needed if you have an interest.

Ed aka Taxalmancer

There is no amount in box 3 of the 1099-C.

Just need to know why figures are different on 1099-A and 1099-C. What do I do? Cmb1 23:16, 17 February 2010 (CST)

Hi R2:

There is no amount listed in box 3 of the 1099-C.

I am still in a quandry about the different figures on the 1099A and the 1099C. Shouldn't they be the same?

Resident vs Non-resident alien status

R2 - I had a follow-up on an answer you had to a question I posted. Following is the link to the post.

I'm sure you are busy, but if you have a chance to respond I would love your additional feedback.


Lydacpa 16:12, 26 February 2010 (CST)

Possibly pay your billing rate for an hour or so of consulting time?

I have to laugh as I see my own request shows up all over your discussion page. If you have any interest in my proposition, please shoot me an e-mail at

Hello. My name is Joel. I am a licensed CPA and Attorney in the Chicago area. I am writing to ask you about the possibility of you taking me on as a client (of sorts).

Although licensed, I do not hold myself out as an attorney for hire. I went back to school a few years back to redefine myself. I obtained a Masters of Accountancy and an MBA. I then obtained a position as a tax accountant at a small to medium sized firm in the Chicago area (50 or so CPAs plus support staff). Fortunately for me, this firm has an upscale, high net worth, clientele that have a wide array of tax issues. I was able to get very good experience and had the opportunity to work with many excellent career tax accountants. After 5 years of service to this firm, in May of this year, I was downsized as a direct result of the poor economy.

Of all my qualifications and skills, my best by far is my ability to win over clients’ confidence and loyalty. With the economy not availing itself to a desirable position at a new firm, I decided that it was time to accelerate my ultimate goal of having my own firm and I hung a shingle.

I am adamant that my new firm not be one of those fly-by-night one man operations that put out a low quality product. I came from a firm known for excellence, and no matter my firms size or capital expenditure, it is paramount to me that my new firm provide clients with accurate and correct tax returns and tax advice.

My biggest concern of being on my own at this point is that I not operate in a vacuum. I believe that it is very important that a practitioner be able to participate in dialog with other colleagues and mentors. To this end, I have joined the Chicago CPA Society and plan on joining the AICPA as soon as I have the funds. In addition, I have attended CPE courses and made a point of networking and meeting other sole practitioners with whom I can open a dialogue. One of my favorite sources for this open dialogue has been the Tax Almanac forums. Clearly, you have a formidable presence on the board! I have read many of your posts and it is clear to me that your 33 years of experience has made you into an incredible resource of tax knowledge.

Which finally brings me to my point: I wanted to know if you would consider mentoring me. Specifically, I would like to be able to call on you in the same way that a young associate in a firm would go to an experienced partner for advice on various tax issues and presentation (by the way, I’m not that young). Of course, I would never expect such a privilege to be gratis (after all, as accountants, all we have to sell is our time). On the contrary, I would want to be able to pay you your hourly rate. My concern is that I continue to generate quality work and I know enough to know when I don’t know enough. For instance, I am working currently on two clients that have Form 982 issues and I am pretty much at a loss. Could I retain your services to work through these issues and the presentation on the actual returns so that I my clients don’t end up with a cascade of matching notices?

Respectfully yours,

Joel Dblchai 09:16, 22 March 2010 (CDT)

Taxable scholarships considered earned income for alt min tax

In a recent discussion, you indicated that scholarships were not considered earned income for purposes of the alt min tax. I have always treated them as earned income. Do you have a cite that specifies that scholarships are not considered earned income for alt min purposes? 20:09, 22 March 2010 (CDT)

Involuntary conversion multiple properties

I have left a question on the main forum but, I have not received any responses. I hope that you can help me.

I have a client who ownes a commercial rental property that burnt down. Somehow he was able to rebuild for less than what he got from the insurance company. Can we buy a second commercial rental property and avoid paying tax on the excess funds using the involuntary conversion rules?

I appreciate any help you could give me on this. My e-mail is

Richard RDRCPA


Hey R2 - I am revisted the us resident elections I need to make for my portuguese client that is also FTHB.

He came here in October of 2009 and I needed to wait until May 31, 2010 to qualify for the residency test. I also needed to have him file his portugese tax returns so that I could take the FT credit paid on his 1040. All said and done, can you tell me how I piggyback the 6013(g) but made by BOTH spouses on top of the 7701(b)(4) election?

Is it a sheet of paper on the front of the return? I do not think there is a special form to fill out? Do I just state the TP and spouse are requesting the election and have them sign it? Thanks, just never have done this before.

Jeff-Ohio 06:12, 26 May 2010 (CDT)

Foreign Tax

Hi R2.

Obviously, I am a bit confused (and worried) and would sincerely appreciate your assistance regarding my foreign tax post.

I thought I had to report his worldwide income on the 1040 and then receive a credit for taxes paid on the 1116.

The biggest perk for chosing this ellection (7701 right?) is so my client can receive the FTHB credit.

He came here in October of 2009 and has about $80,000 of portugese income (family)

Also has about $30,000 in us income.

He is receiving (per my calc) close to $9k back and I just do not want to blow this.

Sincerely appreciated. (if you have time)

JasmineCPA 06:15, 9 June 2010 (CDT)

yes it occurred in 2009 when they married, but it was her nol from an investment that she made years ago. it was a ponzi scheme.

Check your Code cite... the ILIT discussion?

Harry Boscoe 18:16, 9 July 2010 (CDT)

basis value of real estate

Thank you for your question on my thread. I found out the particulars of the deed transaction. If you can help me in any way, I thank you in advance.


Thanks - I almost reduced the marital deduction by a share of the estate taxes - The Will is silent about estate taxes but has a provision for the remaider to be divded equally between kids. I would think this would preclude paying estate taxes out of spouses share. Jjaokc 14:42, 9 August 2010 (CDT)

Thank you!! I found the same answer after researching AMT but wanted clarification.Razorslim 06:40, 15 August 2010 (CDT)

Constructive Receipt Issue

Thanks for your feedback to my post. Do you have any experience with IRS post Appeal mediation? My client thinks he may get a better shake at mediation, short of going to USTC.

If you have such experience, are you available for paid consultation? PhilPE Financial Grp 14:32, 14 September 2010 (CDT) PE Financial Group

not sure if you saw my latest post to your question

Discussion:Rolling Over Substantially Equal Periodic Dist Kevinh5

1256 loss carryback

hi r2:

I am Jim, a cpa from NJ and have a question for you relating to the carryback of 1256 losses.

Here is the situation / facts:

The taxpayer did not elect on his 2009 return to carryback the 1256 losses. Can the taxpayer now amend his 2009 return and elect on form 6781 to carryback these losses to 2006 and then forward? Or did this election need to be completed by the time he filed his 2009 return including extension?

I appreciate your assistance in this.


JimJimbo073 12:52, 10 November 2010 (CST)

In response to your question:

No, the funds are in a brokerage a/c outside of the US

AniemanAnieman 22:43, 27 December 2010 (UTC)


Curious what you'd do in my situation with the late filed 5 year carry back election. Would you treat it as a regulatory election and file for relief under 301.9100-3, essentially pleading the ignorance of the taxpayer who prepared his own returns?

Thanks so much for the glimmer of hope. I hope it doesn't get snuffed out.

Jimmer 18:04, 29 December 2010 (UTC)

Becoming a client


I am interested in a possibility of becoming a client (assuming you've got an active practice). I am in CA. Is it possible to discuss offline or over email?

Png 22:38, 31 December 2010 (UTC)

LLC filed bankruptcy

R2 - Hopefully you can add some guidance on this as there doesn't seem to be much out there on CCH/BNA when it comes to the technical issues of LLCs in bankruptcy. I have a client (an LLC) who filed Chapter 7 bankruptcy late 2010. From the research I've found, the first question is whether the corporate or partnership bankruptcy laws apply to the LLC. My client tells me they filed bankruptcy as a "LLC." I agree under §1399 that a separate taxable estate is not created for a partnership or a corporation. My initial thoughts are the LLC is taxed as a partnership, thus it should fall under the partnership bankruptcy rules, but I don't know if this is correct. Under either scenario, under §1399 it seems that the tax year does not end because of the bankruptcy, which leads me to believe that a calendar year Form 1065 should be filed for 2010. The bankruptcy proceedings are still going on, the bankruptcy was effective mid-December. A court appointed trustee was assigned to the case, and has told my client that their 2010 tax year is ending on the date of bankruptcy and a return should be filed ending on this date. I spoke to the trustee and he was very unwilling to discuss any tax filings other than what I just mentioned, and would not provide any support to substantiate that there should be a short period return. He said he would have a return filed for the bankruptcy estate post bankruptcy, but would not tell what would be filed and reported on this return. Two of the members are clients as well. Do you have any thoughts on any of this? We are trying to determine what we need to file for 2010? What period is covered in the return? What we report in the return (just loss from ordinary operations, no COD info)? Is this 1065 final? What can the members expect for 2011? Is partnership basis a tax attribute for purposes of reduction for exclusion of COD income? I realize these are a lot of questions, so if you could point me to some guidance it would be appreciated.

Thank you


Hey Riley (Okay, R2) Someone needs your help


Someone called me out of the blue looking for an expert, i.e. you specifically. They want to hire you for a private letter ruling on changing from a C corp to an S corp as they are outside the 2 year rule and will be hit with a $10,000 tax bill if they don't do the change.

If you can help (or know if anyone can), please contact me at That is my e-mail address. It's for real. This is no BS message. Thanks. Tom O'ConnorTaocpa 22:02, 16 February 2011 (UTC)

Riley, that same guy tried to contact you through me.

I think it is very odd myself. And I'm not completely sure that it is legitimate. Why would he contact both Tom and I to get to you? Especially if he could just leave you a message here? Kevinh5

Chapter 7 Bankruptcy

Hi R2 -

Since you were the only person to answer my post, I decided to try to prevail upon you one more time. I have read IRC 1398 and I have read Pub 908 - and I have talked with friend here in Springfield who are CPAs - but I cannot find an answer to what I do, if anything, with the "debtor's lawful exemption" from the sale. Nor can I figure out who takes the depreciation for the part year and who has to recapture the depreciation on the 4797. I don't want to do anything that will harm my client with the bankruptcy court. I would send him to someone else, but the ones I would tend to recommend don't have the answers either. I am going to post part of this in the discussion forum again in hopes someone will see it that hasn't already, but thought I would try you to see if you had any answers. Thanks.MizzTiger 21:56, 16 March 2011 (UTC)

R2, I saw a post of yours about COD on Rental Property. I have a client that lived in a condo for 3 years and then converted it to rental property in Nov of 2008. In Sept 2010 he sold the property in a short sale. He is excluding the income on $160,000 of COD via the qualified primary residence exclusion and the insolvency exclusion. Your early post indicated that the basis should not be reduced. If I don't reduce the basis the transaction will result in a ordinary loss on sale of assets of $27,000. My thinking is that this loss should eliminated as a tax attribute on the COD exclusion. Your thoughts?

Blood Donor

R2 - I see you posted an answer a couple of years ago about hair/blood donations. I have a client that is now a professional blood donor. I am curious if you know about any IRS accepted per diem rates or percentage of total food bill for the special diet/vitamins. She has to the penny how much she spent on groceries/vitamins, but it is my understanding the deduction is only for the additional costs incurred for the special diet. Thank you. Davidcpa 23:51, 14 April 2011 (UTC)

Medical Marijuana Dispensary Assistance please

Hi: I need some help with a client who is a medical marijuana dispensary and needs help from the ground up. They bought an existing one and are operating it in San Diego. They needs books and taxes done along with some consulting. This is not an area I feel comfortable in advising. Can you help me with either some more answers to my questions OR do you want a client? Or can you tell me where to send this client to get the help they need?

I can be contacted by email or or 619-258-2033.

You are the first person on the web who seems to know what they are doing. Your answers coincide with the research that I have done, but I am unclear enough to not want to go ahead on this one.

Can you help? Thanks, Youlovetax

Riley - great having you back. Was hoping you would pop up again. Your insights have been missed. Hope all is well with you.


Thank you! That will cost about 50 grand.

They did not want to sell it but the govt took it under eminent domain. Spouse is on the edge health wise, age 90, in later stages of heart failure, so this is a real blow as they wanted to get step up on both shares. After getting a dive in the value due to economy of at least 50%, then the govt came in and paid only 40 cents on the dollar of the 50% value.

What was once over 2 million, the govt paid only 400,000. They are buying up lots of land down there to build drainage basins, etc.


Good to see you posting again. RoyDaleOne 04:35, 26 September 2011 (UTC)

Inherited art as capital asset

Hi R2,

I'm doing some research on a topic you posed on last year. Can you give me any citation for self-created art becoming a capital asset when it is inherited by a relative?



Can a employer sponsor health insurance where the amount of employer contribution to the plan is based on the level of sales per individual.

For example, could a car dealership contribute 80% to a employee this year if they sold x amount of cars the year before and y amount (50%) this year if the employee sold less cars the year before.

Would this arrangement create income tax issues for the participants.

Hi R2,

I have been reading your responses for the past five years. I first started reading you as Riley which was an easy name for me to remember because that is my dog's name.

My question is about health insurance premiums. Can an employer plan charge different premiums to different participants based on their previous years sales. For example, employee x sold more cars the previous year and thus the employer pays 80% of his premiums the next year. While employee y sold less cars the previous year, so the employer only pay 40% of his premiums the next year and the employee pays the rest.

Can the employer use the health plan to incentive behavior without losing the tax benefits of the health plan. (sections 106 and 105). The plan is an insured plan.



Converting LLC to S-Corp

Hi R2,

I’ve seen your postings on here and have found them very helpful in my learning experience. I want to start out and say that I am not a CPA. I do work in the financial industry and have read extensively on taxes, especially LLCs, but have kind of come to a crossroads and know when to look for help. I by no means want free advice and more than willing to pay you for your work. I normally would go locally to a CPA, but have had very bad experiences with CPAs I just look up on google. I’m part of a 4-member strong LLC and we keep our capital accounts in accordance with 704(b) so that we can allocate income equally despite having unequal capital accounts. The last CPA we had insisted we did not need to keep our capital accounts in accordance with 704(b) and was about to submit our K-1’s to the IRS based on the Tax Basis before I caught it. That was the last CPA we used. It’s just really tough finding someone who knows what they are talking about. Anyhow, to my current dilemma:

After being in business for 8 years, we would like to elect to be taxed as an S-Corp due to the savings in SE Tax (check the box regs—some say “Stupid Box”). I understand we will each need to take a market value wage based on the services we commit to the company. I also understand because legal entity status is a state thing, that we would still be an LLC and not have to have meetings, directors, stock and all of that good stuff. I’m actually running into issues that are related to the unequal capital accounts if we convert to a S-Corp and wanting to continue sharing profits equally.

1) We each have different 704(b) capital accounts. These also differ slightly from our Tax Capital Accounts (basis) due to taking 179 deductions for tax capital accounts versus depreciation for 704(b) capital accounts. I’m unclear if we need to get all of our 704(b) capital accounts equal before we convert to an S-Corp (by having the 3 members who have lower capital accounts contributing cash to equal the balance of the member with the highest). I don’t think setting the basis equal matters, but would assume we should set our 704(b) capital accounts equal because wouldn’t the IRS now view our share in the S-Corp as not being equal because our capital accounts are not equal. We of course want the IRS to view each member as having an equal share so that we can allocate income equally. The last thing we want is losing our S-Corp status and becoming a C-Corp for 60 months.

     a.	One local CPA suggested we could equalize each member’s take home pay by paying some members larger wages once we become an S-Corp, but to me that is a band-aid 
               and the logistics of that to me are a nightmare (e.g. larger SE Tax to higher waged members, unequal company deductions, etc…---how do you equalize it).  We just 
               don’t want to go there.

2) Am I correct that I would continue to keep our books as if we were an LLC. In accordance with 704(b)? What’s the best recommendation for pigeonholing our balance sheet into the IRS Schedule L balance sheet (we don’t really have Capital Stock, APIC or retained earnings since we are a LLC). More concerned with #1, but any suggestions with #2 would be appreciated.

Again, I expect to pay you for this before you provide me with any information. I can send you my financials in case you wanted to take a look. We have no debt and only positive basis/capital accounts.

Please feel free to reach out to me at the email below



Child non resident at the end of tax year

Hello R2,

I have been reading publications and TA discussions about this subject but I haven't found the answer. You have answered a number of similar questions so I hope you can help me. Thank you in advance.

My client have lived in the US (not citizen) with his family for a few years and they left the country for good in mid-2012 (they lived in the US for 193 days in 2012). Reading the Pub 519 I see they have the option of filing dual-status or 1040 reporting world-wide income for the full year. I think is more beneficial if they file 1040 return because the foreign income is not too high and the foreign taxes paid are considerable. My question is regarding the children dependency deduction. One child was born in the USA, but not the other one. Is it possible to take both kids as dependents, or they can only take the one who is a citizen. My concern is that the other kid wasn't citizen or resident at the end of 2012. I think they can because Pub 501 states "Child's place of residence. Children usually are citizens or residents of the country of their parents". The child who is not a citizen have lived in the US for a few years and meet the substantial presence test.

Thank you so much for your help.

Lalva 15:43, 31 July 2013 (UTC)

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