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.