1099-K's reported to owner, avoid years of late 1120S pnlty?

Technical topics regarding tax preparation.
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Individual had a personal third party settlement account (I'll call them Settler.) Started S Corp in 2013, upgraded account to a business account, added corporate name and its EIN, changed the bank account for them to use to the corporation's.

Settler issued the 2013 1099-K with owner's name and the corporate EIN! IRS issued First B Notice. Individual submitted W-9 with corporate name and its EIN. Settler still said there was a mismatch, having again tried the owner's name with the corporate EIN. Settler admits everything was properly listed on the account and W-9, and weren't sure why they were submitting mismatched data.

As required, they were about to turn off the account, so to keep operating, individual verbally (no W-9) told Settler to try running his name and SSN. They did, and 2014+ 1099-K's have been reported that way.

No corrected 2013 1099-K was issued.

So, there's a 2013 1099-K with owner's name and corporate EIN. IRS posted to owner's entity, going by name rather than EIN.

There's 2014-2017 1099-K's with owner's name and SSN.

This entire time, transactions have been done with corporate's business account.

He filed his own 2013 corporate and personal returns, listing income on Schedule C and deducting it all, saying "Reported on EIN XX-XXXXXXX".

Just got me involved to get his 2014-2017 corporate and individual returns filed. He's due a 2014 refund if we can get it filed within the statute of limitations - in the next 8 days.

Two problems.

1. $7,020 in penalties for late 1120S returns. (Single shareholder, 2014-2016.)

2. Which entity to report the 2014-2017 income to.

I'm not positive how Fleischer v Commissioner (and related) applies here. W-9 does list corporate name and its EIN, but since their system still didn't submit it right, owner told them to try his name and SSN, so that's what the 1099-K's list.

Seems like IRS's initial response would be to invoke Fleischer to say it's all on the individual.

Not sure there's time to get them to issue corrected 1099'K's in the next 8 days. Not sure we'd even want them to.

I expect the late S Corp penalties would be worse than just filing everything on a Schedule C and paying S/E tax. There isn't much profit here at all. I wish we could undo the S election, back to 2014, but we can't. I wish we could amend 2013 return as final return, but I'm not sure we can. Although there's no reported income on corporation's tax account, in any tax year, its bank account has transactions all the way through now. I don't know that we can say 2013 is final return, and everything since then should have been in the individual's account, as his income, and his expenses.

If we can't do that, 26 USC § 6699(c) says the late 1120S penalty is "assessed against the S corporation". If S corp closes now, files its 2014-2017 and partial 2018 final return, would IRS treat the penalty as noncollectable with the corporation having no income since 2013? Not sure if they'd look into the bank account and argue transfer of funds to owner need to be undone to the extent of paying the $7,020 penalty. But, if they argued those funds were never the business' income, then it doesn't really make sense to put it back... Uggh.
 

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