Which form E or C

[S T]

I have a client that is now in the Real Estate Investing Business (whatever that is- another one of those Major Marketing Scenarios)

I don't know which form to use Schedule E or Schedule C - doesn't really sound like "flipping" but then maybe.

Here is the taxpayer's description [quote] My real estate business is going to invest in R E using a conseravative approach based on cash flow of the property & current credit market conditions in emerging or stable markets that offer a strong exit stradigy
I look for property every day look for Sell by Owners stopping to talk to owners & investors
We will wholesale & lease options Buy & Rent Buy Rehab Resale
I am finding prospects thru probate& personal one to one contacting face to face direct mail (cards) & referrals {/quote]

No income for 2009 - only expenses - but the LLC (Single Member) is operating, so would it be open for business?

Thanks for any input

Sandy

[veritas]

Doesn't sound

like a promising client.

[S T]

Tell me

Long Time Client, and now into all of these Get Rich Quick - search the Internet, if it is posted, these clients have found them.

So far cashed out over $ 80,000 in IRA money and no results - only lining the pockets of the promoters.

I am thinking that these expenses are Start Up, but nothing has happened yet

The fact that they are marketing and advertising, can I say that the "business" is open, or have to wait until the first transaction??

We all know that real estate transactions sometimes take some time to consumate

Pulling my hair out

Thanks

Sandy

[veritas]

My gut says

file an extension. The time is bad for dealing with a screwed up situation. I assume he never sought your counsel and just dropped this in your lap.

I also assume there were some heavy expenses to learn wonderful secrets no one else knows. Once he began actively seeking properties the expenses become deductible currently. Those would be what? Mileage and some office supplies maybe.

Sch C for reporting.

Finally, I probably wouldn't do the return. I've gotten to the point where I don't need anymore headaches.

Sent two away today. One similar to yours.

On second thought no startup for learning a new trade.

[Gretel]

Well, Sandy, no hair left for you this tax season. Better shave your head next season around.

If client indeed talked to prospective clients all day after a certain date or has contacts over the internet, I would say he is in business. Same could happen in a retail store: 100 customers in first month and nobody buys anything (very unlikely but you get the picture).

Just having a website would not cut it or just investigating opportunities.

[S T]

Thans

Thanks Veritas and Gretel for your wisdom and thoughts,

Yes another client "dropping" the guess what I started a New Business

Sandy

[Black Bart]

I have a client that is now in the Real Estate Investing Business (whatever that is- another one of those Major Marketing Scenarios)

I don't know which form to use Schedule E or Schedule C - doesn't really sound like "flipping" but then maybe.

Here is the taxpayer's description My real estate business is going to invest in R E using a conseravative approach based on cash flow of the property & current credit market conditions in emerging or stable markets that offer a strong exit stradigy
I look for property every day look for Sell by Owners stopping to talk to owners & investors
We will wholesale & lease options Buy & Rent Buy Rehab Resale
I am finding prospects thru probate& personal one to one contacting face to face direct mail (cards) & referrals

No income for 2009 - only expenses - but the LLC (Single Member) is operating, so would it be open for business?

Thanks for any input

Sandy

That "taxpayer's description" sounds like a word-for-word sales pitch from a high-pressure flim-flam artist who probably charged an arm and a leg in advance fees for that phony-baloney trumped-up talk. It's a good bet that in a year or two he'll be looking frantically for that "strong exit strategy."

Meanwhile and for openers I think I'd put it on a C. It sounds like he's working in the "business" which makes him an SE person, but just hasn't had any luck because the housing market's dead.

Although it always seem odd to me to file a C with no income, I've done it half-a-dozen times over the years with no problems. One client was paying loan interest after going out of business -- an IRS District Director seminar speaker told me to put it on C even if it did look "funny," so I did for four years until the note was paid off. Never audited or questioned (although I always worried about it).

If he later buys a rental unit then I'd just add an E to go with his "C-minus".

I guess the question is, can you eventually turn him into a good, stable client that you won't mind dealing with in the long-term. Who knows, eh?

[JohnH]

Even better, maybe the client will offer you the chance to get in on the ground floor of his "guaranteed to make a profit" enterprise.

Back when Amway started, I learned to decline dinner invitations from all clients. Seems like every multi-level marketing guru and flimflam artist tells them to sign up your accountant, lawyer, and doctor to get your downline up & running. Since their doctor can't be reached except through his gatekeeper and the lawyer wants to charge them for the phone call extending the invitation, the accountant winds up with all the deceptive calls asking us over to "spend some time with a few friends I'd like to introduce you to."

[taxea]

If I remember right investment seminars are not deductible and if they are it is to increase the knowledge of what you are already doing. This is like going to school for a new career.
RE investing would be Sch C but I wouldn''t do the form until some income is received, then you can deduct qualifying expenses and startup costs.