Underpayment Penalty

[Caroline1]

Recently, we have received 2 notices with refunds of portions of the underpayment penalty calculated on the Form 1040 for tax year 2023.   We suspect there will be more to come.  Both notices are missing the calculation for 4th quarter of 2023 and they have refunded it to the taxpayer.   Anyone else starting to see these??

[IRonMaN]

That seems to be a popular post as of late around here.

[BobKamman]

Do they show a detailed calculation of penalty for each quarter?  Is there a disaster-area exception involved?

[Caroline1]

It does show the calculation.  We did not realize we were included in a hurricane relief.  Mystery solved.

[Drphibes]

Office is in CA, a lot of these coming in now!

[joshuabarksatlcs]

Most of CA counties were covered by the 2023 Storm Tax Relief.

So far, for my dear clients who got notices, the late payment penalty computations were correct.  For example, a client's penalty was $150, and the amount based on the normal due dates would have been over $500.  Client complained about the penalty without realizing he got a break.  The penalty ($150) was computed based on the 11/16/2023 due date for Q1 thru Q3 1040ES.

A client''s living room was visited by the next-door neighbor's 1/3 redwood tree in the height of the storm.  The late payment penalty was the least of his troubles.  Many things in life are relative.

[BobKamman]

@joshuabarksatlcs " the next-door neighbor's 1/3 redwood tree "

What kind of tree was the other 2/3 ?

[joshuabarksatlcs]

@BobKamman   The other 2/3 IS still a redwood tree, standing tall on its roots, perhaps trying to grow back the 1/3 and then some in the next 40 years...

As for my client's own redwood trees, HOA's consulting arborist said one could trim (top cutting) only up to 20% of each.

Do NOT mean to be UPLing (UPL = unlawful practice of law), but client told me his insurance company told him his next-door neighbor's insurance would NOT pay for the damages unless my client (i.e. as the neighbor's neighbor) had documentation showing he (client) had informed them (client's neighbor) of the danger of the trees and requested trimming and so forth at least FOUR times before the 1/3 tree's visit...   Different from my original concept of insurance.  I just sent my next-door neighbor the second notice about his trees.  Remind me here to send the third next week.      

[joshuabarksatlcs]

This is about trees and NOT taxes.  If you're here to learn about taxes, sorry...

Redwoods and sequoias are coastal trees and breathe in moisture thru their leaves to sustain tree hydration.  They're NOT native in the inland, where humidity is low between storms.  The hydration for the inland redwoods would depend on their ability to suck water from the ground.  Thus, those gigantic ones would break off from the top as their trunks become brittle for being dehydrated.  Of course, unlike us homo-sapiens, tree dehydration does NOT happen overnight.  When the trunks are weak, the tops could break off, like the naughty 1/3 from my client's neighbor during the 2023 California storm.  

[BobKamman]

If a tree falls on your client's roof but he doesn't hear it because he's listening to the Beach Boys with his Airpods, is there any sound?  

Possession of the 1/3 tree falls (excuse the expression) to the property owner where it is now found.  We know the casualty loss is not deductible, but that firewood has some value.  If someone pays him $500 to haul it away, what are the tax consequences?  

[joshuabarksatlcs]

@BobKamman   

RE:  is there any sound?  

Easy question.  Yes.  There is, and the sound is Beach Boys....

We know the casualty loss is not deductible, but that firewood has some value.  If someone pays him $500 to haul it away, what are the tax consequences?  

This is NOT as easy.  I often JOKE -- State Board of Accountancy, this is just a JOKE!! -- If I were to take the CPA exam today, I may not pass....

So here it is:  Say, the non-deductible cost of repairs was $R.  I would allocate it to the 1/3 renegade red wood (which is no longer redwood).  Also, safe to say, R > 500, at least here in California, it is. 

Thus the basis of the renegade red wood is > $500.  The sale was personal in nature, and the loss would be non-deductible.  I'd say my client got to allocate only $500 to the basis, and the gain/loss on the sale is zero.  Reportable on Schedule D.

The house would then have an increase in basis of $(R-500), which would be relevant down the road when it is sold.  

That would be my final answer.

[BobKamman]

You are trying to connect the nondeductible casualty loss with the income from the sale of firewood, but no linkage should be allowed.  That's like selling the venison you acquired when your car sustained $5,000 in front-end damage on a country road at dusk.   

[Skylane]

@joshuabarksatlcs   You're correct that in order for neighbors policy to pay for resultant damage and tree removal you'd have to establish negligence on the neighbors part. Short of that, you clients Homeowners policy should respond.  I've always told clients to take photos and send removal or pruning demands to their neighbors by certified mail.  Sometimes it works... sometimes not... it certainly doesn't help the relationship with the family next door.... 

Overhanging trees have become a big problem nationally for homeowners and homeowner insurance companies.  While tree cover has always been an issue for insurance companies the weather has been more violent lately and insurance losses more costly.  With satellite and drone technology, it's easy and inexpensive for insurers  to inspect each home and evaluate the risk. I've seen lots of cancellations and non-renewals issued  for tree cover.  Normal insurance underwriting philosophy says eliminate the risks that will cost you the most in claims.... tree damage/removal is pretty high up the list today. 

[joshuabarksatlcs]

@Skylane  Thanks for the info.  

[joshuabarksatlcs]

@BobKamman  Paraphrasing you, don't go down the rabbit hole of venison, the $5000 repair costs, and the damaged Tesla. 

I would advocate that, at the very moment the 100% red wood (1/3 Redwood) visited the living room, it had become an integral part of the combined real estate and upon its removal should be entitled to a reasonable allocation of the basis thereof.  Likewise, I'd advocate the same if someone wanted to buy my antique French door, which is to be removed during the on-going renovation.  (Not that anyone is currently interested in my Frech door).  

Can't cite any regs or case law for the case of the red wood slash redwood, but I promise you'll be the first one to know if I get my hands on it.

Meanwhile, as for the rabbit hole of the other thread in this forum, in which you once again pitched in the UPL (Unlawful Practice of Law) angle, does a drunkard, who dropped dead on the street in shabby clothes with an empty bottle in his hand, left an estate?  Try to explain to folks there how it's a "yes", though a trust (or "estate"), or probate, was not needed (nor "was there") to distribute the shabby clothes and the empty bottle. 

And I promise to digress.

[joshuabarksatlcs]

@BobKamman By the way, you can explain it, but if I were to explain why it's a "yes" for the drunkard to have had an estate, I'd be UPLing.  Methinks....