Expenses of restaurant during renovation

[oceanlovin'ea]

New client came to me with really strange case. It is strange because it is not his business but he operated the business...maybe some kind of manager. Building and s corp is in the name of another person.

The restaurant was vandalized in the fall of 2011 and it took several months to get it back to working condition. Insurance paid the claim and work was done. The restaurant reopened in April of 2012 and was open for 2 or 3 months and closed again, permanently this time.

Then the owner of the building began to rent the building to someone who operates a restaurant in the building. At this point the renters take care of utility bills.

I am doing a tax return for the time the restaurant was in business which would be through the middle of June. Would you consider the expenses of utilities and maintenance part of the business expenses of the restaurant from the first of the year when it was being put back together? It was temporarily closed (not open for business) but it was still considered a business. The S corp closed when the restaurant closed. The owner is renting under another business name.

Thanks

Linda, EA

[Gary2]

I don't understand. If your client was just the manager, you should only be concerned with his employee business expenses (probably none, especially after the 2%). Why are you concerned with the restaurant's business expenses if the owner isn't your client?

[ChEAr$]

New client came to me with really strange case. It is strange because it is not his business but he operated the business...maybe some kind of manager. Building and s corp is in the name of another person.

(snipped for brevity)

Thanks

Linda, EA

Are you saying that this new client owned and operated the restaurant, and rented the building from a corporation?
That's the way I read it.

Unless new client is really another corporation, he files a schedule c.

[oceanlovin'ea]

not owner

he is not the owner but he is helping the owner out by getting this done. This all sounds very strange, I know. The owner paid him "in cash" for the work he did over there. I don't know how much....probably more than he is reporting. BUT I am NOT doing his personal tax return. If the business showed a profit, it will give him a 1099 for the amount of the profit. Much of what he was paid came from the insurance money. But again I am not doing his personal return.

I just need to do an s corporation return for the restaurant while it was in business. Therefore my question about utilities for Jan-March while it was being repaired. Would that still go on the s corp return? It was still a business but not open for business.

Linda, EA

[JohnH]

Linda, you can handle this however you wish, but as a personal observation there are some red flags here that would cause me to decline the work. There's lots of opportunity for you to be fed incomplete information which may be inconsistent with the whole picture, and it appears that you are already aware that this may be the case. I'd think long and hard about any involvement with what may be a rather sticky mess.

[oceanlovin'ea]

thanks for your concern

I declined to do most of it to begin with. A close associate in another city is doing the personal return and representing the man who came to me with the IRS. He is very competent and professional and would not do anything to jeopardize his EA standing. So he has the harder part of the work.

I am only doing the s corporation return based on the checking account. I will record the deposits as income and the money paid out as expenses. If there are questionable payments I will leave them off and let them be covered by the insurance settlement. But I have had to wade through all of the renovation expenses too and determine which was which. Doesn't help that they are Spanish and I "no habla espanol".

I will also have the owner/shareholder of the s corporation sign an engagement letter that will state that I prepared the return based on the information provided to me by them. If they have undisclosed income or expenses, I am not responsible for that.

Linda, EA

[ChEAr$]

Okay, but you still must make an effort to ascertain income correction, both bank deposits AND cash not deposited.
Oh btw, yes to the expenses for the corporation even if restaurant was temporarily closed.

Sit down with owner of the corporation and a translator if necessary, and ask the burning questions about income. Put
the fear of God into them and invoke the wrath of the IRS.