Client who has a S Corp, LLC and Sch C

[Absolut]

New Client he became a S Corp on 02/05/04, which he did no work in 2004, so there was no income. He worked in 2005 but income was reported under his own social security number, not the S Corps number. He bought tools, and basically worked for another contractor. The Corp was Adminsitratively Dissolved on 10/25/05 per State of ME because they didn't file the corporate paperwork that year. So I filed a 1120S with zero's on it. Would anyone agree with this?

Next he forms a LLC on 11/05/04, with his 1 year old son b/c someone said he ought to do this, to build a Spec house to sell. He ends up moving into the house, and living in it and still hasn't sold it to date. The deed is in the LLC name, he has since taken his son off it, but is still a LLC. Took Son off in 2005. He hasn't sold the house, his only expenses are Legal fees, and the materials to build the house. How would anyone do this? I'm thinking of filing with all zero's for this b/c there is no income.

Schedule C - I've recorded the income here, his tools, job materials, and other expenses, and feel this is the correct way to do it. Any suggestions are welcomed.

[John3cpa]

LLC sole owner

Dealing with the sole owner LLC-filing sched C is correct. Make sure there are no costs related to the "spec house" which has become his residence on his schedule C inventory. When he does sell it it should be treated as a sale of residence subject to the tests under the Sec 121 exclusion. At least that's my take on the situation.

[OldJack]

Since a legal state LLC entity owns the property as business property, I think you need a distribution (tax-free withdrawal to personal use) and change of real estate title of the property before a claim of sale as a residence. The ownership test to qualify for §121 would become a real question if sold before 2 years from title transfer date.