Categories

Monday, September 30, 2013

Ponzi loss

How would you show a Ponzi loss of lets say $3900 on a 1040 form on any line other than line 40? I have seen info about using Proc. 2009-20, form 4684, and schedule A, however, the final step seems to lead to transferring an amount to line 40 of 1040 form. The standard deduction of $5950 for single filers is more than the Pozni loss so naturally it would be used instead of the Ponzi loss therefore not allowing you to show the loss. Any ideas?

Answer :

1 : Correct;UNLESS you itemize your deductions on Sch A of 1040, you can’t deduct the loss on your return.

2 : There are many ways to recover valuable income tax refunds from losses from financial crimes that are either not actual ponzi schemes or that are Ponzi Schemes that do not fit the standards of the safe harbor. However,the tax law permits tax deductions for losses from financial fraud under the theft loss deduction category on form 4684 and Sch A of 1040. The IRS issued two guidance items to assist taxpayers who are victims of losses from Ponzi-type investment schemes. The first item is a revenue ruling that clarifies the income tax law governing the treatment of losses in such schemes. The second is a revenue procedure that provides a safe-harbor method of computing and reporting the losses.The IRS will let you go back 5 years versus the normal 3 year limitation to claim the losses. In addition, rather than use the limitations used with normal theft and casualty loss claims, the IRS has implemented a simpler method which enables individuals and companies to claim a greater deduction. QUOTE,” The IRS issued two guidance items to assist taxpayers who are victims of losses from Ponzi-type investment schemes. The first item is a revenue ruling that clarifies the income tax law governing the treatment of losses in such schemes. The second is a revenue procedure that provides a safe-harbor method of computing and reporting the losses.The IRS will let you go back 5 years versus the normal 3 year limitation to claim the losses. In addition, rather than use the limitations used with normal theft and casualty loss claims, the IRS has implemented a simpler method which enables individuals and companies to claim a greater deduction.The percentage of the qualified investment which can be claimed is ;95% of for investors with no potential third-party recovery and 75% for investors with potential third-party recovery.

The method of computing and reporting the losses follows:On Appendix A of IRS Rev Procedure 2009-20 enter the loss information. Part II line 5 enter loss, multiple by 95% of the qualified investment (i.e., $30,000 x .95 = $28,500) and enter on line 6.On line 9 enter any money received or recovered from the Ponzi scheme (i.e., $28,500 – $3,000 = $25,500), subtract line 9 from line 6 and enter the amount on line 10.Take the amount from line 10 and enter the amount on line 34 of form 4684 Section B. You may want to enter the Name of the Ponzi..Read more…

Thursday, September 26, 2013

Didnt Work And Had A Fraud Case Now I Owe Or Intent To Levy

I also received a notice of intent to levy in the mail regarding my 2011 tax return except I wasnt working that year at all but I requested my 2010 return that year just for my own records since I lost my originals after the box they were in were left out in the rain so, I went to the IRS website to request a transcript, I printed out the form, filled it out and sent it by mail, maybe 2 weeks later I got a response from the IRS saying that my home address was incorrect and they could not provide me with any of the information I tried to request, they sent my original form back to me along with a change of address form and the reason why they could not help me. By the time I lost all patience and said "forget it" it was already early August 2012 and someone out there was collecting under my name but I couldnt start to fix it because "the address you filed with is not the same as what you're saying now" I was stuck so I gave up then around 2 months later my car was broken into and a lot of my car registration papers, previous court papers that had my SSN on them were stolen, I put a freeze on my credit report the next day and I have all my Equifax and Trans Union documents proving it ....anyway fast forward to maybe February 2013 I receive a notice telling me that I needed to provide my W2's because my return didnt add up but I hadnt even filed yet, I did work only 3 months in 2012 but I got this notice before I filed then a notice from the state saying the employer on my return denied that I worked there so I was not going to get a return, I dont know where this was coming from so I found this site online that was able to give me my transcript as long I provide my AGI for 2 past tax returns, so I did and I finally had my transcript. The address used for both my 2011 and 2012 returns was one I never lived at and top it off one of these was no more than a mile from me, one month later another notice saying they had verified my identity theft claim and I did not need to do anything and they would be contacting me soon, this was May 6th now its September 25th 2013 and I was contacted by the irs 3 days ago with A NOTICE OF INTENT TO LEVY, INTENT TO SEIZE YOUR PROPERTY OR RIGHTS TO PROPERTY and I have until October 10, 2013 to pay $2500 which I don't have because I still haven't worked. I called and don't get any real human only a machine can someone please tell me if this makes sense or do I have a tiny chance of actually being excused due to the fraud thing....thanks in advance.

Answer : 

Receiving a notice of intent to levy notice from the IRS can be scary since it likely means that something has gone terribly wrong with your taxes and that you have yet to do anything to fix that problem. While this is clearly not a good situation, you may be able to get back into the good graces of the IRS if you make the right moves and handle the intent to levy carefully to ensure that things do not progress any further. An intent to levy notice does not mean that the IRS is going to show up at your house, kick you out and take your belongings, but it does mean that you’ve ignored past notices to delinquent taxes and that the IRS is now becoming very serious about collecting. A tax levy is a way for the IRS to take what you owe since you are unwilling to pay them on your own. In most cases, the IRS will levy your bank account in addition to levying your wages, social security, and other assets. A tax lien may also be attached to your home in conjunction with a tax levy. The best way to prevent a tax levy is to contact the IRS so that you can come to an agreement on how you will pay back the taxes that you owe. You can set up an IRS installment agreement or submit an offer in compromise to slow down the levy process - and possibly even stop it in its tracks - once you begin to pay your back taxes. As long as you are willing to work with the IRS to find a solution as opposed to hiding from them . It is a safe bet that you will never have to worry about finding a letter of intent to levy notice in your mailbox. If you do not pay your taxes (or make arrangements to settle your debt): The government can seize and sell property that you hold (such as your car, boat, or house), or The government can levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of your life insurance, or commissions). If a levy is placed on your bank account, the levy attaches the funds that have cleared and are available for withdrawal. The bank must wait until 21 days after a levy is received before sending the money. The holding period allows you time to resolve any dispute about account ownership, or get professional..Read more…

Wednesday, September 25, 2013

Mortgage Interest Amendment

1 : My friend lives with her mom and sister. The mortgage and 1098 is under the mom's name (sisters names might be on deed/title) but the sisters pay all the house expenses (mortgage, insurance, utilities, car insurance, ect). Sister 1 pays 75% of the expenses and sister 2 pays 25%. The monthly expense total is transferred into the mom's account and paid for there. For the past few years they have been taking the mortgage interest deduction on the mom's tax return (the interest exceeds her income). Can they amend all their taxes for the last few years and give the deduction to the sisters?

2 : How can this be broken down (IE. Sister 1 makes a lot more, can she take the full amount or do they have to split it based on their payment proportion?)

Answer :

1 :  Having their names on the deed to the only satisfies one of the two initial requirements for claiming the mortgage interest deduction; the IRS also requires that they actually pay the mort.interest. If their names are on the deed but they psy the interest, they can deduct the interest payments. Conversely, they cannot deduct the mortgage interest payments they make if their names are not on the deed/ or on the mortgage to the home.So since their names are on the title (or mortgage), they need to file amended returns to deduct their mort payments deductions. They can deduct their mortgage payment deductions on line 11 on Sch A of 1040, so UNLESS they itemize their deductions , they can’t itemize their deductions. The only way to report their mortgage interest deduction is on a Sch A with their other itemized deductions. However, this doesn't always mean they should itemize just to deduct their mortgage interest. Instead, they should compare the total of all expenses they are eligible to itemize to the standard deduction available for their filing status. If the standard deduction..Read More…

Loan to "friend" loss

I am disabled and probably a little to gullible. I loaned money to "friend" trying to help him through some hard times. He swore up and down that he would pay me back and even signed a contract. Then he kept hitting me up for money for this crisis and that emergency until I have loan him many thousands of dollars that probably shouldn't have.

I found later that may "friend" has pretty much lied to me about a lot of things and then used quite a bit of the money I loaned him to buy heroin. He is off the drug now and still swears up and down that he will repay me. But, he has failed to hold a job for long and has pretty much no means to pay me back so far.

So, I'm trying to cut my losses as much as possible. I kept good records of all the money I loaned him. If I added up all of what the owes me and had him sign a promissory note or contract that says he owes me this money but has not been able to pay it back, can I deduct the money I loaned him from my taxable income?
Also, if I have to report to the IRS the name of the guy the loan was too, will they make him pay income tax on it?

Finally, if am able to write this loan off as a loss and he begins paying me back at some time in the unforeseeable future, would I then report that as income? Thanks for your help.

Answer : 

1 : In general, The IRS categorizes losses on loans as business or nonbusiness bad debt. As you provided the friend with a loan, that loan is a personal debt, and the IRS uses special tax rules for deductibility. Generally, the IRS allows taxpayers to deduct all losses from business loans but limits the deductions for non-business loans.Your loan, a nonbusiness bad debt, is deductible as short-term capital losses and require you to use Part 1 of IRS Form 1040, Sch D/Form 8949, if deductible. Taxpayers who are able to satisfy the IRS rules for deducting non business bad debts must use the federal tax rules for capitalizing the debt over several tax years. In addition to completing Sch D/form 8949, you must attach a written statement of the specific circumstances leading to the debt. According to the IRS, personal loans are worthless when there is no reasonable expectation or chance of recovery. The IRS will review all of the surrounding circumstances to determine whether there is a reasonable basis for believing the debt is uncollectible and worthless. You must prove you have taken reasonable measures in attempting to collect payment. The IRS does not require you to have attempted collecting losses through actual litigation, but you must show that litigation would be futile. You can show that obtaining a court award would not lead to collecting the bad debt because the debtor is insolvent, lives in another jurisdiction or the you are unable to locate the debtor. You fully deduct capital losses against capital gains on Form 1040, Sch D/from 8949. Your allowable capital loss tax deduction on your tax return for any tax year, figured on Form 1040, Sch D, is limited to the lesser of: $3K ($1.5K if you are married and file a separate tax return), or Your capital loss as shown on Form 1040, line 18 of Sch D/from 8949. If you have a capital loss on Form 1040, line 18 of Sch D/form 8949 that is more than the yearly limit on capital loss tax deductions, you can carry over the unused part of the tax deductible capital loss to later tax years until it is completely used up.

2 : While borrowing money isn’t regarded by the IRS as income, as he doesn’t pay it all back, the unpaid balance is his taxable income ;for example, you loaned your bud, say, $10K and your bud only pays back $5K. The day you give up trying to collect and write off the $5K, as far as the IRS is concerned, your bud made $5K. It’s the same as if you'd bud’d won $5K in a contest, or at a casino. In short, your bud’s $5K richer, and the IRS treat it as taxable income for your bud.HOWEVER, there are exceptions..Read More..

Tax deduction of provision and contingent expenses for corporations


1 : Do the tax authorities in the US allow the deduction of expenses incurred following the recognition of a provision or a contingent liability?

A provision is a liability that is of uncertain timing or amount, to be settled by the transfer of economic benefits

For instance, suppose a firm faces a lawsuit. The firm is expecting to pay 1000 pounds with a probability of 80%. As a result, the firm recognizes both a liability and an expense in its financial statement. Can the firm deduct this expense from its income for tax purposes?

2 : Another example is taken from IAS 37 ( I understand that IAS 37 is irrelevant for US companies-it's just an example)

The firm sells goods with a warranty under which customers are covered for the cost of repairs of any manufacturing defects that become apparent within the first six months after purchase. If minor defects were detected in all products sold, repair costs of 1 million would result. If major defects were detected in all products sold, repair costs of 4 million would result. The Firm’s past experience and future expectations indicate that, for the coming year, 75 per cent of the goods sold will have no defects, 20 per cent of the goods sold will have minor defects and 5 per cent of the goods sold will have major defects. In accordance with paragraph 24, an entity assesses the probability of an outflow for the warranty obligations as a whole.
The expected value of the cost of repairs is (the exact number does not matter)

(75% of nil) + (20% of 1m) + (5% of 4m) = 400,000

Can 400,000 be deducted from the firm income for taxation?

In addition, please refer me to a formal source (a law or a court ruling) regarding this issue.

Answer : 

1 : I guess it depends. The firm, the entity , should be entitled to a deduction as soon as it meets the all-events test (the fact of the liability is fixed and the amount is determinable). Section 461 (h) and § 1.461-1 (a) (2) (I) provide that, under the accrual method of accounting, a liability is incurred, and is generally taken into account for federal income tax purposes, in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability. Section 461 (h) (2) (A) (I) provides that, if the liability of the firm arises out of the providing of services to the taxpayer by another person, economic performance occurs as that person provides the services. Generally, in a transaction where one taxpayer is accruing a liability to pay another taxpayer, the last event necessary to establish the fact of liability under the all events test of § 1.461-1 (a) (2) (I) is the same event that fixes the right to receive income under the all events test of § 1.451-1 (a). In the case of a lawsuit there usually are no services to be performed and economic performance need not be considered.

2 : Basically, as we know, compared to variables such as useful lives of assets for depreciation purposes or collectability of accounts receivable, warranty costs can be wildly accurately unpredictable. After all a major failure in the production process may require a complete / partial recall of a product line which can be enormously expensive. Estimating warranty expense cannot possibly be an exact science because with continuing product innovation past warranty cost experience with established products will not necessarily be a good guide for estimating warranty expense associated with a new untested product. Technically, warranty expense is a contingent liability. Contingencies are possible economic events that may or may not occur in the future, as mentioned above: Provisions for warranties are governed by IAS 37 PROVISIONS, “QUOTE,” CONTINGENT LIABILITIES AND CONTINGENT ASSETS The key definitions are:

Provision:
A liability of uncertain timing or amount.
Liability:
*Present obligation as a result of past events
* Settlement is expected to result in an outflow of resources (payment)
Contingent liability:
* a possible obligation depending on whether some uncertain future event occurs, or
* a present obligation but payment is not probable or the amount cannot be measured reliably . When a manufacturer gives a warranty, it satisfies the criteria for a liability - there is a legal obligation and settlement is expected to result in an outflow of resources (whether by payment to repair the defect or by using up of spare parts maintained for this purpose), so that's why a warranty is a provision and not merely a contingent liability. From history, the manufacturer would know..Read More..
Related Posts Plugin for WordPress, Blogger...