dave829 wrote:Assuming that OP has a discussion with his client and they agree that the S corporation activity is a not-for-profit activity, what do you advise OP to do? Prepare an amended 1120S? Go back to the preparer of the 1120S and have an amended filed?
I think it depends on what OP finds out from the client. If the issue has never been raised by the S corp preparer in the past, have the client raise it with him.
The end outcome should be that whatever is filed for this trade or business has a reasonable basis - either through analysis using the nine factors in Regs. 1.183-2(b) or through changing the treatment to hobby treatment. If hobby treatment is preferred an amended return should be filed, and I would only suggest doing it over the other preparer if he's being difficult about it.
dave829 wrote:What if the preparer of the 1120S disagrees? Should he advise the client to do something else?
In the end it's up to the client.
I think it's fine to file a return for a client under a position that you disagree with as long as that position has a reasonable basis. The support for the position should be well documented. Your personal disagreement doesn't really come into play - you just go over it on a professional level with how likely the argument is to succeed, why, and what the consequences would be if it doesn't.
If the other preparer can't get over himself and do things this way, he'll either convince the client to keep things the way they are or refuse to amend the return. If the client becomes convinced of a position that lacks support, consider disengaging. If the preparer refuses, offer to amend the return and take over for the other preparer.