Calif. source income

Sorry I don't have an answer, but I did notice that while your original post showed up in Google Groups, it never showed up in my ISP news service (Big Old Expensive ISP company, as the television ads put it).

Because I've recently had this experience myself, I'm wondering if others have also.

It showed up on the news server for individual.net. They've got a quite good service at a price of about $12 per year.

Stu

It showed up on all of the AT&T servers and nntp.aioe.org (free server that allows posting) and news.motzarella.org (another free server that allows posting).

And here I thought was going to be the answer to the OP's tax question! [grin]

I have contacted the moderators and have a few things to try. Not to alarm anyone, but it's always good to remember that at any given time, what you see in a Usenet thread may not be what someone else is seeing.

Specifically regarding AT&T, I would suspect that "all of the AT&T servers" is a pretty long list, and they aren't always synchronized perfectly, witness my situation. In my case, experience with AT&T started in the "PacBell" era, went through mergers/acquisitions with SBC, then AT&T, and isn't Yahoo! in there somewhere? Even Prodigy (which I was a customer of at one time) still lives on somewhere under AT&T's umbrella.

-Mark Bole

Well, I did retire from "The Old" AT&T and knew something about the original divestiture plus many of the more recent di- and trivestitures but cannot think of how Yahoo or Prodigy were every part of those.

And I did read in today's paper that a former AT&T purchase, but probably not its greatest mistake, NCR, will move out of Dayton to resettle in the Atlanta area.

=== ==

To add tax content, I just witnessed a near miracle, and thought it worth mentioning. A couple of months ago I amended my own tax return, asking for a larger refund. This week, on the same day, I received both the check for the refund, it came as a multicolored gov't check in a tan gov't envelope that screamed "Steal Me" and I also received in a separate envelope a CP21B "we changed your account - as you requested" and the amount of refund.

If getting the check and the notice on the same day isn't a miracle, what is?

Also on the free server at aioe.org.

Given the distribution model of usenet and the plethora of broken and semi-broken web portals it's rather more surprising there aren't far more incomplete/broken threads floating around than there are...

Don't know about Prodigy, but Yahoo and SBC were cobranded for awhile. Might still be.

Arthur Kamlet wrote: (snipped....)

Right, good news for Georgia. NCR headquarters will move to Duluth, a suburb of Atlanta and next door to Chamblee where IRS service center is located. Also along for the move is the manufacturing arm of NCR which makes atm's, schedule to bring 878 jobs down heah to Columbus, GA.

Now that is hard to believe. It shows that IRS is on the ball, getting the letter out same time as their parent, treasury, issues the check.

ChEAr$, Harlan Lunsford, EA n LA

With a tear in my eye I fondly recall the early days of *S* Prodigy, the first electronic venue for tax folks like us. As I recall, there were Mark and Art and myself among those pioneers.

ChEAr$, Harlan Lunsford, EA n LA

As some wag once wrote,

[sung to the tune of "Mr. Ed"] A host is a host, From coast to coast And nobody talks to a host that's close, Unless the host that isn't close Is busy, hung, or dead.

Host names, including the domains they belong to, have a habit of lingering on long after the commercial organization they referred to is gone. Just like line numbers on IRS forms, it's sometimes easier to make a contortion and keep on using the old one, instead of updating everything to point to the new one.

-Mark Bole

I have found some web pages with statements pertaining to this issue, but nothing definitive (in my opinion) and no recitations of where these statements came from or are based upon.

"A non-resident's income from interest or dividend that is not related to trade or business is not taxed by California." Is interest paid on a deed of trust related to trade or business? Is leasing commercial property a trade or business?

"As a non-resident, you will be taxed on your California-source income: fees, wages, salaries, business income, rents or other income from real estate or other tangible personal property (vehicles, machinery, equipment) in the state." What is "other income from real estate"?

"Alimony income, interest from bank accounts and interest from promissory notes are intangible assets and not taxable to a non-resident recipient." ??

Reggie, the California regulations under CRTC Secs. 17951-17952 govern this area. Income from business activities and from real or tangible personal property has its source where the business is carried on or the property is located (Reg. Sec. 17951-3 and 17951-4). So the flowthrough income from the LLC, which arises from property in California, is California source income to the nonresident member.

The deed of trust, however, is an intangible asset. Income from intangibles is sourced at the residence of the owner unless the intangible has a business situs somewhere else. See Reg. Sec. 17952. Sec. 17952(c) describes a "business situs" for this purpose. Basically, if an intangible is an asset of a trade or business carried on in a particular location, or is held at a particular location as security for a loan or other indebtedness incurred in connection with a business at that location, it has a business situs there. Otherwise it goes to the owner's residence. The fact that the trust deed is secured by California property does not give it a California business situs. Therefore the interest income from the trust deed is not California source income to the nonresident holder.

Katie in San Diego

Katie wrote:

This sounds like an easy way to de-source rental income from California property: set up a single-member LLC and strip out the income as interest payments on a secured loan from the nonresident owner to the LLC (i.e. from the owner's left pocket to the owner's right pocket. A Deed of Trust is just a security instrument -- the *loan*, as evidenced by a promissory note, is what generates the interest income.)

However, Rev. & Tax Code Sec. 17854 says that "guaranteed payments" to a nonresident partner are treated as income from sources within California in the same manner as shares of partnership income, with a cross-reference to the US Tax Code Sec. 707(c) definition of "guaranteed payments" that includes payments to a partner for the use of capital. Interest on a secured loan sure sounds like a payment "for the cuse of capital". So I question whether there is substantial authority for Reggie's plan -- at least where the out-of-state lender also owns 100% of the "disregarded entity" borrower.

'Gwailo

I don't think guaranteed payments to a partner apply, as this is a *single owner* LLC, not a partnership. A single-owner LLC is not a distinct tax entity from its owner. There is no such thing as such an LLC paying interest to its owner. The interest is not a tax event, the full rental income without interest expense flows through to the TP, and is sourced as if there were no LLC.

Steve

How would that work if the single person LLC elects to be taxed as an S-corporation?

Stu

Right, I needed to qualify my statement above.

A single-owner LLC is not a distinct entity from its owner,

*unless* it makes a check-the-box election to be taxed as a C corporation, or makes an S Election as an unincorporated entity (which is treated as a check-the-box C election, followed by the S election).

Having said that, in California the S Corp would have to fufill a number of requirements, such as having officers, having board meetings, etc. Starting from being an LLC does not relax those requirements. You might as well start from scratch.

Steve

Actually, yes it is. It is a separate legal entity. It may be "disregarded" for tax purposes, but I wonder exactly how to handle that in practice. It seems to me, for the OP's situation, the LLC would include interest paid out on Schedule E (OP was talking about commercial real estate), and include the interest paid by the LLC to the taxpayer as income received on Schedule B.

Wallace replies to my post,

You're right; I meant it's not a distinct entity to federal income tax purposes.

Here is some information:

7016,00.html I think you would just have a scheudle E for the LLC as part of the individual's 1040.

Steve

snip

Steve, I agree with everything you've said in this discussion except this last point. I don't believe there is any requirement, in CAlifornia or anywhere else, that an LLC electing S treatment for income tax purposes have officers, board meetings, issue stock, etc.

to the requirements of the LLC statute (Title 2.5 of the California Corporations Code). That makes it a bit of a challenge to shoehorn the LLC's accounts into an 1120S, especially the equity section of the balance sheet, but you just have to grit your teeth and re-label some lines .

Katie in San Diego