Tax Accounting Memo   Term Paper ID:42793 Click to get this paper

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Paper Introduction: tax accounting assessment tax issues - residential mortgage foreclosure debt forgiveness Name Facts John Rich owns two residences that are located in different statesfrom one another - Missouri and Florida Residency by Rich at each propertyis equal in terms of time Rich is delinquent on the mortgage on theFlorida house He also is insolvent or nearly so Thus Rich does notpossess the financial assets necessary to correct the mortgage delinquency Thus the mortgage holder is foreclosing on the Florida house The Florida Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. (2 8a, June 2). The Act permits the deduction of the forgiven mortgage debt when thebalance owed is less than $2 million, unless the taxpayer is a marriedperson who is filing a separate tax return. United States Treasury Decision (TD) 9 3 , however, providesadditional criteria for use in determining principal residence. tax accounting assessment: tax issues - residential mortgage foreclosure &debt forgiveness____________________________________________________________Name:____________________________________________________________Facts John Rich owns two residences that are located in different statesfrom one another - Missouri and Florida. The address listed by the taxpayer on the taxpayer's (a) federal tax return, (b) state tax return, (c) driver's license, (d) automobile registration, and (e) voter registration card 4. A direct cause of the mortgage delinquency was the deterioration ofthe financial position of Rich. The second assumption isthat, because of the current national economic environment, it is eithernot possible or it is not feasible for Rich to use the equity in theMissouri house to correct the delinquency on the Florida mortgage. As Rich stays an equal number of days atthe Missouri and the Florida residences, however, this criterion cannot beapplied. This typeof loss would be a capital loss that would be allowed only if the Floridaresidence had been classified as an investment that had been held for therequisite period.ReferencesInternal Revenue Service. The law also requires that a residence on which a deduction is madefor debt forgiveness must be the principal residence of the taxpayer. He also is insolvent or nearly so. Canceled debts, foreclosures, repossessions, and abandonments (for individuals. Thegeneral criterion for the determination of principal residence is that theprincipal residence is the residence at which the taxpayer resides thegreatest number of days per year. Residency by Rich at each propertyis equal in terms of time. The location of the taxpayer's banks 6. (2 8b, February 28). Washington, DC: Internal Revenue Service. Thesecriteria are as follows: 1. If Rich is not a married personfiling a separate return, he meets the criterion that the amount owed onthe mortgage must be less than $2 million. Can the $4 , debt cancelation be deducted by Rich to arrive at taxable income for 2 9? Retrieved on 2 9- 2- 9 from: http://www.irs.gov/irs/article/ ,,id=179 73, .htmlThe Mortgage Relief Act of 2 7, Public Law 11 -142. The first assumption is that no conditionsof financial distress affect the Missouri house. The place of employment of the taxpayer 2. The location of religious and recreational organizations with which the taxpayer is affiliated Issue 2 - Deductions for Losses and Other Costs. Can Rich deduct losses and other costs associated with the foreclosure and sale of the Florida house?Analysis of Applicable Law & Authority Issue 1 - Debt Cancelation Deduction. The costs also will meet thetine criterion. If evidence related to these criteria is mixed, however, hisrequest for the deduction may be denied. Retrieved on 2 9- 2- 9 from: http://www.irs.gov/individuals/article/ ,,id=179414, .htmlInternal Revenue Service. The specific facts concerning any financial issues that may affect theMissouri house are not known. The law also requires that suchlosses and costs be claimed prior to 2 12.Conclusions Issue 1 - Debt Cancelation Deduction. Rich is delinquent on the mortgage on theFlorida house. The Florida house is not yet in foreclosure. If the latter case isapplicable, the balance owed must be less than $1 million (Internal RevenueService, 2 8). No deductions arepermitted for costs or for losses that are associated with any action orfactor that does not stem directly from (a) a decline in the value of theresidence or (b) a decline in the status of the taxpayer's financialposition (Internal Revenue Service, 2 8a). 2. The deduction criterion that debtmust be forgiven in 2 7, 2 8, or 2 9 will be met. This situation creates multiple concerns for Rich.The most salient of these concerns are as follows: 1. If Rich can supply evidence that satisfies the criteria forthe determination of principal residence other than the annual residencyduration criterion, the probability is that he will qualify for thededuction. Washington, DC: Internal Revenue Service. 4681). The losses andexpenses associated with the foreclosure and sales will be deductiblebecause they meet the relevancy criterion. Rich will not be able to claim a deduction of $2 , forthe difference between the $2 million that he paid for the Florida propertyand the $1.8 million total of sale revenue and debt forgiveness. The mailing address of the taxpayer for bills and general correspondence 5. Thus, Rich does notpossess the financial assets necessary to correct the mortgage delinquency.Thus, the mortgage holder is foreclosing on the Florida house. (Pub. Theexpectation is that both the foreclosure by the back and the proposed salesof the Florida house at a discounted price will occur in 2 9. The principal place where members of the nuclear family of the taxpayer reside 3. The bank holding themortgage on the Florida house has identified a part that will buy theFlorida house at a price that is $4 , below the outstanding amount ofthe mortgage on the house. If Rich agrees to the proposal, the bank willforgive the remainder of the debt - $4 , - that is owned by Rich. Mortgage workouts, now tax- free for many homeowners; Claim relief on newly-revised IRS form. The Mortgage Relief Act of 2 7is the basic law that governs the treatment of debt forgiveness onresidential mortgages for individual taxpayers (Internal Revenue Service,2 8). Otherwise, Rich does not meetthe criterion. Issue 2 - Deductions for Losses and Other costs. The deterioration of his financial positionis attributed to the alleged fraudulent actions of an investment manager.Further, Rich is not the only victim of the fraudulent actions of thisinvestment manager.Issues The decision that Rich makes concerning the Florida property mustinclude an assessment of the facts within the context of applicable federaltax law and regulations. Thus, for purposes of this tax assessment,minimum conditions are assumed. The law applied to debt that is forgiven in 2 7, 2 8, or2 9. 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