 |
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?
 |
|
 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.
|
|
|
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?
|
|
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.
|
|
|
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?
|
|
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).
|
|
|
I am a real estate investor: May
I treat my investment activities as a business; reporting rental income/expenses on
Schedule C?
|
|
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%.
|
Valuing a Bond When
Company is Bankrupt
