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You make the callBy: NATP Research
June 23, 2022

Question: Your client self-prepared their 2019 and 2020 tax returns. Both 2019 and 2020 had a non-farming net operating loss (NOL). The client did not make an election to forgo the NOL carrybacks.

Since NOL carrybacks arising in 2019 and 2020 are subject to the five-year carryback rules, the NOL will be required to be carried back to 2014 and 2015 (respectively). For purposes of amending the returns to carry back the NOL, are 2014 and 2015 considered closed years?

Answer: No. For the purpose of carrying the NOL back, 2014 and 2015 are not considered closed years. Since 2019 and 2020 are within three years from when the tax return is due or, if later, two years from when a tax was paid, the statute of limitations for credit or refund under§6511 considers the NOL carryback years as open years [§ 6511(d)(2)(A)].

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You make the callBy: NATP Research
June 16, 2022

Question: In past years, Lisa has claimed the self-employed health insurance deduction on her Form 1040, U.S. Individual Income Tax Return, for her Schedule C (Form 1040), Profit or Loss From Business, dog grooming business. She qualifies for Medicare this year and wonders if payment of her Medicare premiums for Parts A, B, C and D may also qualify as deductible health insurance premiums. What do you tell her?

Answer: Yes, Lisa’s voluntary Medicare premiums qualify as self-employed health insurance, which she may deduct. The Form 1040 instructions (pages 89-90) add a nuance indicating that Medicare premiums paid voluntarily in the taxpayer’s name “to get health insurance that’s similar to qualifying private insurance” can be used to figure the deduction. Most people do not pay for Part A premiums; the coverage derives from Medicare tax deductions from employment. However, it is possible to purchase Medicare Part A coverage with monthly premiums. Further clarification of this issue is in a 2012 Chief Counsel Advice Memo, [CCA201228037], which affirms that Medicare is “medical care” and is similar to private health insurance premiums.

The CCA includes “all parts” of Medicare as deductible. For example, If Lisa had a spouse or a dependent under age 27, the coverage that extended to them is deductible as well. If Lisa failed to deduct the premiums on her current year’s return, she could even amend a return (assuming the year in question is still open) to claim a refund.

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You make the callBy: NATP Research
June 9, 2022

Question: Nazish just realized that she inherited money from her mother in India. The funds are in an Indian bank account with a balance over $10,000 USD. She did not report it on her 2021 Form 1040, U.S. Individual Income Tax Return, nor did she file a 2021 FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Her accountant filed her 2021 Form 1040 in June 2022. Can Nazish still correct the inadvertent omission of this account on her Form 1040 and timely file the FBAR?

Answer: Yes, Nazish can correct her Form 1040 and timely file the FBAR for 2021. She can amend her Form 1040 to include interest from the bank account on Schedule B, where she will correctly answer “Yes” to both questions under Part III, Line 7a, indicating that she did have signatory authority over a financial account in a foreign country. She’ll include the name of the foreign county (India) for question 7b.

Although the FBAR is required to be filed annually by April 15, the return is automatically extended to Oct. 15, with no extension form required to obtain the additional time to file. Even though she did not file an extension, as long as the FBAR is submitted by Oct. 15, her return will be considered timely filed for 2021. The FBAR is not an IRS form and can only be filed electronically through the BSA E-filing system, unless an exemption is granted by calling the FinCEN Regulatory Helpline, which will send a paper version of the return.

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Questions about reporting repossessions and cancellation of debt income? We have answers. By: National Association of Tax Professionals
June 7, 2022

Financial hardships can lead to abandoned or foreclosed properties, bankruptcy filings and debt restructuring. Tax preparers are seeing more Forms 1099-A, Acquisition or Abandonment of Secured Property, and 1099-C, Cancellation of Debt, included in their clients’ year-end information.

In our on-demand webinar, Reporting Repossessions and Cancellation of Debt Income, instructor Lawrence Zimbler, MST, EA, discusses why it’s the tax professional’s job to determine whether the client has taxable income as a result and how to report it. Additionally, he’ll cover when to use Form 982.

Below, you’ll find a few of the top questions webinar attendees had, along with the accompanying answers.

Q: If Form 1099-A is received in Year 1 and Form 1099-C is received in Year 2, do we have to file both forms as separate events even though they’re for the same property? A: Yes. Each form and related event is filed in the year the taxpayer receives the specific form. In your case, the sale of the property using Form 1099-A is reported in Year 1 and the cancellation of debt income from Form 1099-C is reported in Year 2.

Q: What is Form 982?
A: Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), is used to determine, under certain circumstances described in §108, the amount of discharged indebtedness that can be excluded from gross income.

Q: Could you please provide an example of basis reduction?
A: One example would be reducing the basis of a taxpayer’s home by the amount of the debt canceled.

Q: If the taxpayer returns the property to the lender and still receives Form 1099-C from the bank, is that considered income?
A: It may be considered income if the taxpayer is solvent. However, to the extent the taxpayer is insolvent or in bankruptcy, or the home is a principal residence, the taxpayer may be able to exclude the debt from income.  

To learn more about reporting repossessions and cancellation of debt income, you can watch our on-demand webinar. You’ll have access to the full recording, earn up to 2 CPE for AFSP, EA, CPA, CRTP, and be able to view the entire list of Q&As. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more about membership, join our completely free 30-day trial, visit natptax.com/explore.

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You make the callBy: NATP Research
June 2, 2022

Question: Zoe is the child of Theo and Camille. All three have bank accounts in the foreign country where Camille grew up. The parents have been adding to Zoe’s bank account every year, and the bank account now exceeds $10,000. Zoe is not required to file a Form 1040, U.S. Individual Tax Return. Because Zoe is a minor with no income tax filing requirements, Theo and Camille came to you asking if they can report Zoe’s foreign bank account on their own Report of Foreign Bank and Financial Account (FBAR, FinCEN Form 114) filed. What do you tell them?

Answer: No. Theo and Camile cannot include Zoe’s bank account on their own FBAR filing. Zoe is not personally exempt from FBAR filing requirements and is responsible to file an FBAR regardless of age. If a child’s age prevents them from filing and signing their own FBAR for any reason, the child’s parent, guardian, or legally responsible person must file and sign it on the child’s behalf.

The FBAR online instructions clearly state that regardless of age or capacity, a U.S. child is not excused from their FBAR filing obligation if the child meets the filing requirements. If the parent electronically signs for the child’s FBAR, in Item 45, Filer Title, enter “Parent/Guardian filing for child.”

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