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Those get picked up in the SE taxes. I am also not saying that 1099-NEC is the best-practices way to go, but to my mind it's more important to get the client straight going forward if that's the way to get them to agree. Plenty of people will not agree to do wages, file now-late 941's, and all the rest - but they will agree to a 1099-NEC plus PR starting Jan 1 of the year (already back-dating start of PR to the then-current year, since these people tend to show up in March). I would explain - in writing - the possible consequences. In our experience, the no-PR problem has mainly been new-and-small companies who are not making a ton of money (if even running at a profit at all). Straighten them up as best and as quickly as you can, and have a loyal client for years to come. Remember, we can only advise on changes prior to meeting the client; we cannot compel. Draw your own lines that you will not cross, but as long as the client fixes going forward, I would most likely agree to 1099-NEC the owner(s) if they balk at doing prior-year payroll with late 941s. Because we know most of them would then take their papers to some shyster who will let them continue to mess up for years to come. Better to get them in current compliance and keep them there.

@Terry D EA Thanks for this conversation. @DANRVAN I do enjoy reading your analysis of an issue. It reminds me of something I know but sometimes don't follow - Always start with the code, then move to the regs and then to lesser authority. I really enjoyed reading this as it unfolded. Tom Longview, TX

That is the key. If filed by Dec 15, the return will be two months late from the extended due date. If filed after Dec 15, three months. If e-filed after Jan 15 four months, so the late penalty increases from 10% to 20% between now and then. Even though there might not be any penalty because there is zero tax due, that could change if there was unreported income, or denied credits or deductions. The return is now eight months past the normal filing date. They can wait a little longer for a refund if that what it takes; I am not sitting on unfiled returns for 30+ days for a number of reasons.

I believe it is best to advise the client to pay as soon as you determine the liability if they wish to minimize interest and penalties.

I too question the mailing, post mark and actual processing. I know the post date is supposed to be the official filing date. I send everything certified mail and keep all receipts with the stamped post date. It has worked in the past when an IRS agent accused me of not sending a check back to them and insisted they never got it. I faxed in copies of the green card showing the signature and the receipt with the post date. Never heard anything again about they as they miraculously found the check. Imagine that, harass first, then look for it. BTW- efiling with a DCN number, transmission number whatever you call it doesn't always satisfy some states. I had a go round with NC where they claimed they never received the client's return. The agent from NC said the DCN number meant nothing and didn't prove anything. After arguing a bit, they caved and asked for a copy of the return but still denied the client their refund based on the statute of limitations had expired to claim a refund. Client gave up the fight. I was more than ready and willing to keep marching on. Short summary, nothing is guaranteed.

This is a great discussion. I am thinking more and more the presenter in the webinar made the story up. No court case, never mentioned "understatement of taxes" and now I am inundated with advertisements to buy their reasonable compensation software with a $400.00 price tag. A scare tactic maybe to get people to jump on the software??? To calculate a reasonable wage is not brain surgery. It seems that most of the court cases reviewed the shareholder was indeed providing services and taking a very low salary presenting a large gap between what it should have been and what they were doing. The presenter never even mentioned taking distributions without sufficient basis. Maybe this should be mentioned to the NAEA as they were the one providing the webinar.