Dispute S-Corp K-1

[Black Bart]

Got a call from kinfolks who unfortunately invested in business with a former "friend" who looted their 3-person S-corp and sent them a K-1 for $60K profit. Their $75K investment is gone (friend secretly "loaned" it to his sole owner S-corp ), they never received a dime, he sold off the inventory, pocketed the money and drained company bank account down to a hundred bucks.

The shyster has all books, records, checkbooks, etc. and I've got an idea his K-1 shows a much smaller perentage of gain (like maybe $5,000). I know when a taxpayer gets an incorrect 1099 and disputes it (say like schedule B interest), he can list the gross amount on that schedule (to match IRS records), then subtract it down to the correct amount and attach an explanation.

So, question is, if it works for a 1099 would it work for a K-1 (say on Schedule E, page 2)?
Don't see why not.

Or...do they have to round up a copy of the 1120-S (he wouldn't produce it) and have someone amend it?

[DMICPA]

K-1 and loss of investment

I see what you are proposing but unlike a 1099-Int an S-Corp would involve the purchase of stock and basis issues. What happened here is that the managing shareholder may have embezzled the funds. If the S-Corp is not liquidated you would have to wait to realize any loss on a final K-1 or have a notice dated in 2009 signed by the shareholder abandoning the stock and taking a loss of the investment. If it is small business stock the loss would be ordinary. If not the loss would be capital.

These are my random thoughts on Friday night.

[Lion]

Inconsistent Treatment

There's a form especially for inconsistent treatment of K-1 information. I'll see if I can find it for you since the instructions would tell you if it fits your situation. OK, TTB 7-5 says Form 8082 and it does apply to S-corp shareholders.