M-2 not always required

[BHoffman]

I learned something today. The M-2 on pg. 4 of the 1120S is not always required to be filled out if the business has been an SCorp from day one.

[BOB W]

I learned something today. The M-2 on pg. 4 of the 1120S is not always required to be filled out if the business has been an SCorp from day one.

Interesting, my problem is that I never feel the return is complete if all of page 4 aren't in agreement.

[BHoffman]

Prepared but not shown

Interesting, my problem is that I never feel the return is complete if all of page 4 isn't in agreement.

Me too. I always prepare all of page 4 because I need that info to make sure everything reconciles, and my software gives me a nifty report. But, I don't have to show all of that info on the return. I can select what actually prints on page 4.

[JohnH]

I always view the return as complete when it contains all the info IRS requires, and ONLY the info the IRS requires. I'm not a fan of waving a flag in front of a bull.

[BHoffman]

I've thought about that over the years. Is it better to disclose or not? I still don't know. I always fill out the Sch L, M-1, and M-2. With efiling, I have no idea whether the IRS receives that information whether I select it to "print" or not.

I'm starting to wonder if the things IRS doesn't require aren't really important to them. Maybe page 4 is only really there to help us reconcile book to tax. They can see most of the M-2 stuff on the Sch K and other forms anyway - distributions, credits, nondeductibles, Sec 179, etc.

Which begs another questions - my software is producing a form for distributions, where the date and amount is to be listed. That's new. Can anyone shed light on that?

[taxxcpa]

Schedules L & M not required

I always fill the schedules for balance sheet and reconciliation of Retained earnings and save a PDF copy for future reference, then delete it before filing it.

[ChEAr$]

I learned something today. The M-2 on pg. 4 of the 1120S is not always required to be filled out if the business has been an SCorp from day one.

I love that idea of course, but I don't see anything in the 1120s instructions directly addressing the issue.

Can you give us a cite?

[BHoffman]

From the 1120S instructions:

"Schedule M-2. Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders' Undistributed Taxable Income Previously Taxed

Column (a). Accumulated Adjustments Account

The accumulated adjustments account (AAA) is an account of the S corporation that generally reflects the accumulated undistributed net income of the corporation for the corporation's post-1982 years. S corporations with accumulated E&P must maintain the AAA to determine the tax effect of distributions during S years and the post-termination transition period. An S corporation without accumulated E&P does not need to maintain the AAA in order to determine the tax effect of distributions. Nevertheless, if an S corporation without accumulated E&P engages in certain transactions to which section 381(a) applies, such as a merger into an S corporation with accumulated E&P, the S corporation must be able to calculate its AAA at the time of the merger for purposes of determining the tax effect of post-merger distributions. Therefore, it is recommended that the AAA be maintained by all S corporations."

[ChEAr$]

From the 1120S instructions:

"Schedule M-2. Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders' Undistributed Taxable Income Previously Taxed

Column (a). Accumulated Adjustments Account

The accumulated adjustments account (AAA) is an account of the S corporation that generally reflects the accumulated undistributed net income of the corporation for the corporation's post-1982 years. S corporations with accumulated E&P must maintain the AAA to determine the tax effect of distributions during S years and the post-termination transition period. An S corporation without accumulated E&P does not need to maintain the AAA in order to determine the tax effect of distributions. Nevertheless, if an S corporation without accumulated E&P engages in certain transactions to which section 381(a) applies, such as a merger into an S corporation with accumulated E&P, the S corporation must be able to calculate its AAA at the time of the merger for purposes of determining the tax effect of post-merger distributions. Therefore, it is recommended that the AAA be maintained by all S corporations."

Exactly what I read, too. Thus if AAA does not need to be maintained, it may be inferred that M2 is not needed.

[JG EA]

I always fill the schedules for balance sheet and reconciliation of Retained earnings and save a PDF copy for future reference, then delete it before filing it.

Me too.........

[BHoffman]

Great minds must think alike

[taxxcpa]

L & M

Even if the return does not require a balance sheet, I like to have it in my file and omit it from the copy the IRS gets. It is possible that a small company might grow and the sales or assets might increase to a point where a balance sheet is required. If the company has not kept up with the assets and liabilities themselves, you would have a balance sheet if you had asked for enough information each year to create one.

Also, my tax program has an M-2 worksheet which, basically, adds and subtracts beginning retained earnings, profits, shareholder withdrawals, depreciation and other timing differences to reconcile tax figures to book figures. If it doesn't reconcile, the worksheet reveals that something is wrong.