Partnership Amended Returns

[S T]

I have been revisiting Partnership Returns that I prepared in 2009 and 2010 based on the information that the Client provided. They are on a point of sale system and had some very large "migration" data problems during those two years, still not so sure that it has been rectified even going forward for 2011, or 2012. There have been many conversations with the Client, and the Client is involved in making the corrections.

I have re-done the 2009 and 2010 returns (Partnership) to arrive at a better "place" to complete the 2011 Partnership returns (i.e., Balance Sheet and Capital Accounts carryoforwards into 2011. They are all marked as "Amended 1065" returns.

There are 4 different Partnerships - a couple of partnerships will show less income and pass through onto the K-1 forms, a couple of the partnerships will show more income on the K-1 forms.

Someone will ask if the changes are "material or significant" I will say yes (according to my standards) I know that the cprrected retirms should be filed. Example is Loss on one is increased by 14K (partnership) Individual would be 80/20, Increase in Income on another Partnership 30K - Individual would be 80/20, etc.

My question is this - My obligation as Tax Preparer - I need and will (without a doubt) supply the amended Partnership Returns to the Client, with all of the instructions regarding filing - as well as also providing the corrected K-1 partners forms. Is it up to the client to file the Partnership Amended Forms,? Is it also up to the client "instruct me" to Amend the personal Form 1040 Returns?

Yes I do them all - Form 1065 and Family Form 1040 Returns.

I just want this nightmare to go away! However do wonder about my obligations and certainly do not want any preparer penalites. Statutes on the returns have not expired.

Thanks for your insight and responses on how to handle this.

Sandy

[appelman]

As Sir Thomas More once wrote...

It is best to tell princes not what they can do, but what they should do. Your obligation is to explain to your clients what they should do and why, and, of course, to prepare the returns that will enable them to do it. You obviously cannot force them to file returns if they don't want to do so.

[AZ-Tax]

Last day to amend 2009?

When is the last day to amend a 2009 form 1065 & form 1040 if filed an extension for the TP/Partner to obtain an additional refund?

[appelman]

Isn't the rule...

three years from the latest of (1) the date filed, (2) the date any tax was paid, or (3) the original date due (disregarding extensions)? There are special exceptions for "financial disability" and a few other situations.

[S T]

2009 Returns were due (if on extension) -

Partnership - 1065 9/15/10
Individual - 1040 10/15/10

File amended return within 3 years of the date the original return was filed, or within 2 years of the date on which you paid the tax due on the return, whichever is later.

Sandy

[S T]

Thanks Appleman for your reply on this issue and words of wisdom. It does give some comfort to know that all I can do is discuss and provide the Amended returns, after all I do not sign them, I only have to provide them.

"you can lead a horse to water, but can't make him drink"

So either the taxpayer or myself have to take "ownership" I feel I am "taking ownership" in providing the amended returns for corrections, now it would be up to the taxpayer to take "ownership" to file them.

Sandy

[Roland Slugg]

I would like to offer another perspective on the main issue raised in the OP ... the preparation and filing of amended returns for 2009, 2010 and, perhaps, 2011.

First let me say that it wasn't clear to me if income "dropped through the crack," or if the defects in the partnerships' accounting systems ... (I take it there are four) ... simply resulted in some sales being recorded in the year following the year in which they actually occurred. If it was the former, then I would strongly advise my clients to allow me to prepare amended returns for the affected p'ships as well as all the affected partners. However, if it was the latter, which I believe is probably more likely, then I would take a different approach.

What I would do is advise my clients that there are two options: (1) A retroactive correction resulting in the preparation and filing of amended returns for all the p'ships and their partners, or (2) a prospective correction ... fixing the accounting problems now (or as of 12/31/2011) then preparing all as-yet-unfiled returns on a correct basis. You can not force your clients to file amended p'ship and individual returns, but you do have a duty to advise them of the ramifications of both choices. Also, I would not have proceeded to prepare amended p'ship returns for 2009 and 2010 until discussing everything with the partners, or at least the key partner(s), and then only if they opted for option (1).

There was no fraud involved, so all that's happened is that some income was reported by various individual partners one year later than it should have been, and, thus, tax was paid a year late on that late-reported income. If corrected, however, the net tax probably wouldn't change very much; pushing income from 2010 back to 2009 and from 2011 back to 2010 will largely result in net offsets. The tax rate structure has been the same for all the years involved, so it comes down to a question of specific tax brackets for each partner in the various years.

In my judgment it's not that big a deal. The IRS doesn't audit many partnership returns, and even if it does audit these, there is a good chance that the year-shifting discrepancy won't even be detected. Everything will "self-correct" by the time the 2011 or 2012 partnership return is filed. Even if the returns are audited ... and the problem is identified ... the bottom line will be a relatively small to moderate amount of tax due, if any at all, plus late payment penalties and interest on that tax. Measure that against the cost of re-doing all the accounting then preparing all those amended returns. I would go over all that with my clients, of course, then let them decide. And if asked, I would recommend that they opt for option (2) ... let sleeping dogs lie. It's the practical solution, and one that the IRS itself probably wouldn't get too worked up about.

Absent additional information not contained in the OP, I don't believe the issue is big enough or the taxes material enough to redo everything.

[S T]

Roland - Thank you so much for your thoughts and I so appreciate your wisdom and guidance.

It was difficult to outline in the OP what has transpired - so here is the "short version" The Franchisor (large Gas Distributor) installed a new POS system mid- year in 2009 for all of their dealers, and then also used a "bridge system" to review/retrieve reports, then that migrated to Quickbooks - so I am working with 3 systems.

It has been a nightmare, as the Franchisee (my client) was not trained, unaware of accounting issues ( I have prepared all Accounting after the fact since 1993 on a simple POS system) It has taken us all this time to understand the "New" system, find discrepancies, and then enter in information that the system does not account for. All has been discussed with the TMP (80% Partner) - and it was agreed this was the best way to approach. Just a lot of work for me, and I feel I just earned my "Forensic Accounting" Certificate.

My thought is that this T/P with all of his Partnerships needs a "full time" bookkeeper to make sure these transactions are correct , THEN an accountant-tax person for the final year end corrections. I did not ever "buy in" to this type of work of correcting a "system" error.

The businesses (stores) are 5 all under separate Partnerships - some are $7mil per year and several stores are $ 10mil per year in sales (gas-Convenience Store)

I have given my "termination" notice and advise Client to find another Accountant that can better understand the new system - as I am spending more hours in figuring out what the "new system" is doing and correcting than I am "regular accounting" and not receiving compensation for.

In the meantime, my ethics and long term relationship has led me to correcting 2009-2010 returns, as well as filing 2011 returns (just completed). I also have a concern due to California BOE (State Board - Sales Tax) and what they might audit.

So I have prepared (not filed yet) all of the partnership returns for 2009 and 2010 (dropped days for sales, missing Gas purchases, and other minor discrepancies) - (two of the Stores had some major differences bottom line - one store loss was understated by 8K, and another Store Loss was overstated by 20K) Several other stores were minor as in 3K loss understated and 2k profit overstated. -

You might ask why losses- it was due to some major retrofits for Fueling Equipment required by the State during 2009 and 2010

So I am proceeding within my comfort zone, and what I feel should be the proper and correct thing to do. Partnership returns amended and will be provided to TMP to file, and as I am now in the stages of completing the 2011 Partners returns (thank goodness it is all Family -- and I prepare all) will also prepare the Amended Individual Returns for these for 2009-2010.

My feeling is then I am done! I did what I could with the information at hand furnished by the T/P and corrected what I could, for some other Accountant to take over.

This has been one of the largest challenges in my Accounting-Tax Career and I just need to move on.

Thanks for all of the thoughts, guidance, and insight,

Sandy

[Roland Slugg]

Dear Sandy

I wholeheartedly agree that the businesses you described should have a well-qualified and trained accountant or bookkeeper working for them.

After reading the sales numbers you just posted, however, I believe even more strongly that you are taking an inadvisable course of action. I urge you to reconsider. The scope of the errors you described is a drop in the bucket, and the mistakes will self-correct the following year. At the very least I believe you should halt the unilateral action you have taken and instead discuss the situation with the primary partners ... and let them decide what to do.