Net Operating Loss Carry Over and Carry Back – IRS Publication 536 – IRC 172 + 6511

Generally speaking a net operating loss (NOL) for any tax year may be carried back two years and forward 20 years under Internal Revenue Code Sec. 172(b)(1)(A). A three-year carry back period applies to NOLs arising from property losses of individuals due to fire, storm, shipwreck, or other casualty, or from theft. It also applies to small businesses (average…

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Cancellation of Debt on Short Sale of Real Estate

When a rental home secured by a recourse loan is sold short you incur a loss on the disposition of the rental properties requiring the report of a sale as well as any income from the cancellation of debt. The cancellation of debt income is excluded from gross income to the extent you demonstrate insolvency. If for example you demonstrate insolvency in excess of…

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IRS Accuracy Related Penalties

The IRS may impose a twenty percent accuracy-related penalty if it determines that there is a substantial understatement of income tax according to IRC 6662. You may avoid all or part of the penalty by showing that: (1) you acted in good faith, (2) the understatement was based on substantial authority, or (3) there was a reasonable basis for…

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How to Report a Foreclosure to the IRS

A foreclosure on rental property technically involves the sale of the property back to the lender. Form 1099-A Acquisition or Abandonment of Secured Property reports that the lender has repossessed or foreclosed on the property. Box 2 is the amount of the outstanding mortgage debt, and box 4 is the fair market value of the property. If the value of the…

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IRS Penalty Abatement – Reasonable Cause

Quite often I get asked to seek penalty abatement relief for an IRS delinquency or set of delinquencies as part of helping taxpayers chart a path towards compliance. Today while perusing the IRS web site I stumbled across some text worth sharing that sheds some light on when it is reasonable to request relief from…

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IRS Form 8952 – Voluntary Worker Classification Settlement Program

I received an interesting call today from a small business employer who was reported to the IRS by a disgruntled past worker who claimed that he was paid as an independent contractor (and received IRS Form 1099) when in actuality he believed himself to be an employee (that should have received IRS Form W-2) for…

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Who Should I Hire To Do My Taxes?

We all know there are good and bad people everywhere, both inside the IRS and in the tax practitioner community alike.  Routinely readers of this blog report specific and egregious allegations of tax practitioner misconduct in violation of United States Treasury Department Circular 230. It really is tragic but these are the pitfalls of an…

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IRS Implications for Medical Marijuana Dispensaries Update

I was at the IRS Practitioner Liaison Meeting yesterday morning in downtown Denver where local IRS officials in positions of authority presented operational updates. In regards to medical marijuana dispensaries Matthew Houtsma, acting Associate Area Council spoke. I found his words intriguingly worth a blog post. This is my interpretation. The notes of the meeting…

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Should A Husband/Wife Form a Limited Liability Company (LLC) to Invest In Real Estate?

A husband and wife formed a Limited Liability Corporation (LLC) that invests in rental real estate to protect themselves in event of a lawsuit. They want to know if they formed the most appropriate business structure and whether their rental activity is reported on IRS Form 1040 Schedule E. To answer this question I turned…

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