Discussion:To amend or Not to amend

2005: $50,000 loss the first year and instead of calculating their basis to determine proper loss to be reported, it was reported as a PASSIVE loss. (Again, this is just the start of the issues). The other issue is this - where she received her numbers from is an absolute mystery.

2006: $50,000 PASSIVE loss is, of course, carried forward. The corp makes a profit and the "person" offsets the income from the K-1 with the PASSIVE loss she reported the year prior. To make things worse, no wages were taken by the shareholders as employees (meaning no W-2s and they had no other employees) and she took a deduction for Compensation to Officers, which it appears is approximately 2/3 of the amount of their distributions. And, again, the numbers are not matching.

My question is this: I know the tax returns are incorrect. The basis has NOT been maintained. This person also, even though it was not necessary, reported the Balance Sheet and M-2 on the tax return showing the negative retained earnings and a small amount of distributions. The cost for me doing the amendments will cost the taxpayers. The taxpayers MAY have taxes that need to be paid or they MAY not depending on what their basis was in the company and how much of the loss could have been carried forward - don't know until the information provided in the returns is verified and recalculated. WHAT DO I ADVISE? My thoughts are amendment so that we are on the right track with their basis, etc., for the years to come and the returns are correct. However, for the client's, their issue is the cost benefit.

HELP!!!!!

As far as the payroll, yes, we will be setting this up. Biggest problem is the end of the tax year is dooming upon them and I have just met with them. It is soooo fun when clients do this and then get, a little upset, when you tell them they will probably have to pay more than what they thought.