Level 3

C-Corporation filing under a Schedule C

Forum|Forum|2 years ago
June 18, 2024
2 replies
15 views

One of my clients asked me to "do his taxes right" for him because his past tax preparer has been filing a Schedule C instead of an 1120 -- he is worried that he will be hit with a penalty and interest on the past 16 years of incorrect tax return filings....but he has also paid SE taxes that were pretty huge. I called his tax preparer and she said she HAS been filing 1120s but I think she doesn't know the difference between Schedule C and an 1120.

My question: Client is concerned that if he awakens a sleeping giant he won't be able to pay the penalties, and any corporate taxes due for the past 16 years -- even considering the SE taxes he paid.

My suggestion: terminate the corporation and have a talk with the tax preparer that the wrong taxes were filed. I'm kind of stumped that IRS hasn't contacted him that his Corporate Taxes have never been filed.

Any Suggestions

sjrcpa

Level 15

Has the client been operating the business under a corporate name or under his/sole proprietor name?

Do you have the corporate documents?

Did you ask prior preparer for copies of the corporate returns?

Might this "corporation" actually be a Single Member LLC?

The more I know the more I don’t know.

kitnTXAuthor

Level 3

Under his corporate name. I asked for corporate returns and she did not have any. ONLY sole proprietor forms. I got all of his corporation documents proving he is a corporation.

He never started his business as an LLC. So strange.

sjrcpa

Level 15

That is strange.

The more I know the more I don’t know.

Taxes-by-Rocky

Level 7

Request a copy of the CP 575 notice for the EIN (or the 'reissue' letter CP No. 147 I think?? - forgot what they call it) and go from there. File request for prior year returns under that EIN (or get POA and online transcripts) and see what happens.

It's not an uncommon problem any more (e.g., does the corp have a valid S election filed, is my LLC really a partnership, an S corp, or something else, who made my trust a tax-exempt entity, etc.). Thankfully (or not), Form 8832 goes a long way.

kitnTXAuthor

Level 3

Thank you for that. The tax payer actually set up his own C-Corporation, not truly knowing the difference between an S-Corp and a C-Corp. He has his EIN under the C-Corp and yes, that EIN as well as the corporate name show on the Schedule C for his personal income taxes. The tax preparer NEVER filed an 1120 for his corporation.

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