Odd New Client

[erchess]

Got a call today from a new client who I will see on Thurs of next week. His previous preparer has hit a spell of bad health. An extension was filed for but even now his former preparer is unable to file the return. Taxpayer has his copies going back to 95 and the preparer copies for the last three years. So far everything sounds great. Now for what concerns me.

In 95 he began to operate a mobile home park. He has no idea what form he used to report this activity. Now here comes more trouble. In 04 he bought a Mobile Storage Business and after a year or two of treating them as separate businesses he combined them. Now for my questions.

I have been assuming that the guy is not incorporated but it could be that I am wrong. If he is incorporated would that make combining the two businesses ok? Also, assuming he is not incorporated, is there any way he can get by with combining the two activities? Am I correct in believing that if he is not incorporated both businesses would go on Schedules C? (I am leaning toward referring him to someone else if he is incorporated.)

[August @ ADG Financial]

If it a 1040 return and a Sch. C is required you would use a Sch. C for each business. That's the way it should be done.

[Golden Rocket]

Prior Year Returns

You probably need to start at his last return, which I assume would be 2005, and see how he reported the income.

If he is unincorporated, there should be two possibilities - Rent on Schedule E, or his participation is extremely active, he might have filed a schedule C. If he reported this on Schedule E, he most likely reported the two locations on two different columns on the face of Schedule E. If he filed a schedule C, it is possible he filed two schedule C's but since they are both the same kind of business, it probably would have been easier to simply combine the results on one schedule C.

If he is incorporated, and an S Corp, the profit or loss would have been reported on the reverse of schedule E, in the place reserved for Partnerships, SCorps, Estates, etc. He will be expecting you to file an 1120-S, and K-1s

If he is incorporated, and a C Corp, then the bulk of the reporting is on Form 1120, and his personal taxes would reporting only the dividends he took out.

Would need to ask him questions, and corroborate his information with what you can derive from the above.

[Uncle Sam]

Odd New Client

I suggest you contact the Department of State to determine IF either of those entities are registered as corporations. Why play a guessing game?

[Davc]

If he is unincorporated, there should be two possibilities - Rent on Schedule E, or his participation is extremely active, he might have filed a schedule C.

Participation has nothing to do with E or C, only whether or not the special allowance for passive activity losses is available. The term of the rentals and the level; of services provided to tenants determines if it's a C activity. The services don't have to be provided by the owner, he could have employees or contractors doing the work and still be a C.

[erchess]

More Basic Question

Let's assume that I find that he has consistently done it wrong. For example, he has a perfectly ordinary mobile home park with next to no services provided and he has been doing it as a Schedule C Business. I would be tempted to think that continuing the same pattern would put him at less risk of audit while on the other hand I can't sign a return that is not true and complete to the best of my knowledge. Would that not mean that there is a conflict of interest between this client and any preparer?

[Joe Btfsplk]

Mobile Home rent

I would think that the owner primarily provides utility connections and a space to park the mobile home. That would be a lot less service than, for example, a hotel or motel. The maintenance of lawns would probably be the main "service" provided.

The amount of time involved in providing services would be a matter to consider in determining if enough service was provided to cause it to be an 'active' rather than passive type investment.