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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10109
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Can you give me a citation for this?

This answer was rated:

Can you give me a citation for this?

Lane :

Have access to Westlaw's database (entire title 26 of the US code - that's te Internal Revenue Code, all state statutes, all secondary sources and treatises) along with the entire Case law fo all courts; state, federal, tax and supreme ... How can I help?

Lane :

Are you there?

Lane :

If this was asked n relation to a previous question, you'll have to paste the answer in here for me ... This questions was put out to our general question list as a new and separate question ... So, again, if you need to simply paste in the answer you are referring to, you can do that here ... or if you'r siply asking if we CAN provide a citation, the answer is yes, but you'll have to respond here and let me know what the citation is regarding...

Lane :

I still don't see you coming into the chat here ... I'll move us to the "question and answer" mode ... Maybe that will help ... (We can still continue our dialogue there, just not n real time as we can here in "live answer" chat)

Lane :

Let me know what you need the citation FOR and I'll be glad to look it up for you

Lane :

Let me know ...

Lane :

Lane



Hi Julie,

... just checking back in here, as I never saw you come into the chat.

Please let me know how I can help.

Lane
Customer: replied 3 years ago.
id="JA_questionThread" class="JA_thread JA_question JA_round JA_customerThread">


Married couple owns 100% of an S Corporation as Tenancy by the Entireties. K1 issued to husband under his SSN. They choose to file Married Separately. How is the income reported
1. 100% Husband?
2. 50/50?
3. Can they choose whose return it goes on?
Thank you
Larry Slivinski




Submitted: 2 years ago.


Category: Tax









Picture


Expert: CGCPA replied 2 years ago.


Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.


 


The actual stock ownership in the S Corporation will dictate whose return the K-1 gets reflected on. There is not an option to split it if the stock is in one name. If the stock is owned jointly then, on a separate return the name and Social Security number appearing first will dictate.





OK,

In a corporation, income should be distributed (hence go on K-1s) in proportion to stock ownership.

(This is why many prefer the LLC or partnership. The income, losses and other allocations can be dictated and allocated any way that the owners desire in the OPERATING AGREEMENT.)

In the S-Corp (or common shares of ANY corp) income is distributed in proportion of stock owned only.





HOWEVER, we now have the issue of whether property in the entirety can be divided as it relates to income tax issues.

The court case that gives rise to the IRS' current policy regarding income produced from a property owned in the entirety actually comes from debtor-creditor law, as it relates to IRS attachments.

Historically, the laws of many states, and court decisions, have prohibited a creditor with a claim against only one spouse from creating a lien or foreclosing on property held by the entirety. Even the IRS had acquiesced on this point. This changed in 2002 with the U.S. Supreme Court's decision in U.S. v. Craft.

UNITED STATES, petitioner,v.Sandra L. CRAFT.

U.S. v. Craft, 535 U.S. 274 (2002)





The IRS then issued a Bulletin in September 2003, setting forth general principles it will rely on in addressing issues raised as a result of the Craft decision:

The part of that bulletin that applies here is point number 5 of the ruling:

"As a general rule the taxpayer's interest in entireties property will be deemed to be one-half."

Notice 2003-60 (IRS NOT), 2003-39 I.R.B. 643, 2003-2 C.B. 643, 2003 WL 22100950



Also note one of the primary holdings of the Craft Decision

" property as a “bundle of sticks,” that is, a collection of individual rights which, in certain combinations, constitute property, state law determines only which sticks are in a person's bundle; whether those sticks qualify as “property” for purposes of the federal tax statute is a question of federal law."

26 U.S.C.A. § 6321. AND U.S. v. Craft, 535 U.S. 274 (2002)




What the previous answer gave you was a tax administration practice, the typical procedure.


In my professional opinion, ...

(1) the Craft Case (a Supreme court Holding that reversed the earlier District court Us v Craft decision) ...

(2) § 6321 of the Tax Code and

(3) the 2003 IRS bulletin


... all support you to treat this as either joint income on a joint return, (2) 1/2 income on each respective separate return.




26 U.S.C.A. § 6321.

U.S. v. Craft, 535 U.S. 274 (2002)

Notice 2003-60 - 2003-39 I.R.B. 643, 2003-2 C.B. 643, 2003



Lane




Just a quick follow-up, Julie.

If you do decide to go the separate return route, write the following as a notation at the top of Schedule E -Part II Income or Loss From Partnerships and S Corporation:

"Pursuant to Notice 2003-60 - 2003-39 I.R.B. 643, 2003-2 C.B. 643, 2003"

Hope this helps

Lane

Lane and other Tax Specialists are ready to help you
Customer: replied 3 years ago.
I am not at a computer with a printer. How long will I be able to access this answer?
It'll be there as long as you need
Customer: replied 3 years ago.
Thank you.

Hi julie,

 

I was just out myself and answered you via the iPhone..

 

 

You can bookmark this page, and come back for reference as long as you need.

 

 

Let me know if you have questions

 

Lane

 

 

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