Thoughts Scorp Never filed 1120S

[hats44202]

I have a new client, with a sticky situation:

It is a Scorp, registered with the state, has employees, files payroll reports, etc.  However, it has never filed an 1120-S since its S-election well over 10 years ago. The sole shareholder has filed 1 personal 1040 in the last 5 years.

The client had no idea the preparer never actually filed the returns.  Clearly, there is the proverbial, correct answer, any alternatives?

Perhaps dissolve the S-corp and record the income on a Schedule C on the 1040's that still need to be filed?  Then, start fresh with a new S-corp?

Feedback would be appreciated.

 

    

[ILLMAS]

File all of them as 1120S (don’t be a hero and try to save them on penalties) it’s seems your new client is habitual non-filer.  Most importantly, get a retainer and informed the client of the monthly penalty he/she is going to incur for the return being late.

[Richcpaman]

Hats:

Welcome to the ATX community forum!

Quote

The client had no idea the preparer never actually filed the returns.

How many times have you heard this?

Especially in light of this:

Quote

The sole shareholder has filed 1 personal 1040 in the last 5 years.

File the missing 1120S.  File the missing 1040's.  Get paid.

Let the IRS send the letters and you get paid to sort them out.

Easy peseay.

Rich

 

[PapaJoe]

Just be sure you get paid up front.

[rfassett]

8 hours ago, hats44202 said:

I have a new client, with a sticky situation:

 

Perhaps dissolve the S-corp and record the income on a Schedule C on the 1040's that still need to be filed?  Then, start fresh with a new S-corp?

Feedback would be appreciated.

 

    

Nothing sticky about this.

How would you justify payroll being paid under an S-Corp EIN showing up on a Schedule C?

Keep this very important thought in mind:  YOU DID NOT CREATE THIS MONSTER!

Your job is to bring him compliant in the best way possible.  File the prior year 1120S's and 1040s.  But before starting any work, give the client an estimate of the total job, that you will need a 50% retainer and the other 50% will be due when you have completed 50% of the work.  Give him hard deadlines as to when you need information.

As to him not knowing the returns were not filed? Bunk!  Unless the old preparer used the old preparer's address on everything, your client would have received non-filing notices.

[Abby Normal]

Ask for a 15,000 retainer and see if they still want you to do the work.

[Max W]

Hopefully, S-corp election form 2553 was filed the first year.   Otherwise, the IRS will  convert them to a C-Corp.  Will the IRS even process corporate returns going back 10 years?   There is a lookback period of 6 years and the IRS does not require older returns to be filed.   I don't know of any states that do this.  So, do you  inform the client of the look back period and tell him he is only morally obligated to file the older returns?   What if you don't tell him and he finds out later that you did not apprise him of the situation?    It could become ugly.

I always prepare all the missing returns, charge them for it,  and leave it to the client if  they want to file the old ones or not.  Most people do want to file.

 

[rfassett]

Good points Max W.  But business returns play off each preceding year.  So the only way to get a good starting point for the 6 year old return is to prepare the older ones first.  The 1040s would be a different issue unless the 1120s or other things on the return threw off carryover issues.

[OldJack]

Prepare all years of the 1120S and 1040 returns and give them to the tax payer to mail.  Do not efile anything for this client.  Your best option is to get rid of this client without doing anything.

[Jack from Ohio]

18 minutes ago, OldJack said:

Your best option is to get rid of this client without doing anything.

DITTO!

[Abby Normal]

2 hours ago, rfassett said:

Good points Max W.  But business returns play off each preceding year.  So the only way to get a good starting point for the 6 year old return is to prepare the older ones first.  The 1040s would be a different issue unless the 1120s or other things on the return threw off carryover issues.

Not to mention the always important shareholder stock basis.

[Richcpaman]

2 hours ago, OldJack said:

Prepare all years of the 1120S and 1040 returns and give them to the tax payer to mail.  Do not efile anything for this client.  Your best option is to get rid of this client without doing anything.

Why?

So the client hasn't filed.  They can be lazy , stupid,  scared, cheap or all of the above. 

I take a measure of the client and make a decision.  If I decide to move forward, and I get the client back in good graces with the various taxing authorities, I have a client for life.

Yes, my standards have raised somewhat since I started this biz 15 years ago.  But at its basis, we are service providers.  We tell to many folks to scram, we don't have a biz before long.

Collect a retainer?  You betcha.

Make sure the paperwork makes sense, and avoid too many "Look there on the ceiling, my business mileage!" Yes.

Rich

[OldJack]

"If I decide to move forward, and I get the client back in good graces with the various taxing authorities, I have a client for life"

True and you will be pulling for information every year as this client will not keep documents or adequate records.  He will drive you crazy at your busiest time.  lol 

[Max W]

11 hours ago, rfassett said:

Good points Max W.  But business returns play off each preceding year.  So the only way to get a good starting point for the 6 year old return is to prepare the older ones first.  The 1040s would be a different issue unless the 1120s or other things on the return threw off carryover issues.

Reread my post.  I said I would prepare ALL the missing returns.

[rfassett]

5 hours ago, Max W said:

Reread my post.  I said I would prepare ALL the missing returns.

I don't need to reread it. I read it properly the first time.  I was not disputing that part of your post.  I was simply clarifying for anyone that might be prone to do just what was absolutely required.  Sorry if you misunderstood my post.

[Max W]

Not a problem!