Attorney-at-Law

“OH MAGI, I WISH I’D NEVER SEEN YOUR FACE” – PART DEUX

In Uncategorized on 10/29/2020 at 17:35

The 1971 Rod Stewart-Martin Quittenton lament of the pool-playing schoolboy echoes in Judge Gale’s tale of Ram Ratan Sharma and Shakuntala Sharma, 2020 T. C. Memo. 147, filed 10/29/20. Ram and Shak are trying to deduct $27K of rental real estate losses, but fall foul of the Section 469(i) $25K stop-loss, to the extent of a $5230 deficiency, and a Section 6662(a) chop.

IRS concedes the chop, but Judge Gale sustains the deficiency.

Ram and Shak agree they’re not real estate pros, but they do actively participate in their real estating. Thus, they claim the $25K stop-loss.

” The $25,000 maximum exemption is subject to a phaseout that reduces the exemption by 50% of the amount by which a taxpayer’s “modified adjusted gross income” (MAGI) for the taxable year exceeds $100,000. See sec. 469(i)(3)(A), (F). Consequently, if a taxpayer’s MAGI is $150,000 or more, the Section 469(i) exemption is fully phased out. Spouses who have filed a joint return are treated as a single taxpayer for purposes of the MAGI calculation, and both spouses’ income therefore must be taken into account in calculating their MAGI.” 2020 T. C. Memo. 147, at p. 5. (Citations and footnote omitted, but the footnote says that the $27K Ram and Shak claim is over the $25K, so the $25K is the best they could get even if they’re right, which they’re not).

Ram and Shak want to exclude their IRA and pension income from their Section 469 MAGI. They claim the instructions to Form 8582 allow this, and attach a copy of said instructions for a year other than the year at issue. Judge Gale allows this, taking judicial notice that those instructions do not vary.

Except the instructions don’t allow deductions for contributions to IRAs, much less withdrawals. Ram and Shak didn’t make any such contributions; if they had, the amount thereof would only increase their MAGI, and hence their deficiency.

There has to be a Rule 155 beancount, because Ram and Shak overstated the Social Security they received, so they need a Section 86 recalculation, and thus yet another go-around with MAGI.

See the title at the head hereof.

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