OldJack

I agree with Jainen. Client is not telling you the facts. Father has taxable income Client has nothing to report.

The S-Corp must continue to file a tax return regardless of income or expenses until liquidated. The only questions are 1) are expenses distributions or deductible by the S-Corp and 2) are any losses deductible on the 1040.

>>Anybody else get the feeling we're being played for suckers? << Only the suckers that voted for him are being played. Ask most on the street and they don't even know about sequestration. They don't care what is going on.

>>Why can't I find that???? << Because it is logical.

Good luck with it Terry. Best get paid up front or maybe drop out.

>>Again, XYZ corp is no longer producing any products, all employess have been laid off and there is no revenue from normal business operations.<< The business probably should be in liquidation if it is not operating and has large debt. Unless the owner/shareholder has given personal guarantees on the S-corp debt, liquidating the corp would minimize his tax liability. Debt owed him in liquidation would likely be tax deductible as a capital loss. You have to determine facts for what tax and personal results would be to the shareholder. Having the owner/shareholder pay personal income tax on his 401k just to invest into a closed business with debt is probably not going to save the business and the owner probably does not have money to pay the personal income tax on the 401k. Most, if not all, of the equipment has probably been fully depreciated and sale would result in the owner having taxable gain [1120S-k1] again with no money to pay the personal income tax. Unless the 401k money pays off the equipment the sale proceeds will go to the lender so again the owner has no money to pay income tax. Maybe you should let the financial consultant take the blame for not saving the company. After all he is an expert that probably helped create this mess? LOL

>>I may just pass<< Wise choice... good luck with your new adventures.

>> 3. Any remaining amounts after expenses can be used to repay the shareholder as well as the shareholder can take a draw against capital. number (3), none of the funds the shareholder receives are taxable again because they are a return of capital and loan payback. Is my thinking correct on this?<< Draws/payments are first made out of the AAA account before a return of capital! Loans and capital payments come after salary payments. So IRS reclassifing your distributions would make the payments taxable. >>A family member who is a (Newly licensed) CPA has made the statement that the IRS would want to know under this scenario who and where the income is coming from and who is producing it..<< The CPA is correct in that S-corp Officer Salary must be paid if there is income/profit before any draw or payment to the officer shareholder. The IRS has authority to reclassify your capital distribution as officer salary in order to collect payroll taxes. >>I don't think the IRS cares where and who is producing the income unless that income is taxable. Simply put, XYZ company is almost insolvent as the liabilities exceed the assets and yes these total liabilities include loans owed to the shareholder and I don't see anything wrong with what is happening here.<< The IRS would certainly care in as much as the corp has cash to pay distributions, then they have cash to pay an officer salary with payroll taxes. The officer certainly produced the sales and should be paid. I think you are taking the wrong approach and frankly cashing the 401k was a pretty dumb decision when guarantee of loans would have been much better.

>>Are you sure this is what you meant to say?<< What else can one say with all the new preparer penalties and preparer rules?

When a client comes to you with estimate and actual tax information for 5 or 6 years past due tax returns, you have to accept the clients information to file those tax returns. After all, it is the clients tax return and you are supposed to be a professional preparer working for the IRS.

>>With the client's knowledge that it would need to be adjusted later?<< Well... an estimate return would avoid many of the penalties at least for simply not filing! Why would a tax preparer want their client to pay large penalties?

Although I agree he needs a lawyer, I don't agree that he does not have a loss if he can tell you what his loss is. I would take an estimate and file his tax return with his knowledge that it would need to be adjusted later. Client should be told that filing a partnership return is just as much his responsibility as his partners. Get a lawyer to force a handover of the books and records of the business.

>>and I can quit for the day when I feel like it.<< Not likely when tax returns are due and customers are calling!

My advice is to get a job that pays better! Even working for the IRS on the payroll would be a lot better than working for them off the payroll.

>>shoot holes<< This client is probably going to be a problem client. He probably will not want the value of personal use added to his W2 each year either. That may put his tax preparer in a tough spot. You might want to give him a copy of Pub 15B.

Well... you got to find out more facts. Why is she to pay him something? Is there a reportable sale of a house or interest in property by your client?

An S-corp does not convert an asset to personal use. If its a distribution, it most likely is an unequal distribution between multiple shareholders and would be taxed to the receiving shareholder as a partial sale of stock. Also, the S-corp must treat it as a sale at FMV and pass the corp taxable gain/loss to both shareholders for personal 1040 income tax. Or, maybe the shareholder bought the vehicle at FMV and gave the S-corp a promissory note bearing interest to pay for the vehicle. That would solve most of the problem, except the corp would still pass taxable gain to all shareholders on a k1 for tax. You got to check with the shareholders to see exactly what they did because a tax preparer can't make that decision for them.

>>I'm not laughing<< I'm laughing at the look that will be on that clients face when he is told. LOL

Federal 1040 Tax returns postmarked on February 29, 30, and 31st of this year will not have to pay any tax due and will get double refunds!

Oh... just deduct the whole thing, you got to leave something for the IRS auditor to find and justify his work. Better it be something small rather than a larger issue.

>>will cost them upwards of $2000<< LOL

I agree with Jainen.

There is no such thing as a K1 for a 1040 tax return.

Distributions of principle don't flow to beneficiaries on a 1041 Tax Return, only income or deductions. Income distributed is accounted for in order for the estate/trust to not have to pay income tax.

And they say they have improved the software?