For Some Americans, Buying Land Is Like Collecting Art and Autos - Buying thousands of acres of land seems like a smart way to invest excess cash.
Unnecessary Closing Costs - Title insurance has always been such a scam when buying and refinancing property.
SS Base Increases
Anyone who understands the future of the current Ponzi Scheme setup for Social Security knows that the only way it can continue to survive is to increase the tax rate and the amount of income subject to the tax, which is FICA for W-2 wage slaves and Self Employment tax for those of us in control of our own income.
My long running prediction that the ceiling on the income subject to the tax will be removed completely is still on target and should be implemented shortly after the Dems take control of the White House. In the meantime, Spidell just sent out an email with the following scheduled increases in the taxable income base according to the SSA's projections.
As I have been explaining for decades, there are very legitimate ways to reduce or possibly eliminate the requirement to pay any Social Security or Medicare tax by the proper use of other legal entities, such as LLCs and corporations. Any good tax pro should be able to help clients set things up to accomplish this.
Upcoming Ponzi Scheme Collapse...
The financial and actuarial assumptions and predictions for Medicare are the same as they are for Social Security; which means that fewer workers are forced to shoulder the cost for more retirees each and every year until they reach their breaking points and the programs collapse.
Section 179 For Vineyards
Subject: Vineyards and Section 179 depreciation
According to your website Vineyards are eligible for section 179 expense election.
However, the IRS is taking a opposite position. Can you please provide me with your reference.
That list of qualifying assets was from the QuickFinder Depreciation Handbook. I just checked the online version of that handbook and it is still included there.
I also just checked IRS's Publication 946 and don't see any mention of vineyards not being eligible. Where exactly did you see that IRS doesn't allow it?
Kerry -- email me with your fax phone number and I will fax you the IRS article. It is from a July 2006 Farmer publication. And, there is a very recent court case that reinforces that Vines are considered land improvements and NOT eligible for 179. I am a CPA in the Sonoma Wine Country, and this is a HUGE item in my practice...
I would like to see a copy of that article.
I'm curious to see whether it cites an actual IRS regulation or is just someone's opinion as to the applicability of Section 179. I haven't actually prepared any tax returns for any vineyards; so I can't say that I have seen it actually be accepted by IRS. Since relocating from the Bay Area, most of our Schedule F clients are involved in beef and poultry production.
However, Vineyards have been listed in the QuickFinder books for several years as qualifying for Section 179 and my experience has been very good with the accuracy of the QuickFinder books for the 20+ years I have been using them. In fact, I have frequently used copies of pages from the QuickFinders books when defending positions we have taken in cases under IRS audit and Appeals and they have been accepted as valid every time.
Thanks for sharing that article with me.
I just faxed you the IRS article on farmers about Code Section 179.
Below is a link to the recent court case, where on page 26 this position is again referenced.
I am 100% confused....as I believed that Section 179 was re-written and the definition of Section 179 property was the old Section 38 (ITC definition).
I am not a tax attorney, and I am very concerned about this issue.
Thanks for faxing that clip from the IRS website and sending the link to that Tax Court case.
I do find it quite interesting that they are relying on such an old Revenue Ruling, from 1967. It has always been my understanding as well that Section 179 assets are the same kinds that would have qualified for the Investment Tax Credit under Section 38. This had most often hinged on the items being movable rather than affixed permanently to real property.
Reading the Revenue Ruling, I noted that it actually only refers to trees and not to grape vines. Since mature trees, with their larger and deeper roots, are less movable than are grape vines, it would be much more difficult to apply Section 179 to them.
The Trentadue court case you sent seems to be addressing established vines that are acquired as part of an overall property purchase. Claiming that 100 year old vines are movable does become more difficult than to apply that distinction to new vines that are being planted for the first time.
As I said before, I haven't really had any need to investigate this issue this deeply before. It is a very interesting question, and I hope that other readers of my blog who have some real world experience with applying Section 179 to grape vines will be willing to share any additional info and insight they have.
Attack of the Insane AMT...
It's no surprise that the DemonRats have more Marxist plans for dealing with the AMT problem.
Sec. 179 & Partnership Assets
Subject: Yet another Section 179 questionWe bought into a husband-wife partnership on 1/1/06. The wife was a passive partner and withdrew and we paid the husband ½ of the FMW of the assets plus an amount for goodwill. My husband and his partner are both active partners.We are wondering if you can depreciate the physical assets of the company (not the goodwill, of course) given that they elected to do the 754 stepped up basis.I don’t see a prohibition against applying 179 to 754 assets, but I don’t see it spelled out anywhere either. The accountants are willing to file an amended return if they can find some definitive proof one way or the other as to whether or not we just bought an interest in the partnership or if we bought into the assets of the company.I did find revenue ruling 99-5 that talks about a single person entity selling a partnership stake where the IRS treats the new partner as buying ½ of all the assets and then immediately contributing those assets to the partnership in exchange for interest in the LLC. Does that also apply in our case?Thanks – your blog is great.Regards,
I'm in the middle of the April 17 crunch, so I don't have time to do much actual research on this. However, I have mulled it over for a few hours and my gut feeling is that I would not feel at all comfortable in claiming any Section 179 on your new buy-in to the partnership.
If you and your husband had purchased the assets from the partnership and placed them into service under your own personal names, the situation would be quite different. As it is, I agree that you acquired an interest in the partnership and not direct ownership of business equipment, so no 179 is appropriate. You do need to keep track of the amount of your personal basis in the partnership, but that doesn't entitle you to any more Section 179 than the partnership as whole can claim.
Another strike against you is the fact that Section 179 is only available for the first year an asset is placed into service. You were obviously buying into assets that had been placed into service prior to 2006 by the partnership, so your 2006 purchase doesn't qualify as first placed into service.
I'm sorry I didn't have the answer I know you were hoping for.
Good luck with your partnership.
Hi Kerry,I didn't figure you'd answer my question - we're going to revisit it this summer when we actually have time (as will the accountants presumably) later this spring.Our attorney in the process thought what had happened was that we bought 1/2 of the assets from the practice and put them into our service during 2006 - he believed that since we could depreciate the assets, we could also claim the 179 deduction. He thought the only sticking point would be the used status of those assets though.It's an interesting theory and it's odd that there isn't more definitive stuff out there (at least what we could find) as to the yes or no of the issue - you'd think there'd be a statement/ruling that said, yes you can apply 179 to 754 assets, or no you can't. We're not interested in being the test case, and since we're not losing anything in the long run (unless they change the laws) we're fine either way.Thanks for taking the time to mull it over. Good luck in the final crunch!Regards,
Section 179 can be claimed on used assets; so that was never a concern of mine.
Maybe I misunderstood the situation as to the new ownership of the assets. I assumed they were still going to be showing up on the partnership's books and depreciated there. In that case, no new Sec. 179 would be appropriate.
If, on the other hand, you and your husband have personal ownership of those assets and are setting them up for depreciation in your own business, separate form the partnership, a much better case could be made for your being allowed to claim the Sec. 179.
After the tax season crunch, your tax advisors should be able to better evaluate the proper way to handle this. I assume you have filed an extension in order to give yourselves time to straighten this out. It would be very dangerous for you to actually file your 1040 now without the Sec. 179 and then later try to file an amended return to claim it. An amended return would result in much closer IRS scrutiny than holding off and filing an original return later on.
Celebrating Tax Day?
From a reader:
Subject: Taxing Day
With all the stuff you've been putting up on taxes, I'm surprised you haven't linked to this site.
That's very funny. I hadn't heard it before.
Being a one-man operation, I do often rely on tips from readers; so thanks for sending me that link.
From Jay Leno on 4/18/07:
There was a scary moment yesterday for Newt Gingrich. At first Newt got worried when he heard the IRS this year was cracking down on cheaters. Then he realized guys who cheat on their taxes, not their wives.
Upcoming Tax Hikes
Interesting video of Senator John Thune explaining many of the humongous tax increases we will all be hit with if the DemonRats carry through on their threat to allow Bush’s tax cuts to expire.
Looking at the silver lining of these impending increases, for all of those tax pros who worry about losing business, each of these tax hikes is a golden opportunity to expand your client base to help people develop tax savings strategies.
IRS Guys Are Smiling
Funny parody song by the Capitol Steps:
From Letterman on 4/17/07:
"If I seem a little nervous, here’s what it is: it’s tax time. Are you folks a little uncomfortable? And I don’t know, we were supposed to file Friday, supposed to file today – I don’t know when you’re supposed to file. All I know is I don’t want to go to prison. And my accountant – I don’t know if this is the guy to be doing business with, but he says to me, he says, ‘Don’t worry, ‘he says, ‘If there’s an audit and you end up in prison, I’ll treat you to the conjugal visit.’”
Springtime for Taxes - From John Stossel
The Insane AMT keeps on attacking more and more people...
From Jay Leno on 4/1707:
I filed [my taxes] online this year. You ever do that? Big mistake. I got so confused I hit the wrong button and sent the IRS some porn. A lot of people asked for extensions this year. Even president bush…you know he got an extension. Because he’s still trying to decide whether or not to write off Alberto Gonzales.
From Nolo Press:
From National Review Online:
Jay Nordlinger had this observation:
“We are admonished by our accountants not to send in our tax returns through the U.S. mail. Better to send them via some other means, to be sure they get there.
Isn’t that kind of comical? I mean, here we are, paying our taxes in order to have public services. And the U.S. mail is a service we don’t dare use, to pay for our services.”
America’s convoluted income-tax system should be optional – Deroy Murdock
Taxing Myths – Brian Riedl covers some of the mis-statements (aka lies) our left wing rulers and their media compatriots use, such as tax rate cuts created the deficit. For quite a while, this kind of statement has been one of the “litmus tests” I use to judge the intelligence and credibility of a person. Anyone spouting such tripe has classified him/her self as an idiot, not to be believed or trusted on any subject. I have recently added those who spout the Al Gore crapola about Americans being responsible for global warming to this litmus test for intelligence. Anyone stupid enough to fall for Gore’s idiotic theories that people are more powerful than the Sun really shouldn’t be trusted with sharp objects, much less have any of their opinions taken seriously on any subject.
Top Ten Signs Your Accountant Is Nuts
From the Late Show email newsletter:
10. Every time you give him a receipt, he eats it
9. He keeps your records on an Etch-A-Sketch
8. Brags about the good advice he gave to Wesley Snipes
7. You visit his office and he's actually counting beans
6. His children are named "Debit" and "Credit"
5. Keeps telling your wife she has a nice pair of W-2s
4. He puts you in for a $10 million refund and says, "Hey, let's give it a shot!"
3. He keeps trying to deduct your pants
2. Ludicrous claims of having nailed both Morgan and Stanley
1. He keeps referring to the IRS as "those auditing hos"
Tax Day is now Thursday, April 19 for some people
Making Fun of IRS
Don't give up on the Fair Tax...
From a reader:
Subject: A Word of Thanks
I ran across your blog & website today while searching for a graphic to go along with the pro-FairTax post I am preparing for my own blog.
As I looked through your sites, I just had to say thank you for your support of free market economics & tax reform. It's great!
I appreciate those kind words and knowing that there are others out there fighting for tax reform.
Please send me a link to your post on this and I'll mention it in my blog.
Thanks for writing.
Thank you for the offer to mention my post. The blog is at http://www.chuckschants.blogspot.com/
The comics you have are priceless!
Besides Chuck’s post on the Fair Tax, I want to echo a caller on last Friday’s Rush Limbaugh show, who chastised the substitute host, Tom Sullivan, for being so dismissive of the Fair Tax movement just because it is so seemingly impossible to conceive of success. That my be the case; but we do still have to have some hope that our long national nightmare of being slaves to the IRS can end some day.
2006 Tax Cartoons
I try to stick with new tax related comics to post here. If you want to check out several from last year, Daryl Cagle has posted 19 pages of them, starting here.
You can also see what I posted a year ago in my archives from last April.
Web Info No Substitute For Consulting
Subject: ThanksKerry,Your commentary on the differences between C and S corporations was very informative. Thanks for posting the information.Regards,
I'm glad you found my info useful. However, be careful about relying too much just on info you find on the internet. Be sure to consult with an experienced professional tax advisor before you actually implement any tax saving strategy, such as setting up any kind of corporation.
Backing Up QB Files
Subject: Quickbooks Question
I have Quickbooks 2005 Basic and I need to backup just my calendar year for 06 is there a way to do that.
Please help. thanks
There is no way to backup just part of the data in a QBW file. It's all or nothing.
I'm not sure why you would even want to backup part of the file and possibly lose the rest.
If your data file is becoming too large for your computer to handle, there is an archiving function that allows you to remove the details from before a certain date that you specify. You may want to do that for before 1/1/06 and then your file will only contain the details for 2006. Check the QuickBooks Help function for more details on how to do this.
Good luck. I hope this helps.
IRS is taking fewer tax cheats to court - From USA Today, which has long had a bias in favor of higher taxes and more IRS power.
Phone Tax Credit Alternative
I was able to complete the 8913 fairly quickly for clients who had their data entered properly in QuickBooks.
Here's another question for you... I filed my taxes electronically this year and everything was processed through when I discovered I failed to include some income on my Schedule C-SE. I filled out the amended return forms and now know I owe a little more tax, how do I go about paying them? How do I show that I've already paid some portion of them and do I include a check or will they know where to direct debit?
Also, do I include the original 1040 or just mail the 1040X form and the changed schedules?
As I said previously, you really should be working with a professional tax practitioner to ensure that your tax returns are prepared properly.
To correct any material mistakes on previously filed Federal tax returns, you need to prepare Form 1040X and send it along with copies of all forms and schedules that have changed since the previously filed return. The 1040X has spots to show what you have already paid in for the year, as well as any overpayment you may have already received as a refund or rolled over to 2007.
If you live in a taxable state, you will need to file a similar X form with your state tax agency.
IRS is currently charging interest at the annual rate of 8.0%, compounded daily; so you should include a check for the taxes and your best calculation of the interest from April 17, 2007 until the check is received by IRS. Since that start date hasn't arrived yet, if you get your 1040X in by that date, there should be zero interest.
Again, a tax pro can help make sure that this is the final amended return you have to send in for 2006, as well as help you find other deductions that you overlooked that could very easily turn the tax due situation into a refund.
Vacant Land + Residence
Subject: Re: Vacant Land Sale QuestionKerry, I hate to bother you again, but I successfully sold the lot in January 2006 for 112,000. My house is on the market, we have since bought a new house. Do I have to claim the lot sale on my 06 taxes, or can I wait till my house sells and roll it in together? I want to make sure I get the exemption, but do not want to mis-report. I really appreciate your advice, you are a kind man.-Regards,
The 2006 sale must be reported on your 2006 1040 or else IRS will later discover it as missing and assume the full sales price is taxable income.
How the 2006 sale is reported has a number of potential ways, as I mentioned in my previous email. This needs to be handled with the services of a tax professional to see which method would be the most appropriate for your unique circumstances.
Don't forget to claim IRS "Freebie"
The standard refundable credit is $30 for Single taxpayers and $40 for Married Couples. I'm assuming that most tax software programs are like our Lacerte and are automatically claiming this; but according to IRS, many of those folks doing their returns by hand are forgetting to enter it.
Corp & Home Office
Subject: Thank youThank you for your great article. We were about to from an S corp because all professionals we meet advised us so. After reading your article, we changed our mind. My wife has an online business with gross income arround 70000 a year. It is basically a one man's side job and we use our home as office. If we form a C Corp, do we still get the benefit of home office deduction such as mortgate, house repaire/maintanence, utility, etc? Perhaps, we can even use a more aggressive formula to take the benefit? It would be great if you could mention this in your article.Regards,
Leasing a home office to a C corp has long been a very easy way to pull money out of the corp without having to pay any of the payroll taxes that would be required for salaries and avoid the double taxation of dividends.
Any experienced tax pro who understands the power of using C corps can help you set up a good strategy to minimize your taxes via this and the several other similar techniques.
Sect 179 & Partnerships
Subject: Section 179 Deductions
My partner and I each have a Section 179 depreciation deduction of 57,000 on our K1's. The business had an ordinary loss of 7,500 for TY2006. My wife and I have ordinary income of $125,000 for 2006. Can I deduct the 57,000 on my tax return?
It sounds as if you tried to prepare your own 1065 because the size of that Section 179 in relation to the net income seems out of whack. Unless you have properly addressed the Section 179 limit at the 1065 level, which does include adding back some things, such as guaranteed payments to partners, there is a good chance that the K-1 info is wrong. You need to have a professional tax preparer bless that 1065 before you try to use its items on your 1040s.
Assuming the $125,000 you mentioned was Earned Income (not from investments and capital gains), and the 1065 was prepared properly, you should be able to use the full amount of the pass-through Sec. 179 on your 1040.
Again, you need to have a professional tax preparer work on your 1040 as well. If you try to do it all on your own. you are almost guaranteed to screw things up and get yourselves into trouble with IRS.
Kerry:I may have confused you a little regarding my information. My wife and I have W-2 income from full time jobs. I am a partner in an LLC which is a contracting company. We purchased 8 new vehicles this year and our K-1 was prepared by a CPA (not mine). The purchase of the vehicles has balooned our 179 deduction. My question was posed because my accountant indicated that I could only use the 179 deduction to offset earnings in the LLC not against ordinary income.
Technically, any Section 179 you have can be used against any earned income on your 1040, even that from occupations other than those that produced the Sec. 179.
However, I am still concerned that the LLC's 1065 may have been prepared incorrectly. If it had been calculated properly, all of your pass through items should net out to zero, with your share of the Section 179 offsetting your share of the company's net income and your guaranteed payments. You really shouldn't have a case where the other net income from the LLC wasn't enough to soak up all of the Sec 179.
If the 1065 was prepared by hand, that points to your problem. Most professional quality tax prep software wouldn't allow too high of a Sec 179 to be taken for the year. You should have your personal accountant review the LLC's 1065 to see why the Sec. 179 expense is so much higher than your share of other income passed through. I'm guessing that the LLC's CPA screwed up and the 1065 will need to be amended.
This will obviously also affect the tax situation for your LLC's co-owner; so neither of you should send in your 1040s until this is straightened out.
Another word of warning. Because of the rise in the use of LLCs and S corps, IRS is paying much closer attention to what figures owners report on their 1040s. So if you were to report an erroneously high pass-through Sec. 179 on your 1040, I would put the odds as very god that your entire 1040 would be pulled for an IRS audit.
Please let me know what your personal accountant finds when he reviews the 1065.
Making your own money
Some day, IRS just may have to adapt to the new fangled definitions of marriage that many people are trying to force onto society.
Sales of Small Corp Stock
After linking to this article a few days ago on the ways to reduce taxes on the sale of a small corporation under Sections 1045 and 1202, I was curious to see how well these topics were covered in my main reference sources.
TheTaxBook has good coverage of these on Page 18–9
QuickFinders online has them covered in their Small Business and Tax Planning For Small Business Handbooks.
Tax Coach Software doesn’t appear to have any coverage of these. I will be writing to the authors to ask them to consider adding it to their growing list of tax planning modules.
Check that you're using the proper filing status...
When you're married, IRS doesn't consider either spouse to be a Head of Household.
Top Ten Ways To Make Tax Time More Fun
Courtesy of the Late Show
10. Everything that goes to the IRS, I lick.
9. Every time I write the number "8," I draw a hat on top to make it look like a snowman.
8. I try to deduct items that don't exist, like jimrod... They'll be figuring that one out for years.
7. With each tax return, include some of your favorite "Yo accountant's so fat" jokes -- like "Yo accountant's so fat, he gets to claim his giant ass as a dependent."
6. This time of year, I don't wear underpants .
5. I don't think it would be possible to make tax time more fun .
4. Aww crap -- it's tax time?
3. The big stacks of papers on my desk? I pour some maple syrup and eat 'em like pancakes.
2. Every year I get to leave the office for five minutes to be part of this stupid Top Ten list .
1. When I finish my work for the season, I treat myself to a whore.
Why Investors Should Consider Real Estate - From the free WSJ.
Another Way to Sell Without Paying Taxes - A reminder of Section 1045, allowing sellers of small corporations to reinvest into other small corp stock. I recall when this was implemented in 1997, but haven't actually had any clients use it yet.
As I've said countless times, no tax pro who is worth his/her salt has any reason to have the slightest bit of fear about losing clients to any of the do it yourself tax programs. In fact, just as there has long been a very lucrative market for us real tax pros in cleaning up H&R Block returns, there is similar opportunity in unscrambling DIY tax returns for those folks foolish enough to think a computer program can replace the expertise of an experienced human tax pro.
I don't have time to answer more hate mail. So, for any H&R Block folks whose feelings may be hurt by the above comment, you need to lighten up and face reality. For at least the first two decades of my career, it was a frequent saying among CPAs and EAs that H&R Block was the best thing out there for generating business amending their returns. That's a fact. Accept it and move on.
It will look a little different when she is back in charge.
Courtesy of the folks at Fark.com
(Click on image for full size)
These are the same folks who generally have to file amended returns because they rushed their returns in without taking the time necessary to ensure it was complete and accurate the first time.
Karl Marx vs. Robin Hood
Subject: Wealth DistributionBlaming Karl Marx?I think Robin of Loxley (Robinhood) took from the rich and gave to the poor long before Marx was even born.
Close, but no cigar on that one.
While similar, I doubt anyone can legitimately claim that the exploits of a fictional free-lance character can in any way measure up to the influence of a pair of real life economists (Marx & Engels), whose works have been the foundation for the establishment of real world governments that have murdered millions of their citizens in pursuit of the insane utopian dream of ultimate equality under communism - socialism.
Robin Hood was a nice fairy tale; but Marx and his followers have done very real damage to the world.
I meant it to point out that "wealth redistribution" is not universally viewed as a bad thing.Most Americans would agree that communism/socialism - the removal of property rights from owners and giving them in common to the citizenry* was a bad thing.At the same time, most Americans would view Robinhood, a man who literally stole money from the aristocracy and handed it over to the commoners as a hero.It is not so much the redistribution of wealth that people think is bad, but the reasons and the method
Subject: Section 179 - Automobile questionMr. Guru,In reading your site regarding the Section 179 deduction, you mention that a "business vehicle weighing in excess of 6000 pounds qualifies for the full deduction." Does that mean any/all vehicles over 6000 pounds or just trucks & SUV's? I also saw in your section for property that qualifies for the section 179 deduction that you listed automobiles, trucks, & SUV's separately as if they all qualify for this deduction. I just want to make sure that I understand the rule correctly.I thought that only trucks & SUV's qualified for this deduction, ie...automobiles did not qualify because they were considered "luxury automobiles" & the only exceptions for this were trucks & SUV's.I hope your website is accurate because I would like to make a new purchase of a Bentley GTC which is an automobile which has a GVWR of almost 6400 pounds. Please tell me it qualifies for the Section 179 deduction because I will be using it for business abou 90% of the time. Then please tell me the "50% bonuse depreciation" situation will get extended & then my $200K automobile will be one nice deductible vehicle - right??Thanks for your feedback - the details of the luxury auto rules mixed with the exceptions & the section 179 are just little too confusing for the non-tax pro.
The luxury car rule that limits the amount of depreciation that can be claimed for a vehicle is based on the weight of the vehicle, regardless of what kind it is. Any vehicle with a gross vehicle weight over 6,000 pounds is exempt from it. It has always been that way, since the initial conception of the luxury car rule.
I can still recall back in 1984, shortly after the luxury car rule was first enacted. I was walking through the parking lot of a financial planning firm in Danville, CA, where I was scheduled to give a presentation on the rules for business expense tax deductions, including vehicles. In the parking lot, I passed by a relatively new Rolls Royce parked next to a brand new Porsche. When I was covering the new luxury car rules for depreciation, I explained that the person with the Rolls, because it weighed much more than 6,000 pounds, was able to depreciate its full $200,000 cost over five years, while the Porsche's owner was only allowed to deduct about $13,000 over the first five years, with the rest of the car's $80,000 price deducted at about $1,300 per year.
This was before Section 179 existed, but when that special tax break came around, the same 6,000 pound break point was still in effect in regard to how much could be claimed for vehicles.
In regard to your Bentley, it obviously is not covered by the luxury car rules for regular depreciation. However, for Section 179 purposes, you need to work with your personal professional tax advisor to see how much you can claim. While it may not be an SUV in the normal understanding of that kind of vehicle, if you read the tax code's definition of an SUV in this blog post, it looks like your Bentley is covered and would thus be limited to a Section 179 deduction of $25,000, with the remaining cost depreciated over five years.
I hope this helps. Your personal professional tax advisor can obviously give you more specific numbers for your unique circumstances.
Thank you so much for taking time to respond.I too believe the new language "limiting" the Sec. 179 deduction to $25,000 on SUV's & all other vehicles would limit the Bentley to $25K because it doesn't fall within the additional exceptions - that is why it would be great to get the addition 50% bonus depreciation extended because that would mean about another $100,000 deduction in the first year - wow, wouldn't that be great.Since writing my email to you, I have found another interesting option which you might find helpful for yourself or some of your clients with the resources & need for expenses.There is a new truck which is just making its way onto the market. It is called the International MXT which is a Hummer type vehicle with a 7 foot bed. The gross vehicle weight rating is just over 14,000 pounds which should exempt it from all of the tax rule restrictions - right. If I'm right about this, then I could buy one of the "limited edition"MXT's which costs somewhere around $125,000, & I could basically write off the entire amount in the 1st year - right. I would get the max 179 deduction of 108,000 or whatever it is for 2007 & then have the remaining amount depreciated at the 5 year rate.All good choices!! Are you still taking on new clients? Do you help clients in California? I have a very unusual set of circumstances which will likely make my 2007 income several million dollars & I have the ability to develop whatever structured companies might be helpful in taking the fullest advantage of our tax laws - I just don't know enough about the laws to help myself without a great advisors. If you would even consider helping me - I'll fly to you wherever that is to further discuss some options. I'm reading about Nevada corp's, offshore companies, etc....to see what legal options might be available.Thanks again for your time and consideration.
I remember posting a link to that huge truck a few years ago on my blog. My warning from then still applies now. Buying anything, including a humongous gas guzzling vehicle, strictly for the tax write off is not a financially wise move.
In regard to taking on new clients, nothing has changed; so I have to pass along the same reply I send to several people each week:
Subject: Shifting money between companiesDear Kerry,On your website you've talked about the merits of owning multiple corporations with different fiscal years, one of them being the ability to shift money back and forth to reduce/postpone taxes.I had a CA S-corp, and based on your advice I set up an OR C-corp last year, with fiscal year end on Jun 30. I intend to use this corporation for other businesses, but I also wanted to have the flexibility to shift money between the 2 companies if needed.However, I spoke with my new accountant today, and he suggested that any money transfers (by invoicing of course) between such companies would be considered "related party" by IRS, therefore not be deductible, be borderline (maybe flat-out) illegal, would raise immediate flags, and very likely result in penalties.What is your advice? Should I look for another accountant?Thanks very much,
It's obvious that you need to find a different professional tax advisor; one with some real world experience shifting income between entities.
Income shifting is not illegal and has been a standard business tactic for literally centuries. As long as the amounts are reasonable for what they represent, and are treated consistently by both sides (payee and payor), IRS will accept the numbers.
A few years ago I had an IRS auditor tell me that as long as both sides are using the same method of accounting (cash or accrual), they won't even bother looking at the related party transactions. If they are using different methods, then the auditors will look to see if there is any artificial manipulation going on. That's why I make sure all of our clients and their related entities are using the cash basis, and IRS has never had any problems with any of the income shifting we have been doing for over 30 years.
For example, back before I sold off my Bay Area practice, I had some clients for whom we had set up a Calif corp and a Washington State corp. Each tax year, we made sure to shift all of the corp profits out of the high tax PRC into tax free Washington. This is frequently done with Nevada corps as well.
Anybody who claims that income shifting between related entities is illegal needs some more education before s/he is safe to consult with actual real world clients. When interviewing potential tax pros to use, make sure to cover this topic up front and only choose a person who can give you some examples of how this tactic can be used in your situation.
Hi Kerry,Thank you. I appreciate your detailed response. You've mentioned that you had your clients use the cash method in all their accounts. Likewise, would it be okay to use the accrual method instead, as long as it's consistent across all companies. Are there any restrictions on that specific to S-corps?Thank you.
You'll need to work on this with your own personal experienced professional tax advisor.
Personally, I'm genially against using the accrual method because we do a lot of income shifting between individuals and their corporations, and individuals are always on the cash basis.
The conversation with the IRS auditor I mentioned previously was during an examination of a high income individual's 1040. When the auditor asked about payments between him and his corporations, he specifically said that because the corps were on the cash basis, he would skip looking at them; but if they had been on the accrual, he would have had to examine the corporations as well.
Okay, thank you very much for your time and advice.
Income Tax Fever
Another good look at the tax mess from Tom Briscoe
Making everyone equal
A staple of the drive-by media are stories about the horror of income and wealth inequality. Underlying these tales of how terrible our society is for allowing such disparities is the only solution, central government confiscation and redistribution. I hope it's not necessary to remind folks where this concept originated (thank your Karl Marx).
I was very surprised to see this analogy in a comic from the Arkansas Democrat's political cartoonist:
(Click on image for full size)
Not everything in tax law is explicitly stated...
Subject: Section 179-Are assets used in commercial rentals eligible for the Section 179 deduction?Good Afternoon TaxGuru,TurboTax allows me to take a Section 179 deduction for tangible, personal-property assets used in my commercial rental activity. It does not allow this treatment for residential rentals.Here's my problem. I can't find anything in Publication 946 to support TurboTax's position, but find it difficult to believe that this huge company could make such an error.My accountant says I can't take the Section 179 deduction; TurboTax says I can. Would you please steer me to the relevant IRS regulations and rulings?Perhaps you could add it to your online article about the Section 179.Thank you kindly.
You are approaching this bit of research into the Section 179 law from the wrong perspective if you expect it to specifically spell out every single possible type of asset that would qualify for first year expensing. That isn't how most laws are written.
It's been almost 35 years since I took Business Law in college, so I don't remember the specific legal term; but I do recall the concept that most laws allow certain things in a broad sense and any exclusions from that coverage are required to be specifically stated. In other words, if a law says movable business equipment can be expensed in the first year, we start from the premise that this includes everything. Then, the law and regulations specify certain things that are not to be covered by this law.
As you have most likely already seen, most descriptions of ineligible property include the following:
"Used predominantly to furnish lodging or in connection with the furnishing of lodging (with the exception of hotel/motel operations)."
If the law were intended to rule out property used in any kind of rental activity, it would say so and not make the very definite distinction of only mentioning lodging (aka residential). By only mentioning that kind of rental activity, it allows us to operate under the assumption that otherwise eligible property used in any other kind of rental activity would not be ineligible.
There is also the fact that, for as long as the Section 179 deduction has been in existence, landlords of commercial properties have been claiming it for many kinds of equipment used in conjunction with those rentals and IRS has not had any problems. Many of my clients are commercial landlords and I frequently use Section 179 on those rental schedules, and IRS has never once disallowed it.
I realize this may not be as detailed an answer as you were hoping for; but it's the best I can come up with during this heavy crunch time.
I hope it helped you understand this issue a little better.
Kerry:Thank you for your excellent advice. You answered my question and taught me an entirely-new-way-of thinking.This is an incredible gift. I will revisit your site regularly to check out your advice and watch for client openings.Thanks again.Your raving fan,
Every year around this time (Tax Season), F.R. Duplantier graces us with some of his limerick style looks at the fun topic of taxes.
This year’s offerings:
Fully two-fifths, as a matter of fact.
That's quite a large portion, but what's got me burned:
I'll never see that much in service returned, ETC.
Tax on Gifts
Actually, gifts are one of the very few types of income that are exempt from income tax on the recipient.
Subject: Section 179 truck depreciation question
I have a tax question I'm hoping you can help me with.
We bought a truck in 2006 for our business and are going to section 179 depreciate it's value for the next 5 years. If I deduct $5000 (depreciate) it's value this year, can I deduct more next year, (in the event we make more money and I need more deductions.)
Is the depreciation set once you place something in service? Is there anyway I can increase the amount on the second or third year?
The truck cost 22,000 dollars, so it's be nice to depreciate it just enough each year so as to not have to pay taxes. So maybe $5000 this year, and $6000 the next, but maybe only $3000 the third year. Is this possible?
Please let me know ASAP as taxes are due soon.
You can't just change the depreciation methods and amounts each year. There has to be a consistency.
That said, there are a number of ways in which you can depreciate the truck. For example, you can use straight line or accelerated regular depreciation. You can claim part or possibly all of the cost of the truck as Section 179. If your taxable earned income rules out an actual current year full deduction, the excess Sec 179 can be carried over to be used on the 2007 4562, and so on.
You really need to be working with an experienced tax professional because it is obvious that you are guaranteed to make mistakes that could cost you tax dollars, as well as get you into trouble with IRS. Handling the tax matters on your own is absolutely crazy.
In regard to the tax returns deadline, you are not likely to find a good tax pro in the next two weeks because we are all already swamped. You should do your best guesstimate of how much you will owe with the 2006 tax returns and send that in with an automatic four month extension in order to give yourself adequate time to locate and start working with a tax pro.
Changing QB File Names
Subject: I need to change a QuickBooks file name
I have upgraded to QuickBooks Pro 2007 and loaded the files from 2002 and input all the checks from 2003 and 2004 to bring the file current. ( because I couldn't find the updated file you sent back to me from the 2003 taxes)
Now, I have the 2004 stuff entered and the files have the names associated with 2002. I would like to change them and can't figure out how to do it and still keep them "on the radar" for QuickBooks.
If you think it's easy enough, I would appreciate your help, sent to me at home tonight as I'm just about ready to close this place down and head home to my other job.
While you are not in the QB program, use Windows Explorer or whichever file manager program you prefer (we use PowerDesk), to go into the folder where you have your data files. QB 2007 uses three data files for each company, with extensions of QBW, QBW.ND, and QBW.TLG
You can right mouse click on each file and select "Rename" to change it to whatever you prefer. As long as the file's extension is the same as before the change, the program will open it with no problem.
I hope this works for you.
Subject: tax researchDear Mr. Kerstetter,Hello. I am a CPA located in Miami, Florida. This e-mail might sound a little strange but I found your web site, I think via Google, and it appears very informative so I was wondering if I might be able to pick your brain a little.Background – I have about 18 years experience as an accountant but I have not prepared taxes in many many years. I worked for about 6 years at Coopers & Lybrand in the early/mid 1990s before they merged with PW. However, I was an auditor the entire time at C&L and did not get a chance to learn corporate/partnership taxation. I currently work as the CFO/Controller for a medium sized general aviation firm here in Miami. However, I want to start doing tax returns to make additional income and transition out of the corporate world. Initially, I would like to become qualified to prepare more complex personal, corporate and partnership returns and maybe eventually do some estate work. I have purchased the Lacerte tax software and I am currently building a small base of clients.Issues – The main problem is that I have already run into some tax questions that I cannot readily answer. One question regards a current cash basis C Corp that is interested in converting to a cash basis S Corp (I think this is how I found your company). Another question is an accrual basis S Corp that wants to convert to a cash basis S Corp. Another issue that has been raised is how far back can the IRS go to request payroll data – one of my clients lost most of their payroll records from 2002 and prior during a hurricane in 2005 and now the IRS is asking for records for 2000 and 2001. These are just 3 examples of the questions that I have already run across and I have only been trying to build tax clients for a few months now. Anyway, my main question is what is the best way for me to research these more complex issues? How do you do your tax research and what resources do you use?I would greatly appreciate any help and insight you can provide to me as I do not want to erroneously advise these new clients. Thank you in advance for your help.
I used to waste a lot of money subscribing to the expensive tax research services, only to use them maybe one or two times a year. I have had much better success using the reference books from QuickFinders and the new TaxBook from the former QuickFinder writers. I use those practically every day.
The message boards on both the QuickFinders and TaxBook websites are very active, with tax pros helping each other answer tricky issues. You should be able to get a lot of help there.
For the past several months, I also have been subscribing to the TaxCoach Software online service and have found it to have a very useful and growing wealth of information for clients, as well as people to whom I am making presentations.
For the super difficult issues, you may want to consult with a more experienced tax pro. I pay a tax attorney in Fayetteville his regular rate to help me on cases that go beyond my expertise. Likewise, I have some other tax pros as clients, who pay me my regular rate for advice on how to proceed on sticky cases.
Building up personal knowledge and expertise does take time; but these resources should reduce the learning curve by quite a bit. I have links to the sites I mentioned in the blogroll on the right side of my blog.
We're on our own...
One of the many frustrating things about navigating the tax maze is that, with anything that is complicated, IRS won't tell us how to do it properly ahead of time; just so they can come in later and accuse us of doing it wrong after the return has been submitted.
From the latest issue of Debt Proof Living:
Earmarking our tax dollars?
From A Reader:
Subject: open letter to the irsHi,I thought you'd appreciate this page that my friend just posted--his ideas about income tax earmarking.
Thanks for sharing that.
I've written about that kind of fantasy - allowing us to designate how our tax dollars are spent - a number of times over the past decades. Several years ago, I even ran a poll of readers asking how they would allocate their tax dollars on a percentage basis for the various governmental agencies.
Unfortunately, I have also had to explain on several occasions that such direct control over how our tax money is spent is impossible under our system of government. Under the US Constitution, we have set up a representative republic where the smartest and brightest people among us are elected and sent to Washington DC, where they are authorized to take as much of our money from us as they want and then spend it as they, in their superior wisdom, deem it best.
Most elected officials will allow certain people to assist them in those spending decisions in exchange for campaign contributions (aka bribes); but as far as what the average taxpayer wants his/her money to be spent on, they couldn't care less.
IRS has no power over how any of our tax dollars are spent. They are our rulers' enforcers and are strictly tasked with using brute force to ensure a steady stream of money flowing in to DC.
While I am foremost in favor of repealing the 16th Amendment and abolishing all income taxes, my second best option would be to have a new amendment that adds a schedule to our tax returns that allows each of us taxpayers to earmark exactly where each of our tax dollars is spent.
That will never happen; but we can still dream.
Thanks again for writing.
Sadly, I agree with you that congress will never give up control of spending but if you read the proposal carefully, it's not actually advocating for removing control from the politicians. Really, all it is recommending is a cosmetic website that will tally "allocations" towards budgetary line items. The truth is, all budgeting would continue to be in the politicians' hands (for better or for worse), and all taxes paid would still go into the general fund. The only real true value of this is increasing taxpayer buy-in and engagement.
It's the feel-good equivalent of buying a brick on the entry plaza for your favorite ballpark--the truth is, they're going to spend how they want, and your money doesn't actually go where you tell it to. But, the upside is you get a nice memento and a feeling of ownership.
Thanks for your feedback!
Section 179 for office condo?
Subject: appreciate your advice=sec 179Dear Sir,Greetings to youI heard of your good name.Appreciate if you can kindly advice me if my purchase of a condo($25,000) for business office can be claimed as sec 179?Thanks
Real estate for offices has never ever been considered eligible for Section 179 expensing. This special deduction has always been pretty much limited to movable business equipment. For example, a motorhome used as an office would qualify, but a permanent structure would not.
I have a lot of info on what kids of things do and do not qualify for Section 179 on my website.
Better still, you should be working with an experienced professional tax advisor. The fact that you could even consider claiming Section 179 for an office condo makes me very worried that you are going to get yourself into some very deep doo-doo with IRS if you continue to take the reckless and irresponsible path of navigating tax issues on your own.
I hope this helps. Good luck.
Thank you for your advice.I am planning to seek help from a CPA for my tax returnRegards
When any of our clients' stuff is a mess, I don't just think about it. I let them know they need to straighten things out by using QuickBooks or find another tax preparer. Most of them get their acts together, while the ones who refuse move on to aggravate other tax pros who are more tolerant than I am.
We can't afford fairness...
With all of the recent discussion of the increased number of people being hit with the insane AMT, there has been hope that our imperial rulers in DC will finally do something to alleviate that mess. As Herman Cain points out in this article, that’s not likely to happen because, no matter how unfair and insane the tax is, our rulers will not let go willingly of any source of money for them to spend.
This is exactly like the case of another hot topic on which I have been ranting for decades, the Marriage Penalty built into the tax code. While it isn’t as bad now as it used to be (especially before the new home sale rules), it is still an expensive part of the tax system for dual income couples. While our rulers have given lip service to caring about this injustice, they have refused to actually do anything about it for the simple reason that “they can’t afford it.”
Money for our rulers to spend is just more important than morality or fairness, which is why we shouldn’t get out our hopes too high for an actual repeal of the AMT or the Estate (aka Inheritance or Death) tax, another immoral tax that is justified mainly because of the money it provides to DC, as well as its supporters’ Marxist love of wealth redistribution.
If it works for my friends, it must work for me?
Subject: Re: Tax Accountant for C-corporationKerry,Thank you very much for your advice. I will contact one of the accountants on the list that you mentioned.I have been asking many people in my same situation, which type of corporation they have opened, and ALL of them say S-Corp. I opened a C-Corp because I didn't know any better when I did it, but am planning on changng to S-Corp.In that article, you mention how a C-Corp is better, but do you think an S-Corp is better in my situation. I will be doing technical consulting.. and will be the only employee in my corporation. The people I mentioned earlier, who opened an S-Corp, are all in my situation and say that with an S-Corp you will pay Way less tax. Also, fica, state, and other taxes will be much less as well (One mentioned that with S-Corp fica tax will be 7.5% while 14.5% with C-Corp). Just FYI, my annual income will be approx. $250K.I don't mean to take up too much of your time, but just wanted to ask your opinion because of your expert knowledge in the subject matter.Please let me know at your earliest convenience.Thanks!
It is impossible for me, or anyone else, to give you a proper answer as to what the best entity would be for your particular unique circumstances without asking you dozens of very personal and probing questions. Anyone who pops a one size fits all answer off without an interrogation is dangerous and should be avoided at all costs.
Comparing your situation to anyone else's is crazy and can only lead to big problems. There is nobody else in the universe who has the exact same situation as you do; so what may be appropriate for someone else is irrelevant.
It is also very likely that the other people with whom you discuss this are actually doing the wrong things for their unique circumstances because they tried to set things up on their own without proper professional assistance. You would then have a classic case of the blind leading the blind.
Whoever told you that FICA taxes are less with S than C corps is obviously clueless as to how things work. Payroll taxes are exactly the same for wages paid by either kind of corp.
Work directly with a tax pro.
I have perhaps stupid question - should I keep hardcopies / printouts of any invoices I generate from Quick Books and electronic invoices I receive for the stuff I buy in the corp? I don't do that at this point - I just make sure I have backup copies of my computer data. Is this enough?
One trend among tax pro offices is to operate as "paperless" by scanning in documents and keeping digital versions of them that can be printed out for or sent to IRS or anyone else who may request to see them.
If you feel that you could produce those kinds of records from your digital info, there's no need to keep the hard copies.
From a practical perspective, the invoices you generate for your customers are not something that an IRS auditor would ask for. They only care about money received via accounting for every penny deposited into bank accounts. I can't recall any of them ever asking to see invoices that were sent to a client's customers in order to generate income.
It's quite different for expenses. Auditors do demand to see invoices for items purchased and deducted as expenses or set up as depreciable assets.
Sec. 179 For Storage Buildings?
Subject: 179 / 208A questionDear Kerry aka Mr.Tax Guru,After reviewing your website page.I have an interplay of 179 and 280A question.
It is my understanding that most storage facilities are eligible for 179. If I sell autos or parts of autos and purchase a garage to store my autos/cars inside of (storage not attached to house) would this qualify under 179 or would this be a 208A issue?
Your understanding about storage facilities is incorrect. Only specialized agricultural ones qualify for Section 179 deductions.
A garage or warehouse does not qualify.
You need to be working with an experienced professional tax advisor before you get yourself into big trouble with IRS by trying to use Section 179 on unqualified assets.
Interest On Home Equity Loans
Subject: HELOC Tax Deductible?Would the interest on the HELOC be tax deductible if I pull equity (about $47K) from my primary home and use that money to pay down my rental property or investment property?Thank you,
There are a number of possible ways in which the interest on that loan could be deductible on your tax returns.
For example, if you haven't already exceeded the $100,000 limit on equity debt, the new interest could be claimed on Schedule A as personal residence mortgage interest. It would not be deductible for AMT purposes.
Under the interest tracing concept, interest on any loan proceeds put into your rental properties could be deducted on the rental Schedule E. This could yield a better tax savings than using Schedule A because it could reduce your AGI, which triggers a lot of other tax savings items.
Under the same interest tracing concept, loan proceeds put into investment property would enable the interest on that portion of the loan to be claimed on Schedule A as Investment Interest, subject to its annual deductible limits.
Your personal professional tax advisor should be able to help you deduct the interest in the most efficient manner.
State Tax Returns Required?
Subject: Residency Test?
Firstly, thanks so much for providing and maintaining your blog, I have learned much from it, as I’m sure countless other people have. Secondly, I was hoping you could help me with a question I have…
This year is the first time I will be filing taxes. I am from
Memphis, TNand went to college in . I was a student in NY until I graduated in June of 2006, and then I was home (in New York ) for three months, and then started my first job in NY in September until now. My license is from TN, and as far as I know my “official” address is in TN, but I work in NY, and I have bills coming to my apt in NY. Memphis
My question is as follows: Where am I resident of? Which state taxes do I file? What rules/tests does the IRS have regarding this?
Lastly, and on a different note (this one may be a little more difficult for you to answer), I wanted (well, my father wanted) to know since I was in school for a little bit more than half the year, can he claim me as a dependent? As far as I can tell, I pass the “qualifying child” tests. What would be the ramifications of this? And if he claims me as a dependant, am I required to file taxes? If not, should I anyway (I think im owed a refund.)
Thanks in advance for your time and effort!
All the best,
You really need to be working with a professional tax preparer.
If you worked in NY, which it looks like you did, you will need to file a part year resident return with the State of NY. While you may have a TN license, it sounds as if you have taken up official residency in NY. NY is one of the most aggressive states in the country at establishing tax jurisdiction over anyone possibly connected to that state. Working and living there makes you a taxable New Yorker and there's no way you are going to escape that obligation.
You and your father need to do some number crunching to see if he paid for more than half of your living costs during the full year of 2006 in order to claim you as his dependent. If he does that,. you will not be able to claim a personal exemption for yourself, which could cause you to owe some tax money. Either way, you need to file both Federal and State tax returns.
Again, a professional tax advisor, who can look at the actual numbers (possibly your father's tax preparer), can give better advice on how to handle your 2006 tax returns.
Subject: Quickbooks Update/Conversion
I just got through reading your information on “Quicken vs. Quickbooks” and it was very helpful. I am a business administrator at a church just south of
and we recently upgraded from Quickbooks 2002 to Quickbooks Pro 2007. We have used Quickbooks for 15 years. Nashville
Everything went great except the reports for one of our accounts will not convert over. It tells us that we will have to recreate all of the reports. We have four accounts in Quicken; Budget, Savings, Reserve and a construction pledge account. All of the reports transferred over with no problem except for the budget account. We have spent hours on the phone with Intuit support and they have not really been helpful. About the only thing we can get out of them is that since our reports are set up on a cash basis instead of an accrual basis they will not convert over. This is not really accurate since the other three accounts are all set up on a cash basis and all of the reports converted over just fine.
The budget account is our largest account and has the most reports that are set up so this will be a major pain to redo all of the reports.
Any thoughts you might have on this? Have you seen this before and if so do you know a solution?
I don't have any easy solutions for this kind of problem. Having been through very similar situations myself - especially going from Quicken to QB - I do want to share my experiences.
First, I only work with Cash basis reports and have in fact been quite frustrated with the way in which most Intuit reports start off as Accrual and make us modify them to reflect Cash.
The first time I had the kind of problem you mentioned, I ended up spending hours and hours researching online tech support, user forums and having phone calls with Intuit. The end result was the same as you had; the reports had to be set up from scratch in the newer program. However, when I did that, it only took about 15 minutes to set up the new report, and it turned out to be much more useful than the original one in the older program.
Needless to say, I was kicking myself for wasting so much time trying to iron out the automatic conversion process when it took so little time to just set up a new report from scratch. Now, when I encounter similar problems, I just automatically design a new report form scratch to give the same info I want. These usually only take about five minutes to do.
I'm sure this wasn't the answer you were hoping for; but if you were to just set up your reports, starting with the pre-configured ones in the new version of QB you are using, you will find that it takes much less time than you thought it would.
Thanks for your response Kerry...That is what I figured and we will start making the new reports. We, like you, spent way too much timetrying to solve the problem when we could have recreated the reports by now.God bless...
The Return of the Liberal Tax Increase - From Newt Gingrich
Consider Multiple Corporations
Subject: C vs. S. corporationHi Kerry. I am a physician anesthesiologist and have my own C- corporation (for home-based office and business-related expenses). I am the only person in my corporation. Had C corp for the past 2 years. According to one CPA, that I am considering to hire, I would save on taxes by switching to S-corporation. He also says I would pay less on Social Security and Medicare taxes under S corp.My current CPA disagrees by saying that I could not deduct for my out-of-pocket medical expenses (co-pays, prescription drugs,etc.) The net result is not very different.Could you please clarify my confusion. I would greatly appreciate it.
I can't give you specific advice without knowing more intimate details of your current and planned situations.
However, from how you describe things, it sounds as if you would be a very good candidate for using both a C and an S corp. I have seen this done very effectively by doctors for decades, where they are able to literally get the best of both the C and S worlds.
As I said, it is a very common technique. If neither of the tax pros with whom you are working understands how to utilize two corps, and insists that you use an all or nothing approach with just one corp, it is time to find a more creative and experienced tax pro to assist you.
The latest Intuit ProConnection newsletter has this interesting article:
As most of their articles do, this one also includes a sample client letter addressing these issues.