Corporate Balance Sheet

[rfk]

Just to be sure:

My knowledge is that corporations that have less than $250K in sales OR Assets do not have to report a balance sheet situation, but I want to be sure that this is indeed the case.

So, for either a C or S Corp, if EITHER sales or assets are less than $250K, then no balance sheet is needed. But I want to be sure that this will not be a real issue from the standpoint of the IRS, etc. Or am I wrong? Or is it that if sales or assets are $250K plus, a balance sheet has to be prepared.

One client has sales of more than $250k, about $80K in assets; and another one has both assets and sales of less than $250K.

Can you please comment on the best way to approach. It would be appreciated.

rfk

[taxxcpa]

Balance Sheets

The best thing would be to prepare balance sheets for all corporations but you don't HAVE TO if the sales and assets are small.

One reason you might need to have them would be that a company could grow larger. Possibly, they did not use double-entry accounting for several years so it would be difficult to construct a balance sheet if it had not been maintained from the start. You would need to get bank account balances, Accounts Receivables, Notes and Accounts payable, none of which may have been on the books.

[BHoffman]

rfk - Has to be total receipts AND total assets of less than $250k. There is a "check the box" on page 4 of form 1120 and page 2 of form 1120S.

[rfk]

Thanks, BHoffman

It is not a pick and choose therefore; if one of them is greater than $250K, must report on
balance.

Thanks, BHoffman

rfk

[JohnH]

I prepare the balance sheets, but if the revenues and assets are under $250K, I don't enter the info on the form. I only give IRS what's required - I almost never see any benefit in providing them something else to look at..

[BHoffman]

JohnH - Me too, but I have wondered about whether it's better to offer disclosure so the IRS cannot come in and announce that an unrealistic and nondisclosed position was taken, etc., or make that an issue to force the audit SOL beyond the 3 year limit. I've wondered if it isn't better to just lay the cards on the table, or whether IRS pays much attention to Sch L at all.

[Uncle Sam]

Corporate Balance Sheet

How would you like it if a new corporate client (or partnership client) came to you and you had no opening numbers to work with?

I'm not so much concerned with the prior accountants' work at that point as I am with being able to provide a starting point with a new client.

That's why I ALWAYS prepare a balance sheet even if NOT required - so I will never have to answer to a successor accountant any balance sheet information as of the last tax return.

Also- for your own records- it's easier to provide the information now -rather than in the future - having to reconstruct data in order to come up with it.

This false notion that the IRS provided by the exception to having it required is really a misnomer and a convenient "out" for preparers who don't know accounting and only understand taxation from a P & L perspective.

[oceanlovin'ea]

agree

I agree with the rest of the replies. I always prepare the balance sheet.

Some programs you can check if you want to send it with return, I think. So you wouldn't have to give that information to IRS if you didn't want to. But it is still good to have for your own records.

Linda

[Snaggletooth]

Incomplete

A balance sheet is a MUST for a corporation. There are elements totally missed if you limit your scope to a P&L only.

What about initial basis? What about constructive dividends? Amounts due to and from shareholders? Deferred tax liabilities? These and a dozen other potential factors are left unanswered. And not only is there due diligence placed on YOU the preparer, but you are not giving full service to your client without a balance sheet as well as a P&L.

The client should grasp the need for this kind of enhanced reporting when he (she) starts a corporation. If your client has been framing garages out of the back of his truck for years without accountability for capital accounts he should never have started a corporation.

Disclosure on the tax return for corporations sufficiently small is your option, but you should at least HAVE a balance sheet whether you choose to report it on Schedule L or not.

[Gretel]

I agree with the MUST have a balance sheet. I think this is a real requirement, cannot remember if by IRS or if this is a state issue. Has something to do with the whole corporate set up and legal issues not so much with the tax return. Almost the same thing as the need to have a separate corporate bank account.

[taxxcpa]

Balance Sheets

Some people who are almost illiterate start corporations and partnerships and wouldn't know a balance sheet from a hole in the ground. They do well to keep up with just income and expense.

The IRS may have provided the ability to report without a balance sheet for these very small corporations and partnerships.

The question of basis could theoretically arise, but more than likely it would be a negligible issue should it arise. Such corporations could let the IRS take whatever action they chose to take at a lesser cost than it would take to hire a CPA to keep a double-entry set of books.

My own approach is to get enough information to make some kind of balance sheet. Then it exists in my tax software, but I can choose to include or exclude it with the return that is filed. I get their bank balance (which may just be the unreconciled figure on their Dec 31 bank statement), inventory figures and receivables and payable amounts. It may be somewhat inaccurate but it is the closest thing they can come up with.

[JG EA]

What I do

...

That's why I ALWAYS prepare a balance sheet even if NOT required - so I will never have to answer to a successor accountant any balance sheet information as of the last tax return.

...

.

I prepare one, do not file it with the return if not required, and put it in the taxpayer's copy with the worksheet with a "For your information - Not filed with return".

[dsi]

I can't remember which board I read this on, but recently someone posted that the chance of being selected for an audit increases by 80% if the BS is left blank.

[Jiggers]

Corporate Balance Sheet on 1120/1120S

I require a general ledger detail for all corporations.

Due dilligence.

Several years ago I had a client, S-Corporation, that kept single entry books. I used that information to prepare the return, assuming that everything balanced.

Client didn't give me the health insurance expense for the 2 shareholder/officers.

He also didn't reconcile deposits to income.

Caused a big problem.

The health insurance should have been on the W-2 for proper handling.

Some income was missed.

I was concerned about unreported income, among other issues, and finally got rid of the client.

[sea-tax]

I can't remember which board I read this on, but recently someone posted that the chance of being selected for an audit increases by 80% if the BS is left blank.

I find this hard to believe, that following the form instructions would elevate your audit risk.

If Gross reciepts and Assets are below $250k then a balance sheet is not required to be submitted.
I have done this for many years and many tax returns and have not had a problem. This does not mean that I don't create one and provide the client a copy I just don't send it to the IRS. The IRS will get only what the law says they are required to recieve.
In Lacerte it allows you to stipulate which copies print what items. So I have preparer copy and client copy set to print balance sheet and IRS copy set to withhold.