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What helps me sleep at night: nobody dies when I make a mistake.

I would take Abby's suggestion one step further. Before reworking any figures, if you have the S corp's return in the first year you bacame your friend's tax preparer, I'd first compare your original starting basis from the company's accountant to that year's tax return. If the two are in close agreement then I'd explain to your friend that you've done the calculations to the best of your ability with the information that was, and is, currently available and try not to lose any more sleep over the matter.

My statement here does not help at all but....I totally despise not tracking basis, whatever the excuse maybe. I have had many of these including partnerships and S-Corps. I have a few companies that brought me on at the beginning of their business and all basis is tracked every single tax year. Matter of fact, one partnership bought out one of the partners and their were no questions or disputes over basis. My only suggestion is as you say, is to try to re-create the shareholder basis. I think we all go into this knowing the accuracy is just not there but like you and others, I have had to do the same. I like Abby Normal's suggestion using the balance sheet figures. But... who's to say those figure are a true representation of the equity accounts unless you can see every entry. At best this should be an accumulation of income and loss. However, it may be as you said, all you have. I would keep good notes on how I arrived at the shareholder basis. As far as your client/friend goes, just explain to him that is all you have to work with. Good luck with this and get some rest. It shows the person you are and the desire to do the right thing by your concerns. Again, get some rest my friend.

The latest Journalmof Accountcy survey once again shows Drake at the top. Drake users are a loyal bunch. No surprise to any experienced user that Drake scored high in all the following areas Price Support Most Recommended for New Practice Ease of Installation Handling Updates During Tax Season Ease of Electronic Filing Handling of Affordable Care Act Calculations Ease of Use Transferring Data within Returns Handling Multistate Business Returns Conversion Package

Just because he is your friend does not shift the responsibility for these matters to you. All the replies so far have sage wisdom in them. YOU are not responsible for their irresponsible actions or lack of. Keeping in mind the current environment of the IRS holds you responsible for the tax returns you sign. Keep your professional stance, go forward and sleep well.

Look at the balance sheet. Is total equity negative? When I don't have prior basis, I just use balance sheet equity or zero if total equity is negative. since all shareholders are supposed to take proportionate distributions, the only difference in shareholders will in their capital contributions.

FDNY, I would tell my friend, with sincere concern, that there is nothing I could do except what is documented in my hand. He would be the primary to get his situation resolved, either by a shareholder meeting, or attaining legal advice with a possible internal audit. I would not lose sleep over it FDNY, The situation as it is, you have, nor had any control over..... I know very well just how exasperating situations like this can be. Best of luck to you... Just remember...It's not in your control..... Sleep well my friend...

Sounds right to me the way they presented the W2. But look closely and make sure there is no CA withholding or CA SDI on the W2. If a CA company employs a worker who does no work in the state, CA will not tax the non-resident for those wages. There are 2 things at work here, the domicile and where the work is performed. If the employee is legitimately domiciled in NV, and the work was also done in NV, there is no tax to CA. As Controller in my day job with employees in NV, I have prepared these types of W2's. Tom Newark, CA

But I (smugly) note that Drake scored higher in every category but one - where it tied ATX. I did find it very interesting that the much-more-expensive packages did not score higher in general. So they only real reason to jump up in price is if your client base presents situations complex enough to need a more powerful system.

Then I vote: