Tax analysis for the season...

....for your enjoyment!

Joe Morris

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Newsgroups: misc.taxes.moderated [this is "MTM" in the text below]
Subject: You won't believe this...

You guys and gals may not believe this one:

One of my Older Tax clients just dropped in (came down the
chimmney by the way), strange old geezer, dresses funny too
(wanted to deduct his fur trimmed clothing as work clothing,
I informed him strange doesn't make it deductible)

Anyway he needs some Tax Counsel, he has a lot of varied Tax
problems and I need some help from the PRO'S.

He is considering replacing his Sleigh and 8 Tiny Reindeer.
First there are many new improved models of Sleighs Over and
Under 6000 lbs GVW to chose from , his old one is almost
1500 year old (he claims) so I am sure it would be fully
depreciated. So his old basis is $0 when he trades it in,
correct? By the way he never depreciated the old one, some
people are really loose with their Tax Work. (why doesn't he
just buy a new HumV like everone else)? He is considering
buying a new Sleigh over 6000 lbs of course and wanted to
know if it qualified for the new SUV Section 179 deduction
and additional 50% Dep. I for one never knew Sleighs cost
that much, well over $300,000.00. So I again checked out the
IRS website and nowhere are Sleighs listed for Dep.
purposes, another problem for my office people to track
down. Any suggestions?

I can't find Tiny Reindeer listed in the Tax Code so I
expect they will be a default 7 year property, most animals
with fur are default 7 year if not listed in the Dep
section, but they may default to Race Horse status. He
claims they can break the speed of sound if he snaps his
whip over them (he make all this stuff sound so believable)
so (3 year straight line 150% DB) for Racing animals and
they would be eligible for the additional 50% Dep, their
expected life according to my Client is at least a thousand
years or more (grin, grin). One additional Reindeer is
Electrical powered and he asked about the Qualified Electric
Vehicle Credit (where he got those names for the Reindeer
especially this one: Rudolf is a mystery to me). I
sugguested he buy the Tiny reindeer after the first of the
year so he doesn't go over the $400,000 limit and mess up
his Section 179 deduction on the Sleigh, am I correct?

He bought a new Computer (large mainframe) to tell when
people are naughty or nice (he monitors MTM by the way and
some of your names made the naughty list, not many though),
of course he wants to fully depreciate it in 3 years
including the new expensive Software he purchased , but his
wife also uses the mainframe for her personal checking
account and cookie recipes and the Sugarplum Fairies (that
was a stretch) use it to play Video Games about 3 months
every year. Would you believe no records of personal usage
available, what a mess.

He has with been in business with his wife for over 1500
years and claims to have never shown a profit (grin ,grin we
all know about this one), never filed as a 501C non profit
nor filed as a Entity Partnership 1065 . I believe the IRS
may decide that this whole unbelievable affair falls under
the Hobby Loss rules and will force him to itemize
deductions.

Should he file as a Sch C or possibly a 1065 Partnership for
the prior years or request a determination letter on this
point from the IRS prior to filing the prior year returns ?
We discussed the possibility of a Home office deduction, he
has a huge Storage Dept. that would qualify for a very large
deduction (no exclusive usage required) in his home and a
small 50,000 sq. foot office , but the Elves watch TV and
eat and sleep in the same area. I believe the Home office
deduction is out. under Non exclusive usage rules. Would you
agree?

He probably will file as a NR Alien, he came from Germany
originally with his wife and now lives up North (where ever
that is) there is no Tax Treaty with the northern country of
residence, he was firm on this point, but he only spends a
few hours working in the US each year (yea sure). Is this a
problem under the Substantial presence test For NR Aliens,
or is he even required to file?

You won't believe how he left my office , one finger beside
his nose ............ you know the rest !

Merry Christmas and may God Bless you and yours.

Mike