s corp, never filed k-1's or w-2's , put all income on schedule C

[Bay ArEA]

Man I don't know where to start with this mess. The client has been filing their 1120S forms filled out by hand with no k-1's. Except for a few years at the beginning they didn't pay themselves though payroll, and instead just took profit checks. They then filed all the same business information again on a schedule C on their 1040, paying self employment tax there. This has been going on for more than five years.

What is the best way to fix this mess? I'm contemplating amending the 1120S forms to show no activity, then keeping the 1040's as is would be the easiest way to do it; if 1099's were in the corp's tax ID number, nominee them over to the personal with a 1099. I am afraid that instead we will have to go back and file all the missing K-1's, do the old payroll, and amend every single return to show no schedule C, put on the w-2, and make the 1120 S show wages paid. I'd love to know what you guys think is the best course of action.

[Roland Slugg]

That's a mess, all right! But it's not as bad as it probably seems. If, as you say, the "shareholder" has been reporting all the income on a Schedule C, reporting the profit on Schedule SE and paying SE tax on that, then there has been no underpayment of taxes.

The practical thing to do would probably be to leave everything alone. I would recommend filing a "Final" return for the corp, showing no income or expenses, just to officially get the corp removed from the IRS's file of active corps.

[Matt Sova]

Let it be

I'm with Roland on this one.

[Bay ArEA]

That's a mess, all right! But it's not as bad as it probably seems. If, as you say, the "shareholder" has been reporting all the income on a Schedule C, reporting the profit on Schedule SE and paying SE tax on that, then there has been no underpayment of taxes.

The practical thing to do would probably be to leave everything alone. I would recommend filing a "Final" return for the corp, showing no income or expenses, just to officially get the corp removed from the IRS's file of active corps.

Unfortunately the IRS has penalized her for not filing the k-1's, so I was thinking for that reason they need to get filed, but now that I think about it, the k-1 penalty is a fixed one, so they can't make it any worse. so you've got a point, I'll not bother with the old returns at all!

[spanel]

Unfortunately the IRS has penalized her for not filing the k-1's, so I was thinking for that reason they need to get filed, but now that I think about it, the k-1 penalty is a fixed one, so they can't make it any worse. so you've got a point, I'll not bother with the old returns at all!

I think if they want the corp dead.. you need to file a return for the year after the last one they filed and mark it final. Then check with the sec of state to make sure the corp is dissolved.

Chris

[NotEasy]

Not to divert the thread, I have a related question.

An LLC's 2013 tax return had been mistakenly marked "final". It was found out when the 2014 e-filed tax return was rejected. Client called and was advised by a representative that she should paper file the 2014 tax return and attach a note to request reopening the account. Client did so.

Just wondering, has the client done everything he had to do? Will he have problem again to e-file the 2015 LLC tax return this year?

[Bay ArEA]

I've had to do something similar with a trust return and it seemed to work fine because we never heard anything back. Not quite the same, so I hope that helps.