Can I amend several tax returns that are being audited and can I change from LLC filing pship returns to sole proprietors and file a sch C.
I am in the middle of an IRS audit for the years 2011 to 2013 for several businesses all of them are LLCs that file partnership returns. All returns are prepared on the cash basis of accounting however in 2012 he prepared two of the returns on the accrual basis understating income and overstating expenses. There are several errors in the first two years where the taxpayer tried to write off draws to cogs. This made the Revenue Agent mad is what it looks like to me. However, now in 2013 the books are in good shape but the CPA who prepared the tax returns made several mistakes on all the returns overstating income by $93K on one pship return. On this return there is accrued income of $175,000 for management fees and on the other two returns there is accrued management fees totaling $175,000 causing losses, in total it is a wash. One of the other returns shows a $50K loss the auditor is denying this loss on their personal return because the owners do not have enough basis to cover the loss, the company's first year was 2013. Also, the partners are husband and wife and Arizona is a community property state so the auditor said their some law about husband and wife filing as partners in a community property state that they have to have basis in the company to take the loss.:???? Can I amend these returns during the audit, can I change from pship to sole proprietor.
TaxConnections Members... Answer This Question Want To be One of Our Tax Experts? Register Here
Tax Professional Answers
First, I hope you have representation with the audit. To answer your question yes You can prepare the amended return for the auditor so that the returns get corrected right. The Auditor may just ignor the amended return but at least you can compare to what the auditor is coming up with to make sure their amounts are correct. Most of the IRS agents we have worked with will accept an amended return from us with support, however when the IRS Agent is not happy or figures they have the upper hand they can and will do what they want. If you decide you need assistance please don't delay and call us.Leave a Comment 324 weeks ago
I would take a peek at Revenue Procedure 2002-69. In general, the IRS will respect either treatment as a partnership or a disregarded entity. One thing to note in this document, is that a change in reporting position is treated as a conversion of the entity. I thought that was an interesting note to consider. Having said that, if the losses from the entity are not allowable because there is not sufficient basis in the partnership interest, it is likely that the losses may also be disallowed if there was insufficient "at-risk" basis. This would seem to apply in your case, even if the entity was not a partnership and was reported on Schedule C. In sum, I'm not sure what amending your return to report the losses directly on your client's Schedule C would accomplish. Let me know if you have questions; happy to help.Leave a Comment 321 weeks ago