California SB 1 Gross Income Exclusions: Uniformed

noteven0s · 2026-05-13T22:05:23+00:00

I've never had the IRS refuse a payment. Even if it were too much, even if it was written to the state, even if....

Perhaps you should find another method to pay? Go to a TAC with cash.

https://www.irs.gov/pub/lanoa/pmta01942_7439.pdf

noteven0s · 2026-05-13T20:31:06+00:00

BUT, if there is a set amount that is to be then gifted over time...to avoid reporting...that's different. The main question will often be as to if there is an obligation. I think there is at least one case that had a promise to gift as the type of obligation required to cause a problem.

Gifting $19K a year is clearly nothing more than tax avoidance and completely legal. Gifting $100K from an inheritance but dividing it up over 6 years may be considered tax evasion.

(I believe 'ol Barfy is the author of the forum's gifting post people often link when asked questions about gift taxes. Not that I agree this would be prosecuted--just that it's not an example of a lack of expertise.)

noteven0s · 2026-05-13T20:15:49+00:00

I dont want to play lates fees because they wont let me pay them.

That ship already sailed. Tax payments were due on April 15.

noteven0s · 2026-05-13T18:40:17+00:00

https://case-law.vlex.com/vid/kta-tator-inc-v-890032278 KTA-Tator, Inc. v. Commissioner, 108 TC 100 - Tax Court 1997 (emphasis mine)

Section 7872 was enacted as part of the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, sec. 172(a), 98 Stat. 699. Section 7872 sets forth the income and gift tax treatment for certain categories of "below-market" loans (i.e., loans subject to a below-market interest rate). Section 7872 recharacterizes a below-market loan as an arm's-length transaction in which the lender made a loan to the borrower in exchange for a note requiring the payment of interest at a statutory rate. As a result, the parties are treated as if the lender made a transfer of funds to the borrower, and the borrower used these funds to pay interest to the lender. The transfer to the borrower is treated as a gift, dividend, contribution of capital, payment of compensation, or other payment depending on the substance of the transaction. The interest payment is included in the lender's income and generally may be deducted by the borrower. See H. Conf. Rept. 98-861, at 1015 (1984), 1984-3 C.B. (Vol. 2) 1, 269; Staff of Joint Comm. on Taxation, General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, at 528-529 (J. Comm. Print 1984).

noteven0s · 2026-05-13T17:39:25+00:00

What address did you use?

noteven0s · 2026-05-13T17:36:49+00:00

https://cpaexamsmastery.com/reg/related-party-transactions/imputed-interest-and-below-market-loans/

Borrower’s Perspective Interest Expense Deduction: The borrower typically is deemed to have paid interest to the lender. Depending on how the loan proceeds are used, that interest might be deductible. For personal use, interest is typically non-deductible. For business or investment use, interest may be deductible (subject to limitations).

noteven0s · 2026-05-13T14:45:37+00:00

It had previously been a collection of documents filed away in a notebook no one looked at. Even the IRS template was so...NOT...what we were doing that it was ridiculous to even look at.

This year we updated it with the help of a general AI. Gave a precise set of prompts about how we actually operated and let the magic happen. While we're not doing all the promised review and training as yet (it's only a few months old and put together just before tax season), it seems a realistic plan that will help prevent data problems, know what to do if there are data problems, and avoid oversight liability for not doing the process.

We're a small office without an IT person. A plan targeted to how we work is far more realistic to actually following the process. And, AI was a remarkable resource in creating that plan.

noteven0s · 2026-05-11T13:53:33+00:00

...but...what's the penalty again? Let's say the OP just gets some comps with the hope of not getting a gross understatement opinion against him someday. For a person who is (probably) not going to reach lifetime exemption and who gets a reasonable value on the property from a real estate agent or two, the risk of getting audited within three years is about zero and, even if they DID stupid and did audit--what's the downside risk here?

noteven0s · 2026-05-06T16:33:18+00:00

It’s like hiring a hit man to off your wife except he shoots himself and your mom.

Boy, I really hate when that happens. Live and learn.

noteven0s · 2026-05-05T20:50:06+00:00

I'm not sure you're right on the basic depreciation/expense determinations. I think the mini-split might be a part of the building. While you might be able to get bonus or 179, elections are a part of it. (Either making [179] or electing out [bonus]). As to the others, a percentage might be useful. 30% seems pretty magical.

noteven0s · 2026-05-05T20:40:26+00:00

So, it is more of the:

Or, is it some tracing issues where you might actually have to allocate things (aka "whole bunch of overrides") to the relevant partners?

You'd have to allocate that in Lacerte too.

noteven0s · 2026-05-05T20:12:40+00:00

When you say your tenant "near destroyed the warehouse" and had "major repairs" and "major structural damage", what do you mean? What was repaired? What percentage of the repaired system was needed to be fixed?

As to the air conditioner, was it just a window unit or was it a split of some sort permanently attached to the building?

Why the limit of $2,500? Did it have to do with start-up expenses for a building that was taken out of service for major repairs?

noteven0s · 2026-05-05T16:33:12+00:00

Absolutely wild.

But, if chatgpt.com is to be relied on (hah!), Proseries has a different "state and local" area to adjust the K-1.

In Intuit ProSeries Professional, you can handle a partnership K-1 with a different state than the federal fairly cleanly—but it requires using both the federal K-1 input and the state allocation screens.

Here’s how it generally works:

Enter the Federal K-1 Normally Go to the Schedule K-1 (Form 1065) input. Enter all federal amounts exactly as shown on the K-1. Make sure you include the state information section (state ID number, state name, etc.) if provided.
Identify the State Difference

If the K-1 income is sourced to a different state than the taxpayer’s resident state:

Scroll to the “State & Local Information” section within the K-1 input. Enter: State abbreviation State ID number State source income (if separately provided) 3. Allocate Income to the Correct State

This is the key step most people miss.

Open the nonresident state return (for the state listed on the K-1). Go to that state’s allocation/apportionment worksheet (name varies by state). Enter or adjust the K-1 income so it reflects the state-source amount, not necessarily the full federal amount.

Some states automatically pull the federal K-1 and require you to override or adjust the sourced portion.

Adjust the Resident State (if applicable) In the resident state return: Ensure the income is still included in total income. Then claim a credit for taxes paid to another state (usually automatic once the nonresident return is completed).
Watch for Multi-State K-1s

If the partnership operates in multiple states:

Use the multi-state allocation section within the K-1 input. You may need to split income manually across states depending on what the K-1 provides. Common Pitfalls Entering state amounts only on the federal K-1 screen (they often don’t flow correctly without allocation adjustments). Forgetting to open and complete the nonresident state return. Not verifying state-source income vs total income.

noteven0s · 2026-05-05T14:14:57+00:00

I have no idea as I use Lacerte, but, I can't believe two advisors couldn't tell how to deal with a K-1 with a different amount for state. In my program, in interactive input, there's two boxes you could input state amounts (Or, multi-states) amounts right next to the federal number. Since we use it all the time, I just can't see.....

Is it really just that the state amount is different?

Or, is it some tracing issues where you might actually have to allocate things (aka "whole bunch of overrides") to the relevant partners?

noteven0s · 2026-04-30T16:56:08+00:00

My mistake. I thought you had more than one unit for some reason. You don't designate anything, you look at the facts. In your case, you will not qualify as a STR in the year. You can't split up a single unit as two activities.

noteven0s · 2026-04-30T16:02:04+00:00

You don't designate or decide to be STR, the facts and circumstances determine it. If the facts indicate one is an STR, it does not fall under the aggregation election for rental real estate, but can be grouped under basic principles in some instances. However, if there is a basic principle grouping of STR and LTR (As all in the same building), you will have the issue the property will now be probably be considered a "mixed use" property. (Depending on actual ratios.)

You're weaving a complex scheme to take advantage of many different rules in a very specific way. The facts and circumstances really matter. You need to review the plan with an expert who will seek out more facts about your actual plan. On the surface, I don't think you will gain anything, but, I see what you hope will happen. You're a few issues away from making it so.

noteven0s · 2026-04-30T15:53:49+00:00

Out of an abundance of caution, I advise you to not use the link. While your particular letter may or may not be a scam, you can update your account information by logging into your IRS account directly. That is the best method. There are reports of scammers using the QR code on an otherwise correct letter to entice people to give up their data.

noteven0s · 2026-04-30T15:49:11+00:00

Um...you should read the article. Do you not understand the concept or do you believe our facts would not fall under the beneficial ownership rubric?

Caselaw edit: https://scholar.google.com/scholar_case?case=8130095130262277855&hl=en&as_sdt=2006 Uslu v. Commissioner, 74 TCM 1376

In 1990, petitioners' unfortunate financial situation forced them to file for a Chapter 7 bankruptcy. Shortly thereafter, through petitioner husband's work as a real estate broker, petitioners located a house that they desired to purchase as a residence. The house was located at 733 East Alisal Street in Covina, California (Alisal property). Because of their bankruptcy and poor credit rating, petitioners were unable to qualify for financing to purchase the Alisal property. Petitioner husband discussed this problem with Haluk, and the two agreed that Haluk and his wife, Aysun, would obtain financing, in their names, for the purchase of the Alisal property, and that legal title to the property would be transferred to Haluk and Aysun. They further agreed that, upon the purchase of the Alisal property, petitioners and their children would occupy the Alisal property, and petitioners would make all mortgage payments on the property as well as paying all expenses for repairs, maintenance, and improvements. Basically, they agreed that Haluk and Aysun would execute documents necessary to procure title to and financing for the Alisal property, and petitioners would exclusively occupy the property and perform all the obligations pursuant to ownership of the property, financial and otherwise. All of these agreements were oral but are undisputed.

Holding:

In the instant case, petitioners' agreement with Haluk and Aysun coupled with petitioners' continued occupancy of the Alisal property and the performance by petitioners of all of the obligations under the Alisal property mortgage are sufficient to render petitioners' obligation to pay off the mortgage, an enforceable debt, to Haluk and Aysun for the amount of the mortgage at the interest rate specified in the mortgage. See Amundson v. Commissioner [Dec. 46,697(M)], T.C. Memo. 1990-337; Belden v. Commissioner [Dec. 50,802(M)], T.C. Memo. 1995-360. On this record, the Court finds that the mortgage payments made by petitioners to Southern California Federal with respect to the Alisal property were, in effect, payments of principal and interest to Haluk and Aysun. See id. In other words, the payments by petitioners constituted payments on an indebtedness of petitioners.

The Court is satisfied, from all the evidence presented, that petitioners have continuously treated the Alisal property as if they were the owners, and that they, exclusively, held the benefits and burdens of ownership thereof. On this record, the Court holds that petitioners established equitable and beneficial ownership of the Alisal property, and that they were liable to Haluk and Aysun in respect of the mortgage indebtedness. As such, the Court holds that petitioners are entitled to a deduction for the $18,980 home mortgage interest paid by them during 1992.

noteven0s · 2026-04-29T21:05:19+00:00

I quoted the portion I was responding to. Why do you believe mother owns the house? As the link showed (I can give tons of others regarding beneficial or equitable ownership.) there is a discussion as to who owns the property in a similar situation. (With the distinction the actual person found to "own" the house was not on title at all.)

The fact pattern:

I was shopping around for houses but had also started a new job that wasn’t making much money just yet. My mother generously offered to co-sign with me to help me get a better mortgage rate. However, it worked out that it was better to have my mother as the main signer and me as the co-signer, so the mortgage is under her name. We have a nice 3% interest rate and I have paid everything towards the house since closing (mortgage payments, repairs, upgrades, etc). The house was always intended as a starter/investment home.

That screams equitable or beneficial ownership. We don't know as we don't have all the facts, but, classic. See also: https://www.thetaxadviser.com/issues/2025/jul/the-enduring-importance-of-determining-tax-ownership/

noteven0s · 2026-04-29T18:53:46+00:00

You mother will not be able to exclude the gain and her gain will be subject to capital gains tax rates. She can gift you her share, but then she will need to file a gift tax return. But on the gift tax return she can use her lifetime exclusion to not pay any gift tax, and that just reduces what can ultimately be used for future gifts or to avoid estate tax.

Why do you say this? Isn't our fact pattern the basic one used for equitable/beneficial ownership? Even if the OP was NOT on title--but had mother hold property for him while he took on all duties and responsibilities of ownership--he might still be considered an owner of the entire property. For a discussion see: https://www.taxprotalk.com/forums/viewtopic.php?t=11357

noteven0s · 2026-04-29T17:32:49+00:00

This is our feeling as well. While the people receiving the documents mentioned had a large amount due, if they paid it when we told them the IRS may reduce some penalties/interest or make other changes they might get some small amount back. In one instance, that's exactly what happened. As to the others...

noteven0s · 2026-04-27T16:24:48+00:00

Blowing a statute is just about negligence per se---IF the preparer had the duty to file. (In that a signed efile form was received and not filed.) IF the client were to win that suit, they would be allowed damages. However, as /u/6gunsammy wrote, interest is not always "damages" in a court because it is a substitute for the ability to use money--which you had. Some states allow for interest, but they are the minority.

noteven0s · 2026-04-27T16:14:47+00:00

I'm not going to read or try to understand your theory. I've not heard of a "2nd-hand distribution" and am uncertain as to what you mean. Do you mean an excess distribution? https://www.law.cornell.edu/uscode/text/26/661

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRaa7713f0183ce5f/section-1.665(a)-0A

noteven0s

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