Sole Prop to a Corp issue

[Trnr395]

I have a sole prop that incorporated on July 1st. Wife handles payroll and filed the 3rd quarter 941 in the sole prop. name and not corp. Didn't start filing 941's under corp until 4th quarter. Sales tax was corrected toward the end of the year to show the corp paid sales tax starting in july. When I break the expenses up for the sole prop and corp and put them on seperate tax returns should I include the 941 amounts for the third quarter under the corp like it should have been or put them on the sole prop.

Thanks

[Terry D EA]

If the payroll taxes were deposited and the 941 filed under the sole proprietor's name and TIN, the IRS will have record of those deposits under the sole proprietor and not the corp. You could show the corp not issuing any payroll until the fourth quarter, claim the PR taxes paid for the 3rd qtr on the Sch C and all should be fine. The sales taxes have nothing to do with the PR taxes. I have had my clients screw up their payroll deposits and you can't imagine the trouble and time it takes to get the IRS to make the proper corrections ( 3 years on the last one I took care of). So, I wouldn't do anything that would add confusion on the end of the IRS.

Just another note, HRB filed PR taxes for a real estate agent client of mine who fell under the same scenario as yours using the wrong EIN. They also filed the 1099's using the wrong EIN. After corrections, things are still in a mess. Unless someone else has a better way to handle this, follow my first suggestion

Terry D.

[kcjenkins]

I second Terry's suggestion. It's not like anyone is being harmed by ignoring this goof. The workers still got the right amount of income in their combined W-2s. The IRS and SSA got the right amount of taxes, and so did whatever state you are in, [wish you would add that to your profile]. So no harm, no foul, as I see it.

[Lion EA]

I'm always for giving governments the information that is the LEAST confusing to them, matching what was already reported in their computers, etc., unless there's a reason my client needs to report differently. With the same bottom line, I'd go with how things were actually reported (instead of how they should have been) to make it as easy as possible for the IRS and other agencies to accept your client's returns and move forward.

[BulldogTom]

I have to disagree with my collegues. You are in business to earn a profit. By making your clients do this correctly, you will maximize your fee. You should call the IRS and the state and tell them what happened (charge for this), then process all the corrected forms (charge for this) then spend the next 2-3 years answering notices and providing information to the IRS and the State (charge for this too). By following my advice, you will positively impact your firm's bottom line enough to afford that new fishing boat.

(this is all tongue in cheek)

Tom

Lodi, CA

[zeke]

Yes, Tom - I miss Jainen too!

z

[OldJack]

Yes, Tom - I miss Jainen too!

z

Is Jainen missing?

[BulldogTom]

Unfortunately....yes. He has not posted in a long time. I bet he prowls the board at night when he thinks no one is on or will notice him.

Tom

Lodi, CA

[OldJack]

Well.. it could be Jainen is just busy doing taxes or it could be because of the many nonsense and NT posts on this board that take time to read. He is still posting on other forums.

[Trnr395]

I have to disagree with my collegues. You are in business to earn a profit. By making your clients do this correctly, you will maximize your fee. You should call the IRS and the state and tell them what happened (charge for this), then process all the corrected forms (charge for this) then spend the next 2-3 years answering notices and providing information to the IRS and the State (charge for this too). By following my advice, you will positively impact your firm's bottom line enough to afford that new fishing boat.

(this is all tongue in cheek)

Tom

Lodi, CA

How did you know that I was saving for a new fishing boat!! My wife is going to love this news!!

[kcjenkins]

Tom, you do make a valid point. :lol:

[joelgilb]

Tom may have been tongue and cheek but he also may be correct.

You need to find out which bank account the payrolls were paid out of first. If the sole proprietorship, you can leave what was done alone and deduct on sched c, but if payroll was paid from the corp bank account you do need to correct the returns and deduct in the corp.

Clients far to often don't really understand how to do business with their new corporate entity. And I can tell from fighting this issue in audit and tax court IRS does take this seriously.

Had a recent tax court case where IRS adjusted the clients returns because the accountant never explained that they needed a corporate bank account, so of course they continued to use the personal sched c account. Payroll returns were all filed in the corp, but of course paid from the sched c account. This is not a winnable case! Appeals was willing to work with us to an extent, just to avoid some of the double tax, but it cost these people a pretty penny.

now the accountant is getting sued (not by me I might add).

Follow their paper trail.

[schirallicpa]

I have to disagree with my collegues. You are in business to earn a profit. By making your clients do this correctly, you will maximize your fee. You should call the IRS and the state and tell them what happened (charge for this), then process all the corrected forms (charge for this) then spend the next 2-3 years answering notices and providing information to the IRS and the State (charge for this too). By following my advice, you will positively impact your firm's bottom line enough to afford that new fishing boat.

(this is all tongue in cheek)

Tom

Lodi, CA

I used to work for a guy like that. Purposely put someone in a position that will create more work. He'd do this with AMT especially because no lay person ever understood any of it.

[kcjenkins]

Hey, that is not fair, to blame the accountant when the client chooses to do things themselves and then screws it up. Why shouldn't the person who straightens out their mess get paid a fair fee for getting them legal and cleaning up the problems. It's not like the accountant caused the problem. The client did, probably because they thought they were saving money by doing it themselves, and did not want to pay someone even to get it set up right at the beginning.

I don't feel bad charging is such a case, because it is only fair. There is real value in putting someone back on the right track, after all. How often have we seen a client who tried to 'fix' their own goof, only to make things worse, before finally coming to us? And it's then worse than ever to fix.