Back Taxes - Incorrect Income

[Tax Sleuth]

A taxpayer has not filed his tax return, and it was due more than three years ago. A substitute for return (SFR) was prepared by the IRS. He had a K-1 in the year in question showing a taxable distribution, but it should have been a nontaxable distribution. I could be wrong, but my understanding is the K-1 cannot be corrected now because of the statute of limitations. What is the best way then of resolving this type of situation with the IRS?

[Jiggers]

The partnership has to correct the K-1. That is the only way you can resolve the issue.

[Tax Sleuth]

Back Taxes - Incorrect Income - continued

In this case, the taxpayer was a partial shareholder of an S Corporation. The S Corporation is no longer in existence. Is it too late to correct the K-1 itself? Can the taxpayer negotiate with the IRS regarding his individual taxes if he can present evidence that the K-1 was incorrect?

[New York Enrolled Agent]

In this case, the taxpayer was a partial shareholder of an S Corporation. The S Corporation is no longer in existence. Is it too late to correct the K-1 itself? Can the taxpayer negotiate with the IRS regarding his individual taxes if he can present evidence that the K-1 was incorrect?

Why don't you file a return and use a form 8082 for inconsistent treatment of the k-1? I would probably also use a form 8275 to disclose the situation and protect you and the taxpayer from 6694 and 6662 penalties.

[taxea]

the 3 year statute dictates whether or not a refund will be isssued. An incorrect return based on an incorrect K-1 can be amended when the correct K-1 is received.