I get asked......

Technical topics regarding tax preparation.
#1
Bell  
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I get asked all the time, if it is OK to go ahead and file a personal return without the K-1 from the client's S-Corp and then when they get the K-1.. amend the Form 1040. This client can't afford to get his 1120-S prepared. I suspect it will generate loss. He needs to file his 1040 to apply for student aid. Would it be OK to go ahead and file his 1040 and amend when the K-1 shows up? I always have told clients, "no" and just filed for extensions. Mostly so that it put pressure on them to get the 1120-S done.
 

#2
ATSMAN  
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If there is an urgency to file the 1040 before the extension date it may be ok to file it without the K-1 and amend it as soon as K-1 is received. I have done the same for one client where they were expecting a K-1 from a trust but was delayed and my client needed to file the 1040 for their child's financial aid. In that situation there was some interest income from the K-1 so a bit of additional tax and interest did apply.
 

#3
makbo  
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"I get asked......" -- what? What do you get asked? The subject of this thread does not tell us.
 

#4
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The rules for the FAFSA changed last year, so now clients will not need the current year tax return for that. FAFSA now requires a copy of the prior year's return, which a lot of clients are not aware of. May want to check to see what financial aid he needs it for.
 

#5
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Seaside, my guess is it's for institutional financial aid. I had this argument with a client a couple of years ago. The school in question doles out its own financial aid package on a first-come first-served basis and requires the return for the year just ended. For self-employed clients, this is a right royal pain the proverbial.
 

#6
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Just be sure that you edit the jurat, that thing that you and the taxpayer each sign that's near the bottom of page 2 of the 1040. Something like this might be appropriate:

"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true and correct, with the exception of the missing loss of about a half million dollars from an S corporation which was funded out-of-pocket by the taxpayer."

Am I just kidding? I'm not sure... :? 8-)
 

#7
Frankly  
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Bell wrote:I get asked all the time, if it is OK to go ahead and file a personal return without the K-1 from the client's S-Corp

File a false tax return? Maybe read sec 7206(1) to them, (and silently read (2) to oneself).
 

#8
LW25  
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At least include a Form 8082 in the return, disclosing that the K-1 was "not received". Of course, the reason the K-1 was not received is a bit problematic.
 

#9
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How do we reconcile all the guidance out there? To LW’s point, from the F8082 instructions:

Also use the form to notify the IRS if you did not receive Schedule K-1, Schedule Q, or a foreign trust statement from the foreign trust by the due date for filing your return (including extensions).


This is implying that if you extended your 2017 1040, but haven’t received the S-corp K1 by 5/17/18 (today), you wouldn’t use F8082 if you file your 1040 today, for example, because the extended due date of your 1040 hasn’t arrived yet.

By the same logic, though, if you filed your 2017 1040 on 4/10/18, and hadn’t received the K1 by then, you still wouldn’t use F8082 because the original 1040 due date hasn’t arrived yet. I mean, you truly won’t know if you don’t get the K1 by 4/17/18 until 4/17/18 comes and goes.

And then we have IR-2004-51:

Identify “estimated” K-1 income. When the Schedule K-1 has not been received at the time the Form 1040 is filed, the income should be estimated. Form 8082, Notice of Inconsistent Treatment or Amended Return, should be used to identify estimated K-1 income or when the investor disagrees with the amounts reported on the K-1.


Unlike the Form Instructions, this guidance makes no reference to the original or extended due date of the 1040. It only speaks to, “at the time the Form 1040 is filed.”

And here’s what the Code actually says (Sec 6037):

(c) Shareholder's return must be consistent with corporate return or secretary notified of inconsistency.
(1) In general.
A shareholder of an S corporation shall, on such shareholder's return, treat a subchapter S item in a manner which is consistent with the treatment of such item on the corporate return.
(2) Notification of inconsistent treatment.
(A) In general. In the case of any subchapter S item, if—
(i)
(I) the corporation has filed a return but the shareholder's treatment on his return is (or may be) inconsistent with the treatment of the item on the corporate return, or
(II) the corporation has not filed a return, and
(ii) the shareholder files with the Secretary a statement identifying the inconsistency,
paragraph (1) shall not apply to such item.


This is confusing, since in (c)(2)(A)(i)(II), the statement is made: “the corporation has not filed a return.” What does that mean…the corporation hasn’t filed a return by the time the shareholder files his 1040 or the corporation hasn’t filed a return by the corporation’s original F1120S due date or its extended F1120S due date?

If it means the former, then the Code is consistent with IR-2004-51. If it means the latter, then the Code is consistent with the F8082 instructions.

It seems that the IRS has put forth some inconsistent guidance on inconsistent treatment…
 

#10
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makbo wrote:"I get asked......" -- what? What do you get asked? The subject of this thread does not tell us.


Exactly ! Title of post needs to be specified so it can be indexed and easily searchable for future reference
 

#11
ATSMAN  
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I get this issue a lot with FAFSA situations. Even though they are suppose to use the prior year tax returns, some local colleges have their own requirements and demand the latest tax return or proof that an extension was filed. This tax season I had to give two clients proof that an extension was filed and a copy of their prior year return to satisfy the financial aid office.
 


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