Is a tax return required to filed?

[RightOn]

Taxpayer ran a business that had a loss every year until she abandoned it in 2010. She has not filed a tax return in 2010 yet. Based on what she said, she had no income in 2010 other than some social security income that is not taxable (based on her income level) and her business obviously had a loss in that year too.

So is she required to file a 2010 tax return? (she did file an extension for the 2010 tax return).

[erchess]

Insufficient Information

If the business was a Sole Proprietorship as I suspect it was, then she was required to file a tax return if gross receipts exceed a certain amount that used to be $400 but may have been recently increased - check your copy of the book.

If the business was a corporation or partnership or an LLC that elected to be taxed as one of those then it was required to file until it filed a "final return". (The IRS will assess penalties for the late return but if the business and the owner have good compliance records over the past five years you can probably get them abated.) Then the question of whether she had to file a 1040 would depend on the K1 she got from the business but probably she would not have to file one in this fact pattern.

[JohnH]

In this situation, you should never tell her not to file a return. No matter how much info she gives aboout the business, if she omits a detail (either intentionally or in error) and it later turns out that a return was required, you will get the blame. On the other hand, if she files a return (evenif no tax is due), then the filing requirement is satisfied and the SOL begins to run.

[S T]

Agree with John H and his assessment on SOL etc - there is no harm/no foul if you file a return for current year . There are "penalties" if a year or 2 years from now IRS deems that a return should have been filed and that the client "does not file".

I always on err on the side of filing.

Erchess brought up a point as well - the filing requirement for SE I do believe is on "Gross Receipts" - not net receipts

Take a look at TTB page 3-12 - there is a filing requirement (Chart C) for
"The taxpayer had net earnings from self employerment at least $ 400 " This is gross not "Net"

If sole proprietor - gross receipts $ 400 - and I would definitely file if Partnership or S corp as the "penalites" for non filing are "huge" and harder to abate. So if partnership or S Corp there could some other returns, if just Schedule C and 1040 - file

I also question depending on the circumstances, there could be a NOL generated that you can either elect to carryback or carryforwardd - so you have some "elections" there that might need to be addressed.

I have had it happen!

Sandy