1099 requirements

[jainen]

not the market conditions

>>There is no reason an investor cannot improve his investment asset while holding it for future sale. <<

That's true, but in the original post the property was not held, it was flipped in just a few months, and virtually all of the profit came from the improvement activity, not the market conditions.

[jainen]

that's a business

>>I guess if you bought 1 share of stock on the stock market with the expectation of making a profit you would have a problem of not having "investor" status and would therefore be a trader?<<

If you held that one share for market appreciation, that's investment. If it was part of a pattern of subtantial buys & sells, that's trading. If you painted the company's buildings so the share would be worth more, that's a business.

[OldJack]

I can't find the term "flipping" in the tax code and I don't know if it is defined anywhere within the IRS? Although frequency of activity certainly is a factor of status determination, I don't think short-term or long-term has a lot of consideration in determining the status.

There is a reason that form 1040 Sch-D has a section for short-term gains/losses and a section for long-term gains/losses and form 4797 has the same. Both forms have these sections to do with time of holding and not because of individual/business status which is why there are 2 forms.

If the owner says they are investors in only one property that they are improving who is to argue otherwise (with the exception of the IRS) and on what basis? Flipping... not good enough to decide anything other than the sale price.

[OldJack]

>>If you painted the company's buildings so the share would be worth more, that's a business.<<

Not a good example Jainen.

[veritas]

Stonewall's last words

"Let us cross over the river, and rest under the shade of the trees."


Oldjack's probable last words

"Your a fool if you elect to be an scorp"

[OldJack]

Oldjack's probable last words

"Your a fool if you elect to be an scorp"

It is obviously so cold up there in Portland that your mind is frozen!

I have clients that are S-corp's on my recommendation.

[Black Bart]

Why didn't I think of that?

What if they had invested the money for the same purpose, but ended up LOSING money? ...net the loss against other self-employment income?

Eureka. There's the answer right there under our noses. If they lose money, it's a C. If they make money, it's a D (I know, I know, it's a bit much, but suppose it was your house -- how would you be inclined to view the situation?).

[Unregistered]

Be careful on this, not so much the partnership requirements, but the profit motive. They put $70,000 into this house expecting to make a profit didn't they?

If the case would come to an audit clients can seem to get "selective memory syndrome".

I guess if you bought 1 share of stock on the stock market with the expectation of making a profit you would have a problem of not having "investor" status and would therefore be a trader?

Please Jack, give me a break, buying a house and putting $70,000 in improvements is a little more involved than your example!

Again, FACTS and CIRCUMSTANCES need to be assessed. Now you have the third opinion - Line 21 vs. Schedule D vs. Schedule C.

Did the clients play the role of general contractor for 6 months? Or did one of the other 4 contractors take care of obtaining permits, ordering the materials and scheduling the other "subcontractors", etc....? This is a job in itself even if no nails were physically pounded? If buying a share of stock takes this long and is this involved than you might have a valid point!

[Unregistered]

Poll

Can someone start a poll

A joint venture with two people, neither of which is self-employed or in the business of contracting or real estate come across a deal on an old house for $100,000, which is in need of extensive repairs. They jointly buy the house as an investment. Over the course of the next six months, they work on the old house, buy $20,000 in materials, and pay 4 other construction contractors $50,000 to repair and remodel. After six months, they are able to sell the house for $250,000. They must split $80,000 profit. Would you report this on:

A. Schedule D

B. Schedule C

C. Form 1040, line 21

D. None of the above

[Bees Knees]

The answer is they must file Form 1065 as a partnership. A joint venture where extensive services are performed (the remodeling of a house) is a business, not an investment. It is immaterial that neither does any work themselves. The fact that they have hired professional construction contractors to do the work makes it a business, not an investment.

[Snaggletooth]

Oh No!

Good grief Bees, you've caught the partnership disease from Armando!

Two doofuss guys show up and say "Duh, we're sorta partners!" So now we've got to apply for a FEIN and file a 1065. We can mark the box that says "initial return" and also the one that says "final return." What's next, two 4th graders with a Lemonade Stand?

Seriously, this is one of many positions that people have taken on the subject, and may be as valid as any. This sounds so much like the Armando curse I had to speak up.

[LTS]

orig 1099 question plus sch c or sch d ( plus sch e )

some years ago, a client with 5 rental props ( sch e ) was audited for 1099misc/nec and 1098 mort int requirements. he did not get reclassified as a sch c activity.
for this thread, my reference goes back to the 5th post by BP on 12/13/06, 10:50am.
the def of a trade or business for 1099/1098 purposes is different from determining whether you are a trade or business for sch c, a cap gain investor for sch d, or rental real estate for sch e.
isn't income tax prep fun?

the irs is interested in the disclosure of income to a 3rd party that is being deducted or expensed on a sch c,d,or e. filing a 1099 does not make everything self employment income.

i vote sch d ( one time event ) with 1099misc/nec filing.
probably a partnership is required, but because of materiality, i would net and split 1/2 to each (same/same tax bottom line).
one last fly in the ointment, to whom is 1099s issued ( if any )?

[Black Bart]

Say, LT

...reference...post by BP...def of a trade or business for 1099/1098 purposes is different from determining whether you are a trade or business for sch c, a cap gain investor for sch d, or rental real estate for sch e.
isn't income tax prep fun?

...irs is interested in the disclosure of income to a 3rd party that is being deducted or expensed on a sch c,d,or e. filing a 1099 does not make everything self employment income.

i vote sch d ( one time event ) with 1099misc/nec filing.

...to whom is 1099s issued ( if any )?

Yes, income tax is fun, but on to other matters...

BP's post said to issue 1099s only "in course of your trade or business" didn't it? I took that to mean a C, but now aren't you saying issue them for D & E also?

I'm also voting D plus 1099s; disregarding BP's 1099 instructions, because you'll later be arguing with a comatose clerk or a computer that spits out non-filing notices rather than a law professor debating the fine points of "...the def of a...business for 1099 purposes is different from..." etc., etc., etc."

The guys that did the work are "to whom is 1099s issued," aren't they? Who else?

Explain, please. Thanks.

[Black Bart]

Wait, wait!

The answer is they must file Form 1065 as a partnership. A joint venture where extensive services are performed (the remodeling of a house) is a business, not an investment. It is immaterial that neither does any work themselves. The fact that they have hired professional construction contractors to do the work makes it a business, not an investment.

Doesn't this fly in the face of your previous stance of: "Under 10 guys -- 1065 not necessary"? Is Armando holding a gun on you?

[Jesse]

The answer is they must file Form 1065 as a partnership. A joint venture where extensive services are performed (the remodeling of a house) is a business, not an investment. It is immaterial that neither does any work themselves. The fact that they have hired professional construction contractors to do the work makes it a business, not an investment.

So even at that Bees Knees, how would you report the income on the Form 1065?