1120S filed in 2011 should have been checked final

[taxprep03]

In 2009 I took on a new client with a 1120s and MFJ 1040. I filled both returns 2009 - 2011. In 2012 the wife informed me her husband filed his return separately with another accountant. He was the 100% shareholder of the S-Corp. We agreed I would file her 1040 as MFS and I requested copies of her husband’s tax returns. What I received was a copy of his 2012 Form 1040 with a Schedule C with the tax ID being his SS number not the company’s EIN and to make matters worse he filed SINGLE!! The client was made aware of the issues with the husbands return when I filed her tax return and understood that she was reporting his SS number on her 2012 return.

Well here we are ready to file 2013; the husband knows his 2012 return was filed incorrectly and he did not file a final 1120s in 2011. I spoke with both the husband and wife and no IRS notices have been received. FYI… I did file an extension for the 2012 1120S. The taxpayers are in a very low income bracket and if I had prepared all 2012 tax returns correctly the refund received would have been higher by $21. I know they do not have the money to amend the returns and file a late 1120s with the monthly penalties. The 2012 Schedule C was a loss so the amount reported on page 1 of the 1040 would have been the same amount as the pass thru K-1. The husband told me he informed the PY accountant that he was self-employed and she did not request copies of PY returns. I obviously do not want to take responsibility for his 2012 return and will document the client failed to inform me the S-Corp was dissolved 12/31/11 in my engagement letter. I researched amending an 1120s for failure to mark the return as final but have been unsuccessful in getting solid information. Any ADVICE???

[michaelmars]

I have amended just to mark final with no irs issues, the problem is the state, they always want return up till the time you officially dissolve but if your client doesn't care about lots of mail from the state then ignore the issue. They can assess for non filing but the penalty doesn't pass to the shareholder so it is uncollectable.

[joanmcq]

But the question I have is: did he actually dissolve the S-corp? Should a 2012 corp return have been filed? What about assets in the corp?

[Terry D EA]

I have the same questions as Joan. I would check your local Secretary of State to see if the S-Corp had indeed been dissolved. If not, then no need for a final return yet. However, the assets and what happened to them are another question. May need to file a 2012 1120S and a final 2013. Just remember, it is okay to leave an S-corp return open as it usually, depends on the size of the S-Corp, takes some time to wind up business matters.

[taxprep03]

Thanks for all your responses!

Michael ….I do believe the best thing is to amended the 2011 return as a final. Fortunately, in the State of Florida he is not required to file a return for a 1120s the only responsibility is to file an annual report with the state and file payroll returns if applicable.

Joan & Terry…. I did check with the State of Florida and his Corporation was administratively dissolved as of 09/23/2011 for failure to file his annual report. The only assets the S-Corp has had since incorporation is $100 loans to shareholder and $3,000 of fixed assets fully depreciated (originally under section 179), the offset liability is capital stock of $100. The Corp has never had a bank account, issued 1099s, or filed payroll returns under the EIN. All profits each year have been distributed to the single shareholder, hence zero retained earnings.

At this point, I think the best solution is to:

• Amend the 2011 1120s as final.
• Amend the husband’s 2012 1040 as MFS.
• File the 2013 1040 as MFJ with Schedule C .

I am preparing a detailed letter of engagement of the above services I will provide. I will be very clear that it was the failure of the shareholder to inform me the 2011 1120s return was a final. In addition, the letter will be clear the only amendment I will be making to the husband’s 2012 1040 is the filing status from single to MFS and that I will not review or verify any information reported by the prior accountant.