Entities without balance sheets

[appelman]

I occasionally have people come to me to prepare a 1065 or 1120S, having nothing more to give me than an income/expense tabulation. I have neither the resources nor the inclination to undertake a year's worth of bookkeeping for them. Although the entities meet the requirements for omitting a balance sheet from the return, I feel that I don't really have control of the return under these circumstances, and I usually turn them down. Am I being excessively scrupulous?

[taxxcpa]

Balance Sheet

If a balance sheet is required, I would not attempt to do one without a balance sheet. In some cases you might be able to jerry-rig one by getting the ending bank balance, depreciable assets, amounts of debt and other figures the client could come up with.

It would be best to include a disclosure with any returns prepared in that manner.

[oceanlovin'ea]

There are people out there in this world who are s corps for the purpose of workers comp insurance exemptions that really don't keep a set of books. Some don't even have separate bank accounts.

I have done a couple like that in the past. But they understood that they are not really operating like an s corp and probably shouldn't be one. I think it was about 3 years ago that I did those.

With preparer penalties that exist now, I would be very careful about doing that. Because they aren't really operating like a corporation. I would be afraid that if they got audited, IRS might impose fines for not preparing an accurate return.

Linda

[JON]

Trouble

I guess the simple form says you could do this, but what happens if business is more complex, loans, property and equipment, basis and distributions. I elect to not show balance sheets when they are not required, but I have never done a 1065, 1120 or 1120s where I did not have a balance sheet.

[BHoffman]

I'm guessing these are cash basis entities. The balance sheet only shows account balances as of that one day - usually Dec. 31st. Sometimes you can put together a balance sheet without a whole lot of trouble by using statements - bank, credit card, loans, payroll reports. Some small companies only have Cash and Equity on a balance sheet.

If they report on a cash basis and carry credit card debt, they might be missing out on deductible expenses.

How do they report fixed asset purchases - write them off as expense? How do they report interest expense on loans - do they deduct the entire loan payment? What about inventory - do they deduct the entire amount as COGS? I think these are things the IRS might expect us to question.