Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

Agreed. But I suppose the preparer might have been trying to
resolve "confusion" in favor of the client by sort of
accidentally allowing the S-corp income to offset the
passive rental losses in this case. No, it's not "right,"
but I probably wouldn't send anyone to jail over it. <g
MTW

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Horlander wrote:

- quote -

Nowhere did you say that YOU were working for your S-corp as
YOUR full-time job? If you are a non-working owner of the
business, it very well could be passive. If you work for the
S-corp, it is probably not a passive activity for you.

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MTW wrote:

- quote -

And, in reality, a dirty tax professional secret <grin> is
that it could simply be a late tax season data entry issue.
A number of professional tax programs default to treating
pass throughs as passive unless told otherwise.

So it's very possible we have a straight error in preparing
the return, and the CPA failed to question why the loss was
being allowed by the program. Now, that said the CPA should
have reviewed the return and raised that issue--the fact
that the computer did it isn't a valid excuse. But it is
definitely something that would be easy to miss in a rush to
get the last few returns out the door.

Giving the CPA the benefit of the doubt, I suppose he/she
might have misunderstood the facts--but if you have a W-2
showing significant wages from the same entity, it gets
tough to argue you didn't have reason to suspect the client
was involved with the operations <grin> .

--
Ed Zollars, CPA
Phoenix, Arizona

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"Horlander" <horlander[at]aol.com> wrote:

- quote -

Clearly the facts and circumstances stated indicate that you
actively participated in this Trade/Business and any
income/loss that gets passed through to you is not passive.
Your accountant appears to be treating this income as
passive which is incorrect. I would file an extension and
wait for further clarification from your accountant.

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Horlander <horlander[at]aol.com> wrote:

- quote -

Explain the situation to the CPA and see what he recommends.
It sounds like he misunderstood the active/passive
characteristic of the S-corp.

MTW

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Background: 40% owner of consulting business (S corp) which
showed a profit for 2003. Consulting business also provides
a full-time job and wages. Personally own a rental property
which showed a loss for the year.

Question: Taxes prepared by tax professional (CPA) are
treating the S corp pass through profit as a passive income
on Form 8582, which allows for the passive loss from the
rental property to offset the total Schedule E income.

Taxes prepared by myself using Turbotax show the S corp
profit as active income which means that form 8582 only has
the passive rental loss which is then subject to the PArt II
limitations, which results in no loss allowed for this year.

So which is correct? How can the S corp profit be treated
as passive when this is a full-time job? Can it be treated
as passive because mine is the minority (40%) ownership or
is this a mistake by the CPA.

I have a signed tax return from the CPA. If I believe this
is incorrect and considering the late date (April 14th)
should I file for an extension or file the CPAs return with
the intention of filing an amended return after meeting with
the CPA and coming to an agreement with them?

Any help is much appreciated!
Kim

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