When to Report S Corp K-1 Income/Loss

[JoshinNC]

Client received an 1120S "Final" K-1 from bankruptcy trustee for business that filed BK in 2003 and is finally winding down. TY on K-1 is 12/1/10 - 4/30/11 and they filed it on TY2010 K-1 (maybe because 2011 forms are not available?). My first inclination is that the income/losses on the K-1 are TY2011 income for my client (an individual, of course, because it's an S-Corp) but the cover letter from the firm that prepared the K-1 say it is provided to "assist in preparing 2010 income tax returns". Maybe it's a boilerplate cover letter and they just didn't proofread it?

Am I right that this is reported for 2011 by my client or is it actually 2010 income/loss?

[JG EA]

Client received an 1120S "Final" K-1 from bankruptcy trustee for business that filed BK in 2003 and is finally winding down. TY on K-1 is 12/1/10 - 4/30/11 and they filed it on TY2010 K-1 (maybe because 2011 forms are not available?). My first inclination is that the income/losses on the K-1 are TY2011 income for my client (an individual, of course, because it's an S-Corp) but the cover letter from the firm that prepared the K-1 say it is provided to "assist in preparing 2010 income tax returns". Maybe it's a boilerplate cover letter and they just didn't proofread it?

Am I right that this is reported for 2011 by my client or is it actually 2010 income/loss?

The corporation is supposed to use their fiscal ending date for the filing year.* But did this client already receive one for 2010 and this is another one? If so, I'd conclude what you did that this is for 2011. However, if not then their mistake may not be the year filed but they left in the closing fiscal date when the corporation was actually defunct in 2010.
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*Correction. Instructions for K-1 receipient:

If you file your tax return on a calendar year basis, but the corporation files a return for a fiscal year, report the amounts on your tax return for the year in which the corporation's fiscal year ends. For example, if the corporation's tax year ends in February 2011, report the amounts on your 2011 tax return.

[Maribeth]

Client received an 1120S "Final" K-1 from bankruptcy trustee for business that filed BK in 2003 and is finally winding down. TY on K-1 is 12/1/10 - 4/30/11 and they filed it on TY2010 K-1 (maybe because 2011 forms are not available?). My first inclination is that the income/losses on the K-1 are TY2011 income for my client (an individual, of course, because it's an S-Corp) but the cover letter from the firm that prepared the K-1 say it is provided to "assist in preparing 2010 income tax returns". Maybe it's a boilerplate cover letter and they just didn't proofread it?

Am I right that this is reported for 2011 by my client or is it actually 2010 income/loss?

Your client will report the income or loss on their 2011 tax return. It is not 2010 income. The ending date of the tax year for the entity is controlling for your client.

Yes, they used the 2010 forms because the beginning date of the tax year is controlling for the forms to be used by the entity. However, someone should have changed the cover letter.

Maribeth

[JoshinNC]

Jg

the Corp uses a fiscal yr and this is the Final fiscal yr, so it is a short yr. They did already receive a 2010 form with a fiscal ur ending 11/31/10 which I included on their 2010 return. I agree that it is 2011 income, just wanted some reassurance.

[taxea]

I would ask for a 2011 K-1 regardless. The IRS does all of the comparison's via computer and if they can't match the information on the tax return to a 2011 K-1 client will likely receive an error letter inspite of the cover letter which the IRS will not see.

[Maribeth]

I would ask for a 2011 K-1 regardless. The IRS does all of the comparison's via computer and if they can't match the information on the tax return to a 2011 K-1 client will likely receive an error letter inspite of the cover letter which the IRS will not see.

But that's the thing -- it is not a 2011 K-1, it is a 2010 K-1. The corporation's fiscal year, albeit a short year, is 12/1/10 - 4/30/11. That is a 2010 tax year, not a 2011 tax year.

Maribeth

[JoshinNC]

Why would that be a 2010 tax year?

isn't the tax year determined by the date the year ends, not the year it begins?

[Maribeth]

isn't the tax year determined by the date the year ends, not the year it begins?

No. On a fiscal year-end taxpayer the tax year is the date that the year begins. For example, fiscal year 7/1/11 - 6/30/12 is a tax year of 2011.

However, for K-1's issued by a fiscal year entity and issued to a calendar year taxpayer, the calendar year taxpayer takes the income into the year in which the K-1 ends.

Maribeth

[JohnH]

Agree with Maribeth.

The K-1 shows the beginning and ending FY dates. So the IRS computers won't be confused at all by a 2010 K-1 being reported on the 2011 personal return, provided the original return and K-1 showed the dates correctly. (That's why the dates are to be shown on anything other than a CY return)

[JoshinNC]

I agree

No. On a fiscal year-end taxpayer the tax year is the date that the year begins. For example, fiscal year 7/1/11 - 6/30/12 is a tax year of 2011.

However, for K-1's issued by a fiscal year entity and issued to a calendar year taxpayer, the calendar year taxpayer takes the income into the year in which the K-1 ends.

Maribeth

Maybe I was just mincing my words, my questions were pertaining to my client, the calendar yr TP, so it is 2011 income for him.

Thanks!