Attorney-at-Law

PRACTICING ACCOUNTANCY CAN ALSO BE HAZARDOUS TO YOUR TAX HEALTH

In Uncategorized on 10/28/2013 at 18:54

Remember Donald R. Fitch and Brenda T. Fitch, now playing in 2013 T. C. Memo. 244, filed 10/28/13? No? Neither did I, until I looked them up; there they were, or at least The Donald was, in my blogpost “Practicing Accountancy Can Be Hazardous to Your Health”, 12/26/12. There, IRS accused The Donald and his colleague Mark of playing give-and-go with The Donald’s CPA practice, but Judge Vasquez gave them a bye, saying The Donald couldn’t have manufactured a brain aneurysm and Mark a seizure, just to get a 15-year life to depreciate intangibles.

But The Donald’s and Brenda’s real estate wheeling and dealing were left for the Rule 155 beancount. So back they go to Judge Vasquez, as The Donald and Brenda claim their separate businesses should be aggregated for SE purposes.

Ordinarily, when spouses each have their own business, each files a separate 1040-SE for each business, and they cannot net profit and loss between their businesses for that purpose. But The Donald and Brenda are residents of The Bear Republic, and that’s community property country.

However, since the Social Security Protection Act of 2004, even in community property jurisdictions, if one spouse runs the show, then the income may be community property, but the SE tax falls to the operating spouse, and there’s no sharing with the other.

Brenda ran a real estate brokerage, and that’s the key to the case. She held the licenses, kept her own books (even though The Donald set up her website and maintained her Quicken software), ran around to find listings and make deals; and the fact they discussed business at the dinner table doesn’t help. Though The Donald and Brenda want a hearing on what she did, that’s not necessary.

Remember The Donald was recuperating from the brain aneurysm, and playing put-and-take with Mark, during the years at issue, so he could only work part-time, and that’s murderous for a single-shingle, so his accountancy practice lost a ton of money.

Brenda was keeping the ship afloat, so she had real income. And real SE tax to pay.

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