Missed Lump Sum

[erchess]

I had a phone call from a prospective client who I won't meet until Monday. Here are the facts as I understand them.

In 06 she began receiving Social Security Disability and as usual some of what she got was for past years. Her preparer did not make the LSE. Also, according to her, even though she itemizes the legal fees and other expenses of collecting the Disability money were not deducted. Now somehow she is receiving collection letters from the IRS but a helpful employee told her that she needs to amend her returns for the years in question.

While I was talking to her my computer turned on of its own volition and the screen filled over and over with "That does not compute." But seriously, any advice anyone can give me would be most welcome. For openers, is it too late to make the LSE on an open year return? Am I right in thinking that it does not matter if some of the prior years are closed because I will not be amending those returns?

[Roland Slugg]

No amended returns

Dear erchess

It's not too late to make the election, and no amended returns are necessary. The nice thing about the LSE is that the calculations figure the taxable amount based on each prior year's income, then the combined taxable amount is all reported on the current year's return. Of course an amended return for 2006 will need to be filed, and if you prepare that, you will need to see copies of returns that were filed for each year for which your client received retroactive benefits in 2006.

[erchess]

Where

can I get the forms I will need and am I right in thinking that the easy way to do this is by hand?

[ecb34691]

IRS Pub 915

See IRS pub which has the worksheets, etc.

[Roland Slugg]

Pub 915

You can get the forms/worksheets from IRS Pub 915. They can be prepared by hand, but if you use tax prep software, you should find the worksheets there ... and it would be a LOT easier. If you prepare an amended return, be sure to write "LSE" on line 20 as per the instructions for making the election.

[erchess]

Thank you both

My tax software for the year I have to amend does not support LSE. (That is why I have changed packages for next year.) Also, I did not prepare the original return so it's not in my computer. As far as I know now the only issues on the Amended return are

1. Add the Social Security (which was totally left off original return) and make LSE
2. Add expenses of collecting the Social Security to Schedule A.