Discussion:Amending an 1120S & subsequently the 941's, 940, etc.
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Discussion Forum Index --> Tax Questions --> Amending an 1120S & subsequently the 941's, 940, etc.
| 15 January 2008 | |
| Here's the situation. A small business is set up as an S corp. The owner's sister is doing the books, preparing all returns, etc. She is not a licensed professional.
Further, this is the bulk of the reason he now has a payroll tax problem.
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| 15 January 2008 | |
| Yeah, Steve, we know you can take it <G>.
Seems to me it's a simple cost-benefit analysis. Is the money the client would get back, assuming the claim is allowed, enough to justify the cost of preparing the documents and defending the (almost inevitable) audit thereof? If so, it makes sense to go ahead. Otherwise, I'd bag it. Remember you have the same issue with the state unless the client is in a no-individual-income-tax state. Seems to me someone here (D&T? JR1?) said he had done this once and would never do it again. | |
| January 15, 2008 | |
| Not me. I really can't imagine doing this successfully. Surely surely you'd pull an audit, and be in a very defensive position. Maybe it would work, the money is worthwhile. It's just so obvious what you're doing is all.... | |
Death&Taxes (talk|edits) said: | 15 January 2008 |
| Not me either. For two years you are talking about saving 15.3% on less than 100K {limits were 90, 94 and 97)....withholding will not change since it has appeared on his 1040 anyway. So what would the audit cost be of defending this, and the potential cost of filing refund claim in District Court if the claim is rejected? I think that is what Katie means by cost benefit. | |
| January 15, 2008 | |
| Would the IRS really criticize this situation in an S-corp? The only negative that I can potentially see (from their point of view) is that he's putting more into the SS system to possibly increase has payout at some point down the road. (And that would be doubtful.) | |
| 15 January 2008 | |
| Hi I think you would be nuts to try and get back SS taxes and would be denied completely. What is your excuse oops he paid himself to much and wasnt worth it :) bye | |
| 15 January 2008 | |
| I am certain IRS would look at it. The business currently has a payroll tax liability and the case is in the hands of a Revenue Officer. This goes back to 2004. Thus we're dealing with 2004, 2005, 2006 and all of 2007. The approximate amount is $35,000 per year that would be subject to change. That's $5,355 each year counting the full 15.3%. With penalties and interest, it's a quite a lot of money. If we did do this, we would only do so with full disclosure to the client that the returns could be audited. I'm just concerned that IRS would see this as an attempt to improperly reduce or eliminate the payroll tax. In fact, had the taxpayer been doing this all along, they likely wouldn't have a payroll tax problem now. | |
| 15 January 2008 | |
| Hi still NUTS. And yes all you are doing is reducing payroll taxes which I have never heard done before. Whats your excuse? :) bye | |
| January 15, 2008 | |
| and you're in the hands of an RO?............................. | |
| 15 January 2008 | |
| Well Steve, you know I am a riverboat gambler, but I think you have a reasonable chance of success. I am not saying it will be easy or cheap, I am saying it is definately winable. The Revenue Officer will not really care - it is Exam that will be the problem. | |
| 15 January 2008 | |
| Over compensation is probably not going to give the IRS a tummy ache today. Years ago when there could be a significant differential between compensation for services and income from capital you could (attempt to) reduce income tax by paying excessive compensation. A successful shot at reducing compensation would have the overall effect of eliminating only the employer portion of employment tax and increase the owners distributive income by the the amount of wages "de-paid." The employer has to certify that the claimed overpayment has been refunded to the employee. What is the owner going to do when reduces his wage income and eliminates the withheld income that then increases his Sub-S distribution by roughly the same amount? It sounds like he is going to shoot himself in the foot and his only option is to choose which foot. | |
Death&Taxes (talk|edits) said: | 15 January 2008 |
| I think what Steve means is that in Quarter 1 there was 10,000 of gross and it were adjusted to five, he would not adjust 1500 of FIT but leave it alone, so that the W-2 would only change for Federal, Fica and State wages. The employee, who is the shareholder, would receive his share of FICA and the corporation would receive their share. There would be an adjustment to those taxes, but in which year? The year deducted or the year refunded?
The worse possible scenario is rejection of claim with no alternative but to bring suit in District Court (or Court of Claims?). Without suggesting anyone's fee, I would think at least one year's savings would be lost to legal fees. | |
| 16 January 2008 | |
| Count me with the skeptics. I can't imagine you will win this gambit. | |
| 16 January 2008 | |
| My ultimate professional goal is to get innocent spouse relief for both spouses for the same liability! | |
Death&Taxes (talk|edits) said: | 16 January 2008 |
| Both die in an accident with a bankrupt estate? | |
| 16 January 2008 | |
| I came close once. I got an Offer accepted for one spouse...paid next to nothing and innocent spouse for the other and they despised each other. I couldn't stand the ex-husband. He cheated on the ex-wife while she was undergoing cancer treatments...
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