Client purchased entire stock in existing SCorp.....

[OldJack]

It sounds like that CPA is wingin' it, alright, but I'd give it some serious thought before turning him in to the state board of public accountancy.

I doubt the CPA is winging it as this is much to involved. Truth is we don't know all the facts and it is to early to criticize the CPA. Now that it has been stated that there was an asset sale to a LLC we know that makes the CPA's reporting on a 1040 Sch-C as appropriate. Could the shares of stock be in escrow not only because of payment but also because the corp has a license or franchise that must stay in a corporation to be valid.

Your client has a loss instead of taxable income is not all that bad for such a stupid CPA.

It is plain irresponsible to criticize or report the CPA without knowing all the facts.

[Safire]

Sounds like to me that the S-Corp is or was suppose to still keep going with your client as the shareholder. There is a paper to include to prepare the s-corp as though it had two tax years. For this S-Corp it would have been 1/1/05 to 10/17/05 with the 3 shareholders getting K-1 for that part then your client get a K-1 from 10/17/05 to 12/31/05.

That was my thinking exactly.

I don't really care about anyone getting reported or in trouble, but I just want to see this guy start off right. If it's not done right this year, you have a mess from now on.

[Safire]

Old Jack, I agree this is involved. But I also think that issuing the buyer a W-2 from his own sole member LLC is worthy of criticism in itself. I know we all make mistakes but that is a biggie from someone who has been in business for a long time.

My client attempted to get his questions answered from the CPA before ever calling me. The CPA would say, "just because" or "that's how we had to do it" . They have asked for some of the records back that they turned into him, and he says he no longer has them.

I think any client who has questions about a return that he is signing to take responsibiity for desearves better than that.

And as far as having a loss, why would that be such a great thing if it's not right? My client cannot verify the numbers on his schedule C and the CPA won't give him anything in writing to verify the numbers that he used.

It's just a mess.

[OldJack]

Old Jack, I agree this is involved. But I also think that issuing the buyer a W-2 from his own sole member LLC is worthy of criticism in itself. I know we all make mistakes but that is a biggie from someone who has been in business for a long time.

First let me say I am not trying to defend the CPA. As far as the W2 is concerned I have done the same thing with a self-employed as the client would spend the money if withholding was not done with a paycheck. There are some clients that if you don't treat them as a payroll they will always be borrowing money to pay their taxes, going deep into debt every year, or have the IRS after them. It sounds like your client is not very bright and is not very good with details? The IRS doesn't care if the self-employed is on payroll W2 as long as they are getting their tax.

My client attempted to get his questions answered from the CPA before ever calling me. The CPA would say, "just because" or "that's how we had to do it" . They have asked for some of the records back that they turned into him, and he says he no longer has them.

If your client doesn't understand the overall deal how could you expect him to understand the CPA's explanation before the CPA makes a remark "thats how we had to do it". You need to talk to the CPA and get the facts yourself.

I think any client who has questions about a return that he is signing to take responsibility for desearves better than that.

I dare say not many of my clients understand the tax return or even look at the thing before they sign it. They are maybe stupid or maybe they just trust me.

And as far as having a loss, why would that be such a great thing if it's not right? My client cannot verify the numbers on his schedule C and the CPA won't give him anything in writing to verify the numbers that he used.

It's just a mess.

Has your client paid the CPA in full? It is always difficult to get cooperation from anyone when they have not paid for the service. If that is not the case, I would expect the CPA would be more than willing to set down with you to review the agreement and how the tax return was prepared. All CPA's that I know don't keep client owned documents because they are required to make copies for their workpapers. The S-corp may have all the records you seek.

It may not be a mess when you find out the facts, but until then I can understand your frustration.

[Safire]

I did see a check to the CPA for over $1700, don't know if that is paid in full or not.

And yes maybe things would be more clear if I had all the facts.There is probably more going on than the buyer even wants to tell me.

I struggle with having made an issue of the whole thing with him, but I have to believe that I did the right thing in raising concerns. Obviously he had concerns as well or I would never have been consulted.

I think I will recommend he see a tax lawyer to at least look over his sales agreement because it apprears to me that what he agreed to in that document and what has happened on tax returns are 2 entirely different things.

There is no K-1 from the Corporation, there is no Form 8594, just a brand new Schedule C as if the corporation never happened.

[sea-tax]

[QUOTE=OldJack]First let me say I am not trying to defend the CPA. As far as the W2 is concerned I have done the same thing with a self-employed as the client would spend the money if withholding was not done with a paycheck. There are some clients that if you don't treat them as a payroll they will always be borrowing money to pay their taxes, going deep into debt every year, or have the IRS after them. It sounds like your client is not very bright and is not very good with details? The IRS doesn't care if the self-employed is on payroll W2 as long as they are getting their tax.









Old Jack unfortunately I will have to beg to differ with you on your last statement . The IRS does care and I have seen it first hand. I got a new client with a Sole P and had W2 Income, he got audited and in the course of the audit this was discovered. I used your arguement til I was blue in the face. The fact is it is similar but not exact and that is the IRS bone of contention. Look to the retirement plans as an example of how it is different. There are other examples as well.

[OldJack]

Old Jack unfortunately I will have to beg to differ with you on your last statement . The IRS does care and I have seen it first hand. I got a new client with a Sole P and had W2 Income, he got audited and in the course of the audit this was discovered. I used your arguement til I was blue in the face. The fact is it is similar but not exact and that is the IRS bone of contention. Look to the retirement plans as an example of how it is different. There are other examples as well.

And what was the difference in your clients "tax" from the audit as a result of the W2 verses Sch-C SE tax issue? IRS agents that I have had looked at it and passed. If you get that young aggressive IRS agent I am sure they may write it up. Of course if having a W2 is going to be a disadvantage to your client (retirement plan) then you should not do it, but my statement was for those type clients that it solves problems.

[sea-tax]

And what was the difference in your clients "tax" from the audit as a result of the W2 verses Sch-C SE tax issue? IRS agents that I have had looked at it and passed. If you get that young aggressive IRS agent I am sure they may write it up. Of course if having a W2 is going to be a disadvantage to your client (retirement plan) then you should not do it, but my statement was for those type clients that it solves problems.

The difference was the client had to go back and ammend the payroll reports and fix the situation. Which cost money. Like I said I did not report it this way but the clinet was advised by another preparer that it was ok.

The fact is Old Jack that it is not ok under any circumstance. To have a Sole P or Partnership owner take wages on w2 is incorrect. While I understand your reasoning behind it and while it is admiral it is stil incorrect. This is just my opinion and I am aware that even I bend rules on occasion , but right is right and wrong is wrong. I would be worried if I told my client that this was acceptable.

[OldJack]

This is just my opinion and I am aware that even I bend rules on occasion , but right is right and wrong is wrong. I would be worried if I told my client that this was acceptable.

Yes, you had an agent that was unreasonable, but I have had more than one agent that only made a comment about the W2 and passed. Fact is the agent could have written it up without you having to file the prior period payroll forms. You didn't say what the additional tax was on audit. Again, you had an unreasonable agent.

True, W2 for such business owner is wrong and incorrect... that is clear, but in some cases it is better than the alternative mess the client will make with substantial penalties and interest to the client (much more than your fee to file amended payroll forms). I usually get rid of clients of this nature as they always take more time than they are worth and time is better spent on non-problem clients. There is no need to worry over such a small thing when there are much larger issues to worry about.