Passive Loss Carryover adjustment

[DMICPA]

Client doctor has a suspended loss from a passive activity which occurred in 2012. $50,000 loss just sitting there.

Today, 12/31/13, He faxes me a 2012 K-1 from another passive activity in 2012 with a $20,000 passive income. He just found it in his papers

I immediately plugged the missing K-1 in the 2012 return and there was no change in tax or taxable income. Just changes the passive loss carryover into 2013.

I was thinking of amending the 2012 return but with absolutely no changes Federal or State, could I adjust the carryover figure going into 2013 and all will be corrected?

I don't want to send a big package of an amended return to the Federal and State with no change in any taxable figures. That could be confusing to the tax authorities.

I can't see any downside and everything is corrected. The tax authorities should have no issue as I am reducing the passive loss carryover.

Anyone think this is an incorrect course of action?

[New York Enrolled Agent]

Anyone think this is an incorrect course of action?

Yes - see Circular 230 §10.21 and §10.22

[DMICPA]

Ok

Client doctor has a suspended loss from a passive activity which occurred in 2012. $50,000 loss just sitting there.

Today, 12/31/13, He faxes me a 2012 K-1 from another passive activity in 2012 with a $20,000 passive income. He just found it in his papers

I immediately plugged the missing K-1 in the 2012 return and there was no change in tax or taxable income. Just changes the passive loss carryover into 2013.

I was thinking of amending the 2012 return but with absolutely no changes Federal or State, could I adjust the carryover figure going into 2013 and all will be corrected?

I don't want to send a big package of an amended return to the Federal and State with no change in any taxable figures. That could be confusing to the tax authorities.

I can't see any downside and everything is corrected. The tax authorities should have no issue as I am reducing the passive loss carryover.

Anyone think this is an incorrect course of action?

I see the Circular 230. 10-21 10-22. Will consider amending.

[Roland Slugg]

An amended return needs to be filed in order to report to the IRS the $20,000 of income reported on the newly discovered K-1. This will be an extremely simple thing to do. The 1040X will show all zeros in the "Changes" column, and the only form that will need to be attached is a new F-8582, including the worksheets. This will NOT be a "big package" as you characterized it. The explanation for the amended return will make it clear why it's being filed, and the IRS will have no difficulty understanding it or processing it. Then if you prepare this TP's 2013 return, the PAL C/O will agree with the last return filed ... namely the 1040X.

When I read your post I wondered how well you know this client and how a missing K-1 like that could slip past you? Even if it was a new client, didn't you see his prior year return? And if the K-1 came from a brand new investment, wasn't that covered in a checklist or questionnaire the client completed and gave you. I raise these questions because your post suggests a gap in the information gathering and/or the review process that you may wish to think about.

[DMICPA]

Passive Loss Adjustment

You are correct, I will just include the pages where there was a change to set the 2012 correct which will carryover to the 2013.

You ask how I could miss a K-1? Well, I send an organizer to the Doctor, I call him to see how the business is going an average of once a month, I have visited His office and had meetings to inquire as to what He is investing in and general consulting. I ask him when he sends His tax documents if there is anything else I need. I tell him to send anything he receives from a government agency or anything that looks like it could have tax implications.

This was a new investment in 2012 he didn't mention or maybe did not understand. He had another new investment in 2012 which generated a loss and I found out about that because he took $150,000 out of His retirement plan to invest in this. I only found out when I got a 1099-R from him in 2013 for 2012, and there were no withholdings taken out!. This is after him and I did tax planning before the year end and still he did not mention it. I had to get Him to give me the K-1 for this venture as his son who manages the venture told Him he was not filing anything this year because there is no profit! I told him to get the son to do the proper tax forms and I would put in for an extension. Did I mention that he is a Doctor, also His son with no formal business training handles the pension and other business ventures and the son does not get along well with tax accountants. I turned down work from the son because of his attitude and total lack of accountings. What else could I possibly do?

To the Doctor's credit, he is good to work with, pays all bills promptly, does not want to get into any tax trouble and when there has been an audit by the IRS on his personal return, we came out clean. When his medical practice was audited, we came out clean. I have been working with him since the early 1980s and he trusts my judgment and I look out for him and try to protect him from shaky investments but he may get pressure from his family members.