Q:

I have found your website very helpful.  I had a quick question regarding the sale of QSBS.  I was wondering if it is possible to roll over the proceeds into a another small business shell that I have created?  Would that be legal?  I have not found any documentation stating that this is not possible.

Thank You,

A:

What you are referring to is an IRC Section 1045 rollover of gain, which requires that you reinvest the proceeds of the stock sale into new qualified small business stock within 60 days.

The key thing is that you need to actually purchase the stock from someone else.  You can’t just use the money to set up a new company.  You can’t buy the stock from yourself, unless you want to show that sale as a taxable event.

To follow the chain of events, somebody else will need to report the sale of his/her stock to you in order to make this a legitimate deal.  That person will then have the ability to do a Sec. 1045 rollover, and so on.

I’m sorry to burst your bubble here.

Good luck.

Kerry Kerstetter

I actually received an email this morning from the retarded tax protestor who had been leaving obscene late night messages on our answering machine.  His name is Kenny Lizotte and his email address is kennylizotte@msn.com  I’m sure he would love to hear from anyone wanting to discuss his take on taxation.  I don’t know what part of the country he is in because he had his phone number blocked from the caller ID.

He sent me this standard crap that tax protestors have long used to try to distort the issues of legitimacy in regard to taxation:

Subject: Incometax

What code section requires the average American to pay the income tax?

What code section shows the liability of the average American for the income tax?

What code section requires Americans to keep books and records?

What code section requires Americans to make a return?

What code section requires the average American to submit to withholding?

Please just direct answers?

Kenny:

That’s not how things work in this country.  I am an independent CPA and don’t work for the government; so I have no obligation to waste my time trying to educate you on the tax laws.

It is you who have the burden of proving your case that hundreds of millions of people in this country are wrong and you are one of the few geniuses who have the true answers about taxes. 

You left a number of late night drunken messages on our answering machine (your name showed on our caller ID) in which you called me obscene names and claimed that you obtained directly from IRS a book that states that nobody has to pay any taxes.  If that is true, tell me the name or publication number of that book, along with the page number where you found this statement, and I will check it out.  If what you are saying is true, I will write about it. 

However, if you are not able to back up your claims, please stop wasting my time.

Kerry Kerstetter

Congress and the president are getting spending under control. – We’ll have to see if this is possible.  It sounds much too good to be true.

The Politics of Presidential Spending

Q:

Any advice on the taxability of customer deposits/prepayments received by an S corp on the cash basis? Example: customer deposit received in 12/04 for a service to be performed in 1/05.  Does it make any difference whether the customer’s check is placed in a drawer or deposited in a bank account?

A:

For any business operating under the cash basis of accounting, income is reported in the year in which the money is received or you in any other way have constructive receipt of it.  Whether it’s actually deposited into your bank account or not isn’t relevant. 

Keeping the check in your drawer isn’t the only way undeposited funds could be taxable income.  Another example would be a customer down the street from you who tells you he has a check waiting for you to pick up in December.  Technically, that is income for December even if you don’t actually pick it up until January because you could have taken the money, meeting the IRS’s definition of “constructive receipt.”

So, in your specific example, that money will be taxable on your 2004 1120S.  What you may want to do is spend it on deductible things by midnight on 12/31/04 in order to cancel out as much of that income as possible.

Good luck.  I hope this clears up this issue for you.  

Kerry Kerstetter

When Is That Holiday Turkey Taxable?

Fake Saudi princess-model countersues American Express – She’s a real piece of work.  Suing AmEx for letting her run up charges when she was obviously insane.  Selling jewelry and then reporting it stolen for the insurance. Are credit card companies supposed to require a sanity clearance from a psychiatrist before issuing cards? 

Another tradition this time of year is setting up the Lacerte tax return organizer for the next year’s filing season.  The 2004 organizer is now ready to roll.   

Any clients who have already received their 2003 individual income tax returns should notify us when they want their 2004 organizer sent out to them.  If you lose the copy we send you, we will have to charge you for the time to print and mail a replacement copy; so put it in a safe place that you can remember.

For those whose 2003 individual returns haven’t been finished yet, there is no need to contact us.  We will be including the 2004 organizer in the left pocket of the folder in which your 2003 returns will be located.

Another reminder that organizers are only available for individual (1040) income tax returns.  All other kinds of tax returns – corporations, partnerships, LLCS, trusts – must have their data entered in QuickBooks and the data file sent to me when it’s time to prepare the appropriate tax returns.