What if partnership returns were prepared and filed and it was never a partnership? The returns were filed incorrectly as a partnership return by the accountant. The partners were operating as individual sole proprietors and not as a partnership. I know that the personal returns can be amended to reflect schedule C's, but what about the 1065's that have already been filed?
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Incorrect Partnership Return Filings
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Just file a 1040X for each partner, say the partnership K-1 was in error as there was no partnership, and recalculate tax using Schedule C. That will basically tell IRS to ignore the 1065.
I'm not sure why that needs to be a big deal. There really should be no difference in tax between filing two Schedule C's vs. one 1065. If you're talking small dollar amounts, the cost and hassle of doing amended returns could offset the extra tax in keeping it a 1065.
If it is a big deal, and these people are really not partners, then liquidate the partnership, a tax free event, and have them continue next year filing 2 Schedule C's.
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Originally posted by kpangelinan View PostThe individuals that were deemed partners didn't get to deduct any of their own expenses.
Rather than risk drawing attention to yourself trying to kill a 1065, why not just amend each 1040 with UPE reported on Schedule E. UPE also reduces SE tax. See TTB, page 20-5.Last edited by Bees Knees; 09-17-2007, 12:55 PM.
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