Not sure how to handle this!

[Tax Prep by Deb]

I had a new client come to my office today who has a situation that I have not had happen.

He worked for the first 1/2 of 2008 for a company I will identify as ABC. ABC was a LLC and apperantly some of the parties that formed the LLC got ticked off and separated from the company. The man who my client worked for changed the company named to XYZ for the last half of 2008. It is possible he bought out the other person, not really clear on that, but herein lies the problem:

My client has a W-2 that was issued from company XYZ and only represents 1/2 of 2008 income. Company ABC has never issued a W-2 and when he asked his boss, who was a party in both companies, the boss says he doesn't know anything about company ABC that it is tied up in the courts.

My client, knowing he made more than what was on the W-2 that he was issued asked for a copy of his last pay stub for 2008. This paystub shows the full amount from both companies, ABC and XYZ.

How do I file this? If I use the form for a substitute W-2 and ignore the W-2 that has been issued, at some point I know IRS will ask about the un-reported income.

Is it possible for me to take the figures from the W-2 he has received and then create a substitute for the difference?

Any thoughts!

Thanks,

Deb!

[Peggy Cobb]

I would use the substitute form for the difference and report both the W-2 from XYZ and the substitute W-2 for ABC. The IRS will compare your client's total wages with what they have on file and issue refund or expect a check based on your client's information. The IRS will then need to purse getting ABC to file W-2s and they will assess failure to file penalties on ABC.

You will need to snail mail the return because of the substitute W-2 (form 4852) and I would also attach a copy of the last paystub with a note that the paystub is for the whole year and you substracted the W-2 from XYZ to get the W-2 information on form 4852. Plus I would give them a short description of the ownership change. In the cases I have seen like this, the IRS may not be able to get the information from ABC. You want your client to be timely filed.

Good luck,

Peggy Cobb

Mount Vernon, WA

[OldJack]

It sounds like the LLC was first taxed as a partnership that would have/should have issue a W2 when it ended. The LLC then appears to have become a Sole-proprietorship with only a new name. Ownership would not normally change the employee's status and you would expect a continue of the earnings record and only one W2, however, since an LLC is disregarded we really had two entities that should have each issued a W2. I agree that if the taxpayer cannot obtain a W2 from the partnership, this is a case for a substitute W2 (form 4852).