Lone Tree, Colorado
For the preparer’s desk
By Charles Trautman, EA · Reviewed October 26, 2026
Topics I’ve collected from my reading and continuing education, including my notes from studying for the Enrolled Agent exam. Kept here for the desk at the Tax Shop. Step-by-step where it matters, with the authority cited.
These are working notes, not articles. If you’ve landed here as a client, you’re welcome to read along, but the pages under Topics are written for you; these are written for us.
Basis (Form 7203), at-risk (Form 6198), passive (Form 8582), and the excess business loss (Form 461), applied in sequence; the distribution-before-loss trap; the guarantee that isn’t basis; partnership differences; tracking what was suspended.
Why the IRS recharacterizes distributions as wages, the cases from Radtke to Watson, the cost approach that works for small companies, the QBI and retirement-plan interactions, 2% shareholder health insurance on the W-2, and the one-page memo that ends an exam.
Distributions in excess of stock basis as capital gain, the AAA / PTI / E&P / OAA accounts and the §1368(c) ordering for former C corporations, the §1368(e)(3) election to purge E&P, shareholder loans that are distributions, and disproportionate distributions as a second class of stock.
The built-in gains tax for a former C corporation’s five-year recognition period — what is built in, the net unrealized gain cap, the taxable-income limit, the carryover — and the excess net passive income tax when C earnings remain, with the three-year termination trap and the §1368(e)(3) purge that ends it.
Per-share per-day allocation and the closing-of-the-books election, voluntary revocation by more than half the shares and its effective dates, the terminating events, the S short year and C short year, inadvertent termination relief, the five-year re-election wait, the post-termination transition period, and the six-step order for a terminating year.
The Form 2553 deadline, the LLC that needs the deemed Form 8832, Rev. Proc. 2013-30 relief within 3 years and 75 days and beyond, the client who filed 1120-S for years with no election on file, inadvertent terminations, Rev. Proc. 2022-19, when only a letter ruling will do, and the reasonable-cause statement for line I and the shareholder statements, in the words we file them.
Why a partner’s outside basis and the partnership’s inside basis diverge at a sale or death, the §743(b) and §734(b) adjustments, how and when the election is made and the 12-month late relief, the mandatory adjustments at $250,000, allocation under §755, depreciation of the step-up, and K-1 reporting.
What §1402(a) includes, guaranteed payments vs. distributive share, the limited partner exception of §1402(a)(13) after Renkemeyer, Castigliola, Soroban and Denham, the frozen 1997 proposed regulations, why partners can’t be W-2 employees, partner health insurance and retirement contributions, and the structures that work.
Outside basis built in §705 order and why the K-1 capital account isn’t it; the §752 liability share, guarantees, and the refinance trap; current and liquidating distributions under §731 and §732 with the allocation steps; the seven-year rules; §751 hot assets including depreciation recapture; §736 payments to a retiring partner; sale of an interest; Forms 7217 and 8308; three worked examples and a checklist.
Per se corporations, the default rules for domestic and foreign eligible entities, the 75-day / 12-month effective-date window, the 60-month lock, Rev. Proc. 2009-41 late relief, the deemed transactions on every change of classification and when they are taxable, the deemed 8832 inside a Form 2553, publicly traded partnerships, and the §761(a) election out.
The three economic-effect clauses, the alternate test and the qualified income offset, book capital accounts, substantiality and the shifting and transitory allocations, the two regulation examples, targeted allocations in modern agreements, built-in gain and loss property under §704(c), the traditional, curative and remedial methods, and K-1 Items L, M and N.
The but-for and entrepreneurial-risk tests of Reg. §1.707-3, the ten facts, the two-year presumptions in both directions, the preferred-return and operating-cash-flow exceptions, debt-financed distributions and the partner’s share of the new loan, the partial-sale arithmetic, and the Form 8275 disclosure.
Page 1 versus Schedule K, the Schedule B questions with consequences, the small-partnership exception from Schedules L, M-1 and M-2 and the M-3 thresholds, K-2/K-3 and the domestic filing exception, organizational, start-up and syndication costs under §709 and §195, the §6698 and §6722 penalties and the e-file mandate, the §6221(b) opt-out, Forms 8716, 8752, 8082 and 1042, and which partnership survives a merger or division under §708.
My notes from the Special Enrollment Examination chapter on partnerships, brought current: what is and isn’t a partnership, tax year and filing, contributions, outside and inside basis, operations and allocations, distributions, guaranteed payments and self-employment tax, sale of an interest, and liquidation. Each page opens with an at-the-desk box; the Worked Examples page has my liquidation worksheets; the one-liners at the end are the rules from the practice questions.
Notes from a 2019 continuing-education course on the corporate income tax, brought current to the 2025 law: gross income and deductions; cash, accrual and hybrid methods, the 12-month rule and advance payments; tax year, due dates and Form 1128; capital gains and the 3-back / 5-forward rule; organizational, start-up and research costs (§174A); reasonable compensation, §280G and §162(m); bad debts; and charitable contributions with the 10% ceiling and the new 1% floor. Each page opens with an at-the-desk box; the one-liners at the end are from the study questions and the final exam.
Who must file (the $19,000 exclusion, future interests, split gifts, the 529 spread, the noncitizen spouse), the gifts people don’t know they made, April 15 and Form 8892, adequate disclosure and the statute that never runs, Part I line by line, the Part III consent and the Notice of Consent, Schedule A Parts 1–4 with valuation and the QTIP election, Schedule B prior periods with the recalculated credit, Schedule C DSUE, Schedule D GST allocation, the Part II computation with the 2025 and 2026 credits, basis after the gift, and the questions clients bring in.
Notes from two fiduciary income tax courses, brought current to 2026: the three incomes (accounting income under the principal and income act, taxable income, DNI); simple and complex trusts and the tier system; grantor trusts and the three reporting methods; filing thresholds, the estate’s fiscal year and the §645 election; the decedent’s final return and IRD; deductions after T.D. 9918; brackets, AMT, credits and NIIT; business income and S stock in trusts; the termination year; the K-1 box by box; the paper trail from Form 56 to Form 5495; Colorado. The one-liners at the end are from both exams. Fourteen pages with a search box.
§179 vs. 100% bonus vs. MACRS and the elections with deadlines, vehicles and the 50% cliff, the allowed-or-allowable rule, when to amend and when to file Form 3115 (DCN 7) with a §481(a) adjustment, the repair regulations’ safe harbors, and recapture at sale.
My notes from studying for the Special Enrollment Examination, brought current to 2026: MACRS methods and conventions, listed property and the auto caps, Section 179 and 100% bonus, amortization and Sec. 197, depletion, and the Sec. 1231 / 1245 / 1250 recapture rules. Each page opens with an at-the-desk box, and the one-liners at the end are the rules from the practice questions.
Error vs. method and the two-return rule, automatic changes under Rev. Proc. 2015-13 and the Rev. Proc. 2025-23 list, the DCNs a small practice files (7, 184, 196, 233, 235, 244), computing and reporting the §481(a) adjustment with a worked never-depreciated duplex, the header, Parts I, II and IV and Schedule E, the reduced filing requirement, the original with the return and the signed duplicate to Ogden by fax, Schedule E line 19 and Form 8582, audit protection, and the letter rulings from people who forgot the Ogden copy.
How §461(l) caps aggregate business losses at $256,000 / $512,000 for 2026, what counts as business income (wages don’t), the Form 461 computation, how the disallowed amount becomes an NOL, the §172 80%-of-taxable-income limit, the NOL schedule the file must contain, and the planning response.
The two-part §469(c)(7) test (more than half of personal services and more than 750 hours, by one spouse alone), material participation in each rental unless the aggregation election is made, why the election is permanent and what it does to sales, what hours count, the cases taxpayers lost on the log, and the 3.8% NIIT safe harbor.
Eligibility and electing out, Part I gross profit and contract price line by line with the mortgage-over-basis deemed payment, §453(i) recapture on line 12, Part II every year, what counts as a payment (escrow, pledges, third-party notes), §483 and §1274 imputed interest and the AFR caps, Part III related-party resales under §453(e) and §453(g), §453A interest on deferred tax over $5 million, dispositions, death and IRD, §1038 repossession, and Colorado sourcing after the seller leaves.
The three gates before any line (foreign tax home, no U.S. abode, residence or 330 days), Parts I through IX line by line with the questions that have teeth, the housing base and locality cap, the Foreign Earned Income Tax Worksheet under §911(f) worked for 2026, what the exclusion does to SE tax, IRAs, the credits and Form 1116, the election and the five-year revocation bar, FBAR and 8938, and Colorado domicile.
The expatriation date for citizens and long-term residents (and why an expired green card is not one), the three covered-expatriate tests and what the five-year certification actually covers, Parts I through III line by line, the balance sheet at FMV and basis, the mark-to-market table and the $910,000 exclusion worked for 2026, eligible and ineligible deferred compensation, IRAs and trusts, deferral, the dual-status final return, §2801 and Form 708, life after the exit, the relief procedures for accidental Americans, and the hand-off to counsel.
Notes from a twelve-hour course on exempt organizations, brought current to 2026: getting exempt (§501(c)(3), Form 1023 and 1023-EZ, 1024, 1024-A, Form 8976, the 27-month rule); public charity or private foundation and the Schedule A support tests; which 990 to file, the 2026 penalties, auto-revocation and the four ways back; the core form and every schedule; unrelated business income, debt-financed property and Form 990-T line by line; the conflict-of-interest policy, lobbying and the campaign ban; Colorado’s Secretary of State and DOR filings. Thirteen pages with a search box; the one-liners at the end are from the final exam.
One entry per event with the date and the source: the targeting affair, the Anaheim conference and the Star Trek video, the executive travel, the lost emails and erased tapes, bonuses to employees with tax problems, the Get Transcript breach, the Microsoft audit’s outside lawyers, the Trump returns, 30 million destroyed information returns, the Littlejohn leak, Comey and McCabe, the ERC moratorium, the Hunter Biden whistleblowers, Direct File, DOGE, the ICE data-sharing agreement and the courts, five commissioners in a year, and where it stands in October 2026. Kept for my own history.
The Lois Lerner story in full, dated and sourced: the BOLO lists and the 298 held applications, the planted question and the 2013 TIGTA report, the Fifth Amendment and the contempt vote, what was actually lost (emails, tapes and a BlackBerry — not text messages), the 2015 TIGTA, Senate Finance and Justice Department conclusions, the 2017 report on the progressive watch lists, the settlements and apologies, what changed afterward, and why it still matters when a client files a Form 1023.
How an S corporation or partnership pays Colorado’s 4.40% at the entity level and deducts it federally outside the SALT cap, the refundable owner credit, who benefits (including standard-deduction owners) and who doesn’t, the DR 1705 and DR 0106 election, DR 0106EP estimates and the December 31 payment, guaranteed payments and loss owners excluded, nonresident owners, and the annual go/no-go.
Items marked (verify) on these pages are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Last updated October 26, 2026.