2012-2015 Partnership K-1's arrived today!!

[J. Gray]

Hello all,  long sad story...client a partner in sketchy partnership.  Just received 2012-2015 k-1's showing losses, guaranteed payments and 1231 gains...nothing ever reported on my client's timely filed returns..

Bottom line is this for the 4 years:

guaranteed payments 72,951  -  from 2012 only

sec 1231  26,462

losses, ordinary  (97,983)

interest income  2,426

net exposure, other than self employment tax for the years is 3,856.

the 2012 amount would be significant when compared to my client's original 2012 return.   So even if a closed year, would the late PS filing reopen??

No correspondence from IRS yet.  Ideas?

Many thanks,

Jane

[Lee B]

You are required to inform your client of their obligation to file the amendments and the resulting tax consequences.

The sticky wicket is " Will your client pay you to prepare the amendments?"

They could choose to wait and see if they receive any correspondence from the IRS.

However that doesn't change the fact that you need to prepare the amendments, whether or not they decide to wait and see.

They could also choose not to file the amendments, because you can't force them to file.

A real life "Catch 22!"

 

[Max W]

There is no correspondence from the IRS and there may never be .   Assuming that the returns that generated the K-1's are actually filed, it could take several months before they are processed.  Then the K-1's would appear on your record for each year. You could check your clients files periodically to see if the K-1's show up.   It could be, if ever, that the IRS checks your 2012 file.   By then, 2012 would have passed the look back period of 6 years.  

The IRS rarely accepts amended returns, with additional income, for closed years, unless large amounts are involved, or there is fraud, or criminal activity.  cbslee correctly points out your obligations. Your client can play the waiting game, or have the amended returns prepared, three of which could be rejected. 

2012 appears to be the year with the most potential for additional penalties for underreporting, so the client would face a 20% underreporting penalty, if audited.  

Lay it all out to the client and if the returns are amended, get up front payment with a no-refund engagement letter.

 

 

[Catherine]

I had a client, years ago, who told me one year that he had not reported over $200K of foreign income (consulting), not knowing he was supposed to report it.  It was a closed year.  We filed an amended return for the closed year, and enclosed a check for the tax due (over $80K IIRC).  The IRS sent the check back, saying the equivalent of 'closed year; we won't look at it.'

[Max W]

That is the best argument for not filing IRS closed years.

I'll bet that the state kept their check, though.

[michaelmars]

On 10/1/2018 at 7:49 PM, cbslee said:

You are required to inform your client of their obligation to file the amendments and the resulting tax consequences.

The sticky wicket is " Will your client pay you to prepare the amendments?"

They could choose to wait and see if they receive any correspondence from the IRS.

However that doesn't change the fact that you need to prepare the amendments, whether or not they decide to wait and see.

They could also choose not to file the amendments, because you can't force them to file.

A real life "Catch 22!"

 

On 10/1/2018 at 7:49 PM, cbslee said:

why would you prepare amendments unless the client hires you to and pays you to?  You are only obligated to explain the need for an amendment not prepare one.  Maybe he will have his barber prepare it for him.