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The accountant needed a credit and put it to shareholder loan. I suspect the credit is unreported sales. Clients always make sure they keep track of every expense they can take. Somehow they forget to account for all the income needed to pay for it.

Truth is, ALL of us have had new customers with difficult circumstances. I believe if we back away simply because of difficulty, we are beguiling our calling as tax professionals. There are most likely some of us who fear the possible liability, and that is a business decision incumbent on each of us. Having said that, there are some situations I won't engage. Potential customers who are obviously lying, customers who switch preparers because they haven't paid last year's bill, etc. But for difficulty? I won't back away if there is any way to make the client well going forward. Our blonde colleague from Florida definitely has a train wreck. I agree with CBS, establish a balance sheet that will enable future compliance. And explain that it will require extra work, and don't go too deep without getting paid.

No, only the heirs of the final deceased partner. Nothing changed for the rest.

Whether or not they are lying, a total reconstruction is almost impossible. If you are going to take on a client like this, the best you can do is nail down all the balance sheet accounts and move forward.

If it was my client, first I would nail down all the balance sheet accounts as of last year end to the best of my ability. I would use a 3115 to correct the vehicle depreciation, then remove the vehicle from the balance sheet at the original cost. Then the remaining loan balance as of last year end should be reclassified to APIC. Good Luck, you have a lot of work ahead of you.

I've made it clear what I expect of them moving forward. They are more than willing to obliged it seems, they have just never had an accountant educate them on what is truly needed to have proper records. They want to do it right so I'm doing my best to get them on the right course.

Does the entity even have books? If not, I'd send them packing. Not worth the trouble.

I wouldn't do anything yet without more information because I've followed some creative predecessors and clients that give incorrect answers. A typical audit scenario in textbooks is when the auditor discovers assets or expenses on the books or returns that can't be traced back to the only cash account and may indicate other hidden cash accounts and activity. I'm not saying this is your client though. Something else comes to mind that I've actually seen is when a client uses a personal vehicle for business and trades it for a new one with that new vehicle titled in the business name, thinking of all the deductions it could create. Have you seen the title, registration document, or insurance bill listing the vehicle? Perhaps the prior accountant was creative and booked the vehicle and "loan from shareholder" was the balancing entry of the trade-in value of the personal vehicle and/or new vehicle's loan payments being paid personally.