Spidell's Tax Season Tribune

It's a whale of a tax season ...

Lynn Freer, EA
President

When you think you've had it with IRC §199A and tax season, count yourself lucky! You have not been gulped by a whale. Rainer Schimpf, a tour dive operator, was filming a sardine run off the coast of South Africa when he found himself inside the mouth of a Bryde's whale.¹ He said he knew he was too big to be swallowed by the whale but worried that the whale would dive and he would drown. He was filling his lungs when the whale turned on its side and he washed out of the whale's mouth: not a scratch on him.

I can relate to terror: Like the time I had a bet with a client that he'd get a refund. He paid off the bet (an expensive dinner), and in the middle of the night I realized I'd left off a $10,000 1099-MISC. I almost drowned in my terror. The next day I apologized and offered to take him to dinner twice. He just asked for a reduction in the fee.

¹ www.today.com/news/diver-survives-almost-being-swallowed-15-ton-whale-t150169

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Breakfast has officially been Peeps-ified

Kathryn Zdan, EA
Editorial Director

If, like me, you've been waiting patiently for Peeps to invade the most important meal of the day, the wait is finally over.

Peeps breakfast cereal is here.¹

In what appears to be Froot Loops with marshmallows added to make up for a lack of sugar, Peeps cereal hit the shelves in January and will only be available through Easter.

We can thank Battle Creek for the Peeps-ification of yet another food item. The cereal joins the list of other Peeps-flavored goods:

Oreos;
International Delight coffee creamer;
Milk; and
Beer.

I will now await the release of Peeps-infused soda. Given the list above, it's only a matter of time before we're accelerating tooth decay with a can of Peep-si.

¹ www.usatoday.com/story/money/2019/01/17/peeps-cereal-kelloggs-available-nationwide/2602374002/

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Worst documentation practices: The saga continues

Thank you to all the Tribune readers who sent in client documentation stories! Here are a few more we've received:

An older client insisted on putting everything back in their original envelopes including the inserts. She nearly had a heart attack when I put all the envelopes and inserts on my recycle pile. I told her I was going to put everything in a large white envelope for her. She was in tears, literally. I told her it was going to cost her an extra $100. I got the $100 surcharge — it should have been higher.
For about five years, I had a used furniture client. Each quarter, I'd go by his store to pick up his quarterly records. Each time, he'd hand me a 32-gallon Hefty trash bag with the papers in it. However, there were also always about six to 10 empty beer cans, along with about a month's worth of cigarette butts and ashes. It was quite disgusting, but he paid me well, so I put up with it. I did his bookkeeping until he went out of business.
The article on worst document practices reminded me of my very first audit (at a Big 8 firm) with a client that wanted to be publicly traded and needed an audit that covered five years. We received five cardboard boxes with receipts just randomly thrown in the box for our audit. It didn't help they put three of us in a small interior office without ventilation and a 12" wide shelf against three walls as our desk. Good times!

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Tax Tip: Guaranteed payments

Lynn Freer, EA
President

How do guaranteed payments affect QBI? What adjustments must you make?

Only the net income from the partnership is included as QBI for the IRC §199A deduction. Don't gross up the K-1 income and don't include the guaranteed payment in any computation.

For example, in a 50/50 partnership, the partnership pays $20,000 in guaranteed payment and has net income of $10,000. Partner 1 reports $10,000 guaranteed payments and $5,000 in net income. The QBI is $5,000 for each partner and no adjustment needs to be made.

Also, guaranteed payments retain their character (non-QBI) when passed through to another entity via the K-1 and cannot be converted to QBI merely because they pass through another entity before reaching the taxpayer. (Treas. Regs. §1.199A-3(b)(2)(ii)(I))

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A few fun facts about this week's writers:

Lynn Freer, EA, is a French literature major, so of course her favorite vacation destination is France. Here she is dining on mussels and fish stew near Nice.

Kathryn Zdan, EA, is living in the past, still using an old film camera and writing real letters to friends. She loves classic, foreign, and horror films, and has watched Frasier in its entirety at least five times. Sherry, Niles?

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