s-corp partnership sch c

[rwm221]

I have a client who used a CPA in the past and here is his situation. He had a Partnership for a few years sometime in 2023 he bought his partner out. His CPA filed his return with the current business name and EIN number. Also in 2023 the CPA created another business name and EIN for a 1 member small business to be taxes as an s-corp. My client was told the new business name and EIN will file as an s-corp, create a K-1 which will in turn be used on the schedule C under his old business name and ein. I am not a CPA and have never done anything like this before. Is this correct? I understand the s-corp part but not the k-1 being used on his schedule C. CPA will not return calls. Also shouldn't there have been a final return filed for the Partnerdhip?


Thank you

[rwm221]

Sorry forgot to mention when the CPA filed his 2023 tax return, he filed the business as a schedule C with the partnership name and ein number

[jmcdtax]

This doesn't sound correct at all, very odd. Have you seen copies of the past returns? From what you have said, a short year for the partnership should have been filed. Did CPA file 1120-S or someone else? Did he receive CP261, notification from IRS that the S election was accepted after filing Form 2553?

[TaxGuyBill]

He had a Partnership for a few years sometime in 2023 he bought his partner out.

Also in 2023 the CPA created another business name and EIN for a 1 member small business to be taxes as an s-corp.

create a K-1 which will in turn be used on the schedule C

The year 2023 could potentially have THREE things: (1) a K-1 from a Partnership for the first part of the year, (2) a Schedule C from when the client bought out the Partner (so it was a solely owned business) until business was transferred and done under the new S-corporation, and (3) a 1120-S (and a K-1) for after the corporation started.

The K-1 from the S-corporation has absolutely nothing to do with Schedule C. If the prior tax preparer in any way connected the S-corporation or the Partnership with Schedule C, they are wrong (Edit: If it is an LLC, the Single-Member LLC could have the same name and EIN on Schedule C, but the income and expenses are completely separate from either the Partnership or S-corporation).

[rwm221]

I do have his 2023 taxes. There was no k1 for the partnerships. There is only the schedule c. There are 2 ein's one for the partnership that is now a schedule c and a new one for the business that is now going to be taxed as an s-corp. The spread sheet ha gave me has 2 sets of entries one set for the new s-corp return and one the his old company. The set of numbers for the old company are funds that he took out of the new company and expenses for that company along with expenses for the s-corp. He has 2 employees he did not issue 1099's or w2's I think the CPA wanted the s-corp tp hire his old company. But, he has the numbers convoluted mixing deductions s-corp when they should have been the schedule c for the old company deductions. ex. work cloths, personal tools etc. NOt sure how I am going to help he is alreadt late filing the s-corp return and not giving out 1099's .

[RAG1775]

I agree with TGB.
I will also add that with the limited facts, you don't mention if this was a true partnership or an LLC. There are some nuances that come into play depending on the actual entity type.
In either case, it is important for you to also know what your client's tax basis was at the time of the buyout, the amount of the buyout and how it was paid out; cash or installment sale.
Your client will have a bifurcated basis in the assets of the "old" partnership; a substituted basis in your client's portion of the "old" assets and then a basis in the assets purchased based on the purchase price.
Yes, there should have been a final partnership tax return.
What documentation do you have that there was actually an S corporation created?
If there was truly an S corporation set up and this was reported on a Schedule C, this is causing your client to pay SE tax on earnings that should not be subject to this tax. And not generating any basis in the S corporation.
Your client needs to understand the ramifications of having incorrect returns filed, what needs to be amended, not properly reporting payroll, etc. There are some significant penalties based on the limited facts.
I would recommend you engage a CPA who you trust to help you short through this mess or step away as this seems to be out of your realm of comfort / practice.