Constructive Receipt

Is there anyplace to specifically identify *rental* nominee income, reported to me on Schedule E, as such?

I did the best I could, and it seemed pretty simple. As far as I could tell from reading the instructions (and this is from memory), the nominee distribution on amounts for Schedule E is only reported on the 1099-MISC, by issuing a 1099 from me to the responsible party, using proper SSN's, and placing the amounts in the same box(es) as the 1099-MISC that I received.

Do you have something to add to that, other than your guess?

My "guess" is that the CP2000 would have been spit out anyway since the IRS, not having constructive receipt information in their computer, found it impossible to reconcile my 1099's (the ones I received and issued) with my 1040.

--ron

Financial.

See some of my other posts in this thread.

--ron

My guess as to why the program spit out a 2000 is substantially different from yours.

I thought the instructions were pretty straightforward -- just fill out a

1099 of the same type and send it to the recipient, with myself listed as the payer. But maybe I missed something, Arthur.

Are there applicable instructions other than these?

"Nominee/middleman returns. Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners. File the new Form 1099 with Form 1096 with the Internal Revenue Service Center for your area. On each new Form 1099, list yourself as the ?payer? and the other owner as the ?recipient.? On Form 1096, list yourself as the ?filer.? A husband or wife is not required to file a nominee return to show amounts owned by the other. The nominee, not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner."

--ron

What do you do about the expenses? if some of the income was to be nomineed, wouldn't that proportion of expenses also be reported by that other taxpayer?

=== ==

Typically when you get a 1099 or similar information form reporting income, some or all of which you received as a nominee, you do two things. One you issue a 1099 to that person.

And you report the full 1099 amount on your tax schedule, and then indicate the nominee amount you are showing. In a Sch E, the nominee amount can be shown as a misc deduction, and labeled Nominee Distribution for [taxpayer name and tax ID] and in due course the bottom line on your sch E will be right.

I don't understand the relevance of this question to the issue of reporting nominee INCOME "as shown in the instructions", which you are guessing I did improperly.

Your asking of the question leads me to believe that you think I might be improperly reporting EXPENSES. Guessing again?

Of course it would. Have I written anything to cause you to think otherwise?

Again, how does this relate to your guess that I am not following IRS instructions for properly reporting nominee INCOME?

That is what was done. And that is according to the instructions.

Where are the "instructions" REQUIRING the use of this method?

I will grant you that is one of the allowable methods of handling the situation. But I have not been able to find a *requirement* that this is the ONLY way of handling the situation. Nor have the IRS examiners with whom I have discussed this issue indicated that this is *required*.

Would you still recommend this method to your clients even if by reporting only their portion of the income on Schedule E, they might save several thousand dollars in taxes? Oh, and by the way, I am not implying that they should be declaring anything other than their proportionate share of expenses on the return.

--ron

What I think, is you seem to be protesting too much. Why?

To specifics: Nomineeing is not so much an absolute requirement, as it is a wonderful way to both accurately report income and expenses, and keep the figures correct.

So I've gotten into the habit of nomineeing out income and deductions reported on information reporting forms, mostly 1099s and 1098s, and it is really second nature by now.

The IRS does show examples of nomineeing interest and dividends on Sch B (See Sch B instr's or Pub 550) and capital gains transactions on sch D and K-1 informaion where appropriate, and rental income on Sch E, etc. Wherever you find it.

What would I recommend to a client?

First to have a complete and accurate return. Next to correctly report all income and expenses, and to generate the correct tax.

And one thing I try to do, is to try to avoid IRS nastygrams. In my experience, clients get all nervous and such when they get a nastygram, and want to know what I did to them?

Nomineeing income will in most cases, halt the AUR folks and stop the CP-2000. Nomineeing expenses makes your story better, that's all. That 1098 that is issued in your name but some of it is nomineed to the other taxpayer, I report the full amount and nominee out what's not mine. You don't feel like doing that, so don't.

=== ==

Tax season starts for me tomorrow, so I will occasionally peek in here, but plan to cut back my time.

It may be to your advantage to find a CPA, an Enrolled Agent, or a Tax Attorney to review your 2008 Tax Return. Explain the details of your situation to that person as well as what you have garnered from the comments here. The objective would be to have all your concerns dealt with by an experienced professional and to eliminate having to deal with CP 2000's in the future.

If your business situation does not change from year to year, this could very well be a one time event.

While my taxes are far more simple than yours, I will not prepare may own taxes even though I am a CPA. The last time I prepared a tax return it was for my wife shortly after we met and the only reason I did it was to create the delusion that she needed me.

Dick

You seemed to go off on a tangent writing about all kinds of things other than the constructive receipt issue to which you initially gave your opinion. And your inaccurate guesses as to what I might have done with my taxes was denigrating.

The regulations state that a cash-basis taxpayer (me) should report income when received and expenses when paid (with a few exceptions that don't apply here). That's what I do.

I have not received any reports of nominee deductions on my rental

1099-misc's.

I'm sure things get more complicated with certain types of business arrangements, but mine is simple -- not even classified as a partnership by the IRS.

I've seen the examples for Sch B, where it is relatively clear. I didn't see any examples in the 2008 Instructions for Schedule E.

I agree that that is the key.

Even when they might save money by dealing with it?

One suggestion made by the IRS to me, if I wanted to avoid the nastygrams, was to file a paper return and include the supporting reconciliation schedules with that.

Oh, I do that when it won't cost me money. But I won't when it results in my paying more taxes than necessary.

I'm sure it will be a busy time for you. I try to talk with my own CPA at times other than this time of year :-)

--ron

Even though you couldn't _cash_ the check until the following year?

Seth

Good advice, of course, but I've done that with prior returns. My 2008 return does not differ significantly.

My options vary from year to year depending on the precise situation. But basically they vary between:

1. Use method of reporting all 1099 income on Sch E, and making adjustments for nominee and constructive receipt issues as expenses.
2. Use method of reporting only "my" income on Sch E (which I do when it is financially advantageous). If I do so, I then can either a. Submit paper form with reconciliation schedules (I've never done this, but I've considered it). This was an IRS examiner recommendation. But even he wasn't sure it would stop the CP-2000 from being generated.

b. Deal with the CP-2000

Again, the issue for this year was merely how to deal with the constructive receipt issue in the particular case of having mail forwarded using the USPO's priority service.

I think Mr. Kamlet's response was probably correct in that regard (although I much prefer your answer).

But if, when I finally see the envelopes, the postmark date is earlier than

12/29-30/08, or if my last priority forwarding did not take place on 12/31/08, I will check with the IRS and see what they say.

Thanks.

--ron

That's why it's called constructive receipt.

Stu

It was a negotiable instrument to which I had title upon receipt.

Dick

Isn't this an example of ACTUAL receipt?

"Gil Faver" >>>submit a final invoice before I left the building. It was shortly

If the check is cashed there's actual receipt in 1983, but constructive receipt (therefore taxable) in 1982.

Stu

Gil Faver >>> submit a final invoice before I left the building. It was shortly

If I had negotiated the check that night, it would have been actual receipt. Since I didn't. it was constructive receipt.

In late 1983, I started another project for the same client and made a point of my not being paid on New Year's Eve. When I explained what had happened the Department Head chuckled and said the person who had paid me last year was an anal retentive stickler for detail who took pride in not having to make adjusting entries.

Dick

To support that, there is this from the IRS site (Pub 334):

"Checks. Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year."

However, I just constructively received the first of the two January rental checks I had been concerned about. Although the check is dated Dec

30, 2008; it was not at the post office until today (the original PO -- not the forwarding address) and the envelope is postmarked Jan 2, 2009. So I will report it as 2009 income (regardless of what is on the 1099).

I'm hoping the second check likewise has a late enough postmark to support my contention of not having constructive receipt in 2008. It should, since it has not yet been received.

--ron

But you _couldn't_ get cash in 1982, could you?

Seth

The IRS has taken the opposite position on lottery tickets. (A winning ticket could, in theory, have been cashed on Dec. 31, but the IRS claimed the weather was so bad that the winner couldn't actually have gotten to the lottery office. It was mentioned here a while ago.)

Seth

Exactly. That's why it's constructive receipt rather than actual receipt.

Stu