Spell Czech wrote:I would be really curious to see what beginning date the LLC put on its S corp election...
Did anybody ask your client if he would sign that election, as an owner/member/shareholder of the electing LLC?
Beginning date of S is the same as the start date, Feb 2017. No, my client did not sign anything related to the S-corp.
Michaelstar wrote:Sounds like someone/somewhere has things mixed up a bit - You posted - "Formed an LLC to be taxed as a sole proprietorship. He got the biz running steady then sold it to his nephew and an unrelated party in Sept 2017."
As a SMLLC - the activity while owned s/b reported on a Sch C (based on your post). Once your client SOLD the business, his interest ceased and he should be reporting the activity from inception until date sold. Your client may have provided the new owners with information as to it's operations but none of that should have been included in/as the new owners accounting or tax reporting.
New owners report their activity from the date they purchased the 100% interest until 12/31.
SMLLC has nothing to consent to - they no longer own any part of the business if he/she sold their 100% interest.
Yes, that was what I thought.....my client reports from Feb to Sept on Schedule C, then the new parties do whatever they do from then til 12/31. But again, this is a good firm and they were involved with the new owners during the purchase process. SO I was not expecting this at all. Thought maybe there was some election I was missing since the ownership period was less than a year.
The only thing that did cross my mind at some point was whether there would be any issues with payroll since I am using the same EIN as the S-corp. (my numbers won't match year end W-2's etc) I have not yet filed the personal returns for my client. They are on extension and always get refunds so they tend to drag their feet. I do however have the SMLLC schedule C done as I received the QB file in probably Nov 2017, so as soon as I got my software installed I put that part of the return together. Their return has been sitting since waiting for the rest of their info to come thru....which I now have.
adamant wrote:If the effective date of the S Election is during his period of ownership, he would need to sign the election. Since the S Election was filed late, there may need to be an additional signed statement from each s/h consenting to the election.
My guess is they pretended that he had no ownership, and the IRS is none the wiser.
Sound like he should have consented to the election and the 1120S should have been filed with him receiving a final K1, income reported to him for his period of ownership or pro-rata for days owned, whatever the parties agree to.
Yeah I thought about that too, but my client states there is nothing that came up after the sale that he was asked to sign. I have a copy of all the paperwork he signed at the closing and there is no 2553 in there. By the time the end of the year had rolled around it was questionable as to how well the new owners were going to do. So even if the CPA firm asked him to sign anything for a late election, he would have refused.
Spell Czech wrote:Facts needed, like was there really an S corporation election filed, and did the client/sole proprietor/seller of the business report his gain or loss from the sale of the business assets?
I can't answer the first part, but the second part is yes. I have a Schedule C return prepared.
lucyko wrote:Additional facts needed :
1) Did you file a 2017 tax return for the period January 2017 thru September 2017 using sole proprietor Sch C ?. You indicate he is one of your clients during 2017 .
2) If not, did you file an extension on the form 4868 for 2017 year and when was it filed ?
3 Did the nephew who the business was sold to in September .2018 perform work January ,2017 thru September ,2017 as an independent contractor.
It sounds like the nephew and his tax practitioner are trying to take advantage of your good nature .Did you receive any compensation for the 2017 tax preparation . My gut feeling is that you did not prepare a tax return at all even though you state this is your client .
1 - Not yet filed, but prepared.
2 - Yes, extension filed for the personal returns.
3 - Yes, the nephew and the other party were both employees of the original owner (my client) and yes, they were actually on payroll.
And yes, the return is prepared just not yet filed.
Thanks to all for confirming I am missing some obscure election or something.
I do know my client turned over their QB file to the new owners because it had all the data in it to move forward. All the vendors were set up, the balance sheet was in place, etc. The new owners took over everything....bank accounts, leases, everything. Basically stepped into the prior owners shoes.
The CPA firm was picking up the bookkeeping as well as the tax returns for the new owners. The new firm must not have created a new QB or someone forgot to only do the P & L and Balance sheet from the Sale date to year end. It is the only thing that makes sense at this point. Heavy Sigh.
End of the day, I am moving forward with my reporting on the Schedule C for inception to the Sept sale date.