Schedule F for MFJ H&W in a community property state - Critical Diagnostic ref #11350

[mhlester]

Hi, all,

I have a client with a first-year schedule F and a critical diagnostic that says "taxpayers who wholly own a farm as community property...may treat the farm as a single farm..."

This is my case. If it were otherwise, I would have to file two schedule F's or a partnership return. Next year it will be in an LLC taxed as a partnership.

How do I resolve the diagnostic, or will I be able to e-file this return despite the diagnostic?

Thanks, Michael

[Karl · Accepted solution]

For the future for us to help you better, can you give the diagnostic # and the whole text of the diagnostic? The easiest way I've found to get the whole text selectable to copy-paste is to PDF the diagnostics report (or a preparer file copy). Then we'd be better able to weigh in on whether that diagnostic could be suppressed in efile.

If I understand your request correctly, is this activity 1) profitable and 2) subject to SE tax?  Is your client in a community property state?

If there aren't SE tax considerations, can you just choose to assign it to either the husband or the wife?  I'd ask the client if they have a preference.

If there are SE tax considerations, I'd probably just reenter a second SchF, apportion 50% and give one to the husband and one to the wife.

[mhlester]

Hi, Karl,

Thank you for your reply.

The farm (actually, a ranch being populated with various livestock) is not yet generating revenue so there is no profit. I believe the activity is subject to self-employment tax, but the taxpayer has no net self-employment income. The client is in Texas, which is a community property state.

Assigning it to one or the other of the spouses removes the diagnostic.

[abctax55]

Rather than assigning it to one/or the other.... why not pick 'joint'?  It's the third choice, right after taxpayer or spouse.