Estimated tax payments and owning less than 10% of entity

Technical topics regarding tax preparation.
#1
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We are taking over a large client from a retiring CPA. We asked about the estimated tax payments made during the year, and the response received from the CPA is that since the taxpayer owns less than 10% of his passthrough entities, the rule is that you can consider it all earned on 12/31, so everything is included in Q4. We are talking millions of dollars in taxes.

I know this is bogus, but where would someone come up with this? Maybe a really old rule? Or is this one of those practitioners that make up their own rules as they go along?
 

#2
Anderly  
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Not sure but this Tax Advisor article seems on point:

https://www.thetaxadviser.com/issues/20 ... ments.html

Allocating income from passthrough entities

Taxpayers with interests in partnerships and S corporations, and beneficiaries of estates and trusts must consider their allocable share of income or loss from those entities when computing quarterly estimated payments. These amounts must be considered as follows:

Corporations: Under Secs.1366(a)(1) and 1377(a)(1), S corporation income or loss is passed through to shareholders on a daily basis. For estimated tax payment purposes, IRS Letter Ruling 8735014 states that S shareholders must take into account their pro rata share of the S corporation's actual taxable income for any S corporation year ending with or within their tax years to the extent that taxable income or loss was attributable to the months in the S corporation's tax year that ended on or before the due date of the payment period. The shareholder computes the amount of the S corporation's income or loss for a given period as if the S corporation's tax year ended on the last day of the payment period.

Partnerships: A partner must include his distributive share of partnership income (Sec. 702(a)), any guaranteed payments (Sec. 707(c)), and any gains or losses on partnership distributions that are treated as gains or losses on sales of property as of each installment due date (Regs. Sec. 1.6654-2(d)(2)). In determining net earnings from self-employment, a partner considers his distributive share of the partnership's nonseparately stated income or loss and any guaranteed payments if the partnership is engaged in a trade or business. These items are included to the extent that they are attributable to months in the partnership tax year that precede the month in which the installment is due (Regs. Sec. 1.6654-2(d)(2)).
 

#3
sjrcpa  
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IDunnoItDepends wrote:Maybe a really old rule?

I think so. I have a vague recollection of this, and I'm old.
 


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