Schedule C or S Corp preparation?

[rfk]

Good morning all,

A client elected to become an S Corp on 7/12/05 (I am preparing TY 05, 06, 07). They are a RE broker who bought three to four homes in 2005, sold two of them after fixing them up, and had kept the rest of them through 2005, renting them out. Not sure yet about 2006 and 2007.

The main question is whether to report the "activity" as a Schedule "C" and/or transition to an 1120-S preparation for part year too? Would the properties have to be in the corporation's name or would this really matter? Given that they filed to become a corp, wouldn't that constitute preparing the corporate return regardless of whether on a Schedule C or not? At this point it is confusing what activity would go on a "C" or go on an "S."

Thank you for your help.

RFK

[Bees Knees]

Just because they filed to be an S corporation under state law does not automatically turn all of their business activity into S corporation activity.

You form a corporation under state law.
You open a business checking account under the name of the corporation.
You transfer money or property to the corporation in exchange for stock in the corporation.
You buy and sell stuff using the corporation check book and deposit income into the corporation checking account.

If none of that happened, the business conducted was not through the corporation.

[rfk]

Bees Knees reply

So Bees...

I respect your thoughts and comments, but it seems to me that they did have the "intention" of setting the corp up to act as and partake in activity as a corp. I am not sure whether they have duly completed the other items you mentioned. But the corp is still active according to the SOS website, and the client has not spoken contrary to his intentions.

But the main question is whether an S Corp return should be filed then or not... I believe so. Unless they deactivate the corp, they are for all intents and purposes a corp. The other issue is how much activity goes on "S" return? We've got rental real estate, commissions, and purchases and sales of "inventory."

Thanks.

RFK

[ChEAr$]

"they"

So Bees...

I respect your thoughts and comments, but it seems to me that they did have the "intention" of setting the corp up to act as and partake in activity as a corp. I am not sure whether they have duly completed the other items you mentioned. But the corp is still active according to the SOS website, and the client has not spoken contrary to his intentions.

But the main question is whether an S Corp return should be filed then or not... I believe so. Unless they deactivate the corp, they are for all intents and purposes a corp. The other issue is how much activity goes on "S" return? We've got rental real estate, commissions, and purchases and sales of "inventory."

Thanks.

RFK

"THEY" are not a corporation. A corporation exists by virtue of having been chartered by the
state and actually is a separate person under the law. Thus if you have two stockholders,
you have three people in the room if you're discussing corporate affairs.

To simply have formed a corporation and then taken no steps to perfect it, is useless.
"They" must have opened bank account, as Bees says, and conducted business AS a
corporation versus continuing to operate out of their hip pocket.

[Bees Knees]

My wife owns shares of Oshkosh Truck. She also does bookkeeping for a number of businesses. Oshkosh Truck is not obligated to count her business activity as its own business activity, even though she is a shareholder of Oshkosh Truck. It’s possible for her to own shares in Oshkosh Truck and also file Schedule C as a sole proprietor.

[rfk]

Okay but...

Isn't the IRS and the state of CA going to expect an S corp return with something on it because they may be presuming that there exists this person who did this paperwork shuffling and now there is an expectation...

Otherwise what does one do in this case to do things properly? Any thoughts would be helpful on what to do to satisfy the taxing authorities for individual and corporate needs.

Thanks for your patience.

RFK

[Bees Knees]

If they didn't conduct business as a corporation, file an 1120S with a bunch of zeros on it and throw everything else on the Schedule C.

Then lecture your client about following proper corporate protocols if they want to play the corporation game.