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April, 2002 FAQ
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April 2002  
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  Valuing a Bond When Company is Bankrupt
  Reward for Proving a Tax Protestor is Wrong
  Who Pays Estate Tax When Surviving Spouse Dies?
  Real Estate Investor and Schedule C
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Question 1: I hold a bond for a company that has filed bankruptcy. Who determines when the bond becomes worthless for purposes of claiming a capital loss on the investment?
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The taxpayer claims the security as worthless based on an identifiable event. If, in the taxpayer's judgment the bond is worthless, then he declares it so; however, if the taxpayer does not believe his investment is worthless, he can wait and see what transpires in the bankruptcy.
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The Tax Prophet's Tax Class on Financial investments
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On Mr. Schiff's website, http://www.ischiff.com/, he claims that he will pay $5000 to anyone who can find a law that requires citizens to pay income tax. Have you tried to submit a claim for the $5000; what would his response be if someone were to submit such a claim; and why does the government allow him to continue to run that website?
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Mr. Schiff has been taken to court regarding his offer and he lost on the merits; however, he claimed that the person did not respond fast enough to claim the prize. I have the case cited on my website. The government cannot close down websites because they express an erroneous opinion, contrary to the law. The First Amendment gives all citizens the right to express their opinions, whether or not there is any truth or merit in the opinion expressed. People reading any opinion need to view them critically. Also, keep in mind that tax protestors love to play word games. There is no law that requires you to pay tax. The law states U.S. citizens and residents earning more than a certain minimum amount must file a federal tax return to determine whether they are liable for income taxes. The law says that a tax is imposed on incomes over a certain amount and the law gives IRS the right to seize and sell your property if you owe taxes and do not pay them.
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See the Tax Prophet's Article on Tax Protestor claims, including Erwin Schiff's round of losses
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When the beneficiary of a by-pass trust dies, where the only asset is a house which is sold for a gain, does the estate pay tax as well as the inheritors?
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In such a case, there should not be an estate tax on the by-pass trust since the by-pass trust is created to "by-pass" estate taxes. The gain is paid either by the trust, if it was the seller, or by the beneficiaries, if the house was distributed to them and they sold it. In either case, there is only one capital gains tax measured by the gain in the house from the date of the descendant's death (or the alternate valuation date of 180 days later - if the fiduciary selected this method of valuation).
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The Tax Prophet's Section on Estate Planning
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I am a real estate investor: May I treat my investment activities as a business; reporting rental income/expenses on Schedule C?
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Answer 4: No. As an investor, you would use the itemized miscellaneous deductions for your expenditures. If you are in the business of real estate development or other full-time real estate activity, you would use Schedule C. Schedule C allows a full deduction whereas the itemized miscellaneous deduction category is limited to the excess of 2% of your adjusted gross income. Also, for alternative minimum tax purposes, you are not entitled to deduct itemized miscellaneous deductions. Your status is a question of fact and there is not a mechanical answer. Remember, as an investor, you are entitled to capital gains treatment on the sale of your investments and the federal long-term capital gains rate is a maximum of 20%. As a business, you'll pay ordinary income tax rates on your profits and the maximum tax rate is 39.1%.
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Tax Prophet's Tax Class on Real Estate
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