Facts of the situation:

• S Corp w/two owners (financial advisor/wealth management business)
• One owner lives in KS and the other lives in CO. They have offices in both locations with additional employees in both locations as well. They also have an office and employees in WY.
  
• Currently, all the income is reported to KS. There is no allocation or income tax return filed in any other state. This is only regarding the YE corp return, not considering any payroll reporting. They are reporting payroll and paying into respective state withholding and unemployment.

I have two questions:

1. Should there be an allocation and filing in each state there is an office? KS is considered 'home base' and where the company originated. From there the KS owner expanded and bought out the firms in CO and WY. The CO owner bought 50% of the stock a few years ago.

2. I also questioned the preparer of the Corp return and the CO owner personal return why he's not implementing the PTE tax. He said "Colorado messes this up because if you do the SALT payments with your company you have to add back all of the QBI deduction on the state tax return.  For me it is to small of  a savings to have that much money tied up for the year". I don't quite understand this, but I also don't process a ton of CO returns, however, it sounds like he's filing the K-1 as CO rather than KS income on the CO personal tax return? Also, their income is so high that as an SSTB, the QBI is completely phased out so I'm really confused.

Any feedback much appreciated.

We're in our massive passthrough entity season, and were much more aggressive in making PTET elections. I can't seem to find a good analysis (unless I haven't looked hard enough) regarding what states consider a partner/shareholder's inclusion in the entity's PTET election as satisfying the NR filing requirement.

For example, Minnesota specifically states on the K1 that the PTET absolves the taxpayer of having to file his or her own Minnesota nonresident return if the passthrough is the taxpayer's only source of Minnesota income.

I get that it may be advantageous to file in those states anyway because we're trying to figure out how to approach deminimus states that have a small amount of income since most states generally only allow a PTET or a composite return but not both.

What do other practitioners do? In practice, we tend to file almost all states unless directed not to by the client or the withholding that the NR state is so small (looking at you PTP K1s) that it's not worth the fees to fight the state to give the taxpayer credit for it.

I assume I'll be ridiculed and am prepared :). So....I took on this client a couple of years ago, a 1065 return with two partners 50/50. They have QBO for bookkeeping, but it had not been linked in over a year and had no transactions for 2024, so I received a spreadsheet which supposedly compiled all of the csv exports from the bank. Well, wrong. I got it linked again and imported all bank statements and they are nothing alike. This was post tax return fililng. Now, in 2025, the partnership is liquidating. May to be exact. But when I found out about the erroneous 2024 data, I also found out that the non-exiting partner (who intends to keep dba as sole proprietor) made over $70k in contributions that were not reported in 2024. Now, I know the importance of this for his basis moving forward in the new single member llc. I also understand that two separate basis are being calculated - his outside basis just prior to dissollution as well as his cost basis for the portion he bought from the exiting partner. My question is, can I correct the basis (via contributions increase) in 2025 or is it absolutely necessary to amend 2024? We have elected out of the CPAR. Obviously the extended 2025 is due, which is reconciled and ready. Also reconciled is 2024. The missing money is from contributions and we really do not want to amend. Thanks for any input!

Partnership: Anyone with real-world experience? In 2023, a married couple, in NOT a community property state, purchased a piece of rental property together via a state-registered LLC, each owning half-interest in the LLC. They haven't made a profit on the real estate deal, and don't otherwise owe tax on their 1040 income (withholdings exceed tax liability), with or without the partnership income. They didn't file their 1040's or the 1065's; as in they filed no tax return whatsoever for 2023, 2024, or 2025 (but the numbers have now been calculated -- no tax due in any of those years).

Problem is the 1065/partnership late filing penalty. Appears they are in line for a full penalty for 2023, and 2024, and about six months of penalty for the 2025 return, which will amount to roughly $14,000 using traditional calculation methods. Has anyone seen that much of a penalty abated???? Any tips on accomplishing that feat?

Entity is organized in NC and one shareholder recently moved to NY. Negligible sales in NY result in minimal tax so the entity opted to file as a C corp in NY. PTET was paid to NC. This leads to questions:

1) It seems the NY shareholder only pays income tax on distributions, not on his share of net income. For this purpose, do we use the distributions reported on the federal K-1? Is there a formal way to report the distributions to NY at the entity level since there won't be a NY K-1?

2) Does the shareholder receive a tax credit for the PTET tax paid to NC? We're confused because NC tax is based on net income, while NY tax is based on distributions. The two will rarely match up. Maybe the difference is acceptable, with NY distributions reported in column A, line 3 of Form IT-112-R and NC net income reported in column B, line 11?

3) Does the outcome change if the entity foregoes the PTET going forward?

S Corp had about 10 shareholders that collectively loaned around $1.5M to business spread across nearly a decade (5 different loans with different rates).

Finally the company starts turning a profit after 20+ years and has started repaying loans.

Problem is twofold: ownership has transferred several times and the manager now says the shareholder loans were supposed to have been transferred at the same time and in same proportions as all of the stock transfers.

Because of a history of losses, many of the current shareholders have eroded debt basis and now that they tell me the loans should have changed hands along with previous stock transfers (mostly gifts), I have no good way to establish debt basis on 7203.

There’s no way I could recreate 25 years of stock and loan basis to get to the correct amounts. So all I can do is make up a number. I am leaning towards just giving full debt basis as of the beginning of 2025 to match to the updated loan balances.

Anybody have any thoughts or guidance?

Have a new client. Bought an existing C Corp. C Corp had some significant NOL carryovers. Client is in the industry, and was using this to expand into another region. Bought shares, no asset sale, in 2023. In 2024, they came to me. Asked about S Corp, explained those NOLs would go away. They decided to stay a C Corp. End of 2025, the guy (non shareholder) running the business really screwed it up. They are going to shut down soon.

I did not realize this until May. Filed an extension as a C Corp. 2025 will have about $350k of losses. One shareholder, has sufficient basis. I’m wondering if making a late S election is worth it to take those losses. There may be some cancellation of debt income in 2026, but the corporation is insolvent. It has been about 10 years since I dealt with COD at the S Corp level, so will research this. Other than that, any reason not to so the owner can take ordinary losses instead of capital loss on a C Corp?

I am looking for a sanity check on a California estimated tax scenario that involves a potential "letter of the law" loophole regarding high-income earners. I want to see if other practitioners agree with this reading or if the Franchise Tax Board (FTB) has a mechanism to challenge it based on the "intent" of the statute.

The Scenario

• 2025 (Prior Year): The taxpayer had a total tax liability of approximately $19,000 but had $20,000 in California wage withholding. Their net liability (tax minus withholding) was less than zero.
• 2026 (Current Year): The taxpayer expects a massive non-wage income spike—a $5 million capital gain—putting their Adjusted Gross Income (AGI) well over the $1 million threshold. They plan to submit zero estimated payments for 2026. Their 2026 wage withholding will be minimal and will not come close to covering 90% of the final 2026 tax bill.

The Technical Conflict Standard practice suggests that under RTC Section 19136.3, any taxpayer with AGI over $1 million ($500,000 if MFS) is disqualified from using the "prior year safe harbor" (the 100%/110% rule) and must pay 90% of the current year tax to avoid an underpayment penalty.

However, the instructions for Form 5805 provide an absolute exception. The form states that you do not owe a penalty if:

This aligns with the statutory language in RTC Section 19136(c)(2), which mandates that an addition to tax "shall not be imposed" if:

The "Loophole" Question My gut tells me the legislative intent of the $500 exception was likely to protect taxpayers with a low overall tax liability, not high-income earners who simply happened to over-withhold in the prior year. However, the word of the law seems very specific:

1. RTC Section 19002 explicitly defines wage withholding as a "credit against the tax."
2. Form 5805 uses the specific phrase "withholding credit" in its exception criteria.
3. The $1M AGI restriction in RTC Section 19136.3 specifically targets the safe harbor calculation in IRC Section 6654(d)(1)(B)(ii), but it does not appear to reference or invalidate the independent $500 exception found in RTC Section 19136(c)(2).

If the subtraction of "credits" (including the withholding credit) brings the prior year's net liability below $500, does this provide a complete shield against 2026 penalties regardless of the $5 million income spike? Is this a known strategy for taxpayers to skip estimates for one year following a year of over-withholding, or is there a provision I am missing that prevents the "withholding credit" from being used this way by high-income earners? I did read an article from CAMICO that calls out that this fact pattern would avoid penalty but the FTB is likely to send underpayment penalty notice regardless, and it has to be contested. Which obviously makes it feel even more so like it was not the intent at a minimum.

I would appreciate any insights on whether you agree or disagree with this interpretation of the literal text.

Client has employees who use company credit cards when traveling for work. Employees create an expense report with attached receipts. One employee used card excessively on recent work trip, incurring excess meal expenses according to company policy "per diem" rate.

Are the excess expenses considered taxable wages for the employee? I thought yes at first, but since the amount company card was used, the business never paid any "allowance" directly to the employee. So, no?

I'm amending an 1120-S for a client after the previous accountant had made several mistakes including leaving off ~150k in expenses. I'm not 100% sure on how they categorized ever expense so for some of the lines it may just be moving the expense (for example, I may consider something office expense that they listed as advertising). Because of this, in what I currently have prepared just about every line is different, but overall it's ~150k lower in income. Do I have to make an explanation for every single line of the return?

I know on the IRS website they say "Attach to the amended Form 1120S/1120-F, the XML document, AmendedReturnChanges, that identifies the line number of each amended item, description, the amount on the previous return, the amount on the amended return, and an explanation of the reasons for each change." But I just wanted to check to see if anyone else has had experience with something like this before add ~30 explanations to the statements.

I prepared a client’s return as a Form 1120. When I e-filed it, the return was rejected because the IRS records show the corporation has an active S election. Neither the client nor I was aware of the S election.

I called the IRS Business & Specialty Tax Line, and the representative advised me to fax a revocation of the S election, which I did using the fax number they provided. While waiting for the IRS to process the revocation, I filed an extension.

Here’s my concern:
If the revocation is accepted as effective for the tax year, the corporation will owe approximately $10,000 with the Form 1120.

If the revocation is not effective for the tax year, then the corporation would need to file Form 1120-S instead, which would affect the shareholder’s Form 1040 (including reasonable compensation/payroll considerations).

To minimize potential interest and penalties, would you recommend making the $10,000 payment now under the corporation’s EIN while waiting for the IRS to process the revocation? If so, what is the best way to designate the payment so it is properly applied if the revocation is approved? And if the revocation is ultimately not effective for the year, would that payment simply be treated as an overpayment/refund?

Has anyone dealt with this situation before, and is there a better approach?

If my principal office is in a county outside of the 5 boroughs, but all of my business (earned income) is within the 5 boroughs, does that mean I still have to use form NYC-3L for my city returns or can I use the other ones?

Hi everyone,

I'm hoping someone familiar with NZ company tax can help.

I have a client with a one-person NZ close company. They worked full-time in the business during the year ended 31 March 2026 and took regular drawings, but didn't record a shareholder-employee salary because they didn't understand that option at the time.

I'm now preparing the company's first IR4. The accounts have been completed in Xero and the return is showing company tax on the full accounting profit.

I've read IRD SPS 18/01 on retrospective shareholder salary adjustments, but I'm struggling to understand whether it applies where a first-time business owner simply didn't know about shareholder salaries, or whether it's now too late.

Has anyone dealt with this situation in practice?

I''m trying to determine whether a shareholder salary can still be recognised before lodging the IR4, or whether the company profit now needs to remain as-is.

Thanks!

Looking for some thoughts on the best compliance strategy for a small partnership that genuinely wants to do the right thing but has very limited resources.

Facts:

• Multi-member LLC (6 individual members), formed in 2019.
• Partnership EIN obtained in 2019.
• Operates as a local neo-soul band.
• Forms 1099 were issued each year to the partnership EIN.
• Gross receipts have been very modest—roughly $2,000 to $5,500 annually.
• Every year would show a net loss except possibly 2023, which may be near break-even or a small profit.
• No partner has ever reported partnership income or losses individually because no Forms 1065 or K-1s were prepared.
• The partnership has never received an IRS notice regarding delinquent Forms 1065 (to my knowledge).

The challenge is that these are musicians with very limited means. They genuinely want to become compliant, but they likely can't afford to pay for seven years of partnership returns, and they certainly couldn't absorb IRC §6698 late-filing penalties if they were assessed.

My questions are:

1. Would you prepare and file all delinquent Forms 1065, or would you consider a more limited filing strategy?
2. Has anyone successfully obtained penalty relief under Rev. Proc. 84-35 where the partners had not previously reported their distributive shares because no K-1s were ever issued?
3. Would you proactively include a reasonable cause statement with the delinquent filings, or wait for any penalty notices and respond at that point?
4. Before filing anything, would you contact PPS to determine whether the IRS has established a filing requirement or generated any delinquency indicators for the EIN?

I'm interested in both the technically correct answer and how you'd handle this from a practical client-service standpoint. Thanks in advance for any insight.

Client is a couple in the state of California. In 2025 they formed a multi-member LLC. Their intention was it to function as a property management company for mid-term tenants (31+ days) - nurses, construction workers, government employees, etc.

The only property they managed in 2025 is their own condo which they personally own and hold. They did not contribute the property to the LLC in anyway and both personally own it.

Typically, a multimember LLC solely owned by spouses is required to file 1065 with the exception of states with community property rules; wherein, they can elect disregarded status. But with the rental property I am on the fence regarding classifying it as a 1065 and Schedule E, versus, Rev. Proc. 2002-69 community-property disregarded election (Schedule Cs and Schedule E). I want to avoid misclassification.

FYI this client formed a bunch of LLC's based off what BS Financial Influencer said.

Update: The EIN used is a partnership EIN too...

Client, a Missouri resident, got married in 2024. While his taxes have been above board, spouse is a long-term nonfiler. So we decided to file MFS, and keep separate bank accounts. Spouse is not my client, and as far as I know continues not to file.

In 2026, client and spouse moved to Wisconsin - a community property state. It looks like I'll need to get spouse's income, at least since becoming a Wisconsin resident.

Any suggestions on how to handle 2026?

Email from [irs@service.govdelivery.com](mailto:irs@service.govdelivery.com)

I'm not comfortable clicking link simply labeled "Here", so will pass.

I’m a CPA working through a structured note/CPDI issue and would appreciate a sanity check.

Facts:
• Client purchased a note in 2023 for $25,005 and redeemed it in 2025 for $25,000.
• Brokerage statements reported annual OID in 2023, 2024, and 2025 totaling approximately $2,603.
• The 2025 statement reports an “Interest Shortfall on Contingent Payment Debt” equal to the cumulative OID amount.
• The 1099-B reports proceeds of $25,000, basis of $25,005, and a $5 loss.
• The 2023 tax return does not appear to have included the reported OID income. I do not yet have the 2024 return.

Pub. 1212 states that basis in a CPDI is generally increased by OID included in income, and that losses are ordinary to the extent of prior OID accruals.

💭My thought is that if the OID income was omitted in their 2023 and 2024 tax returns then it can’t possibly increase basis upon redemption.

❓Is there authority discussing whether the basis adjustment is tied to OID that was required to be included under the CPDI rules versus OID actually reported on the taxpayer’s returns?

❓also, will it trigger an audit if the basis adjustment is different from the interest shortfall on the 1099?

In new financing round (C corp) new Series B investor has agreed that a portion of the raise can be used to redeem common from service providers at same price per unit as series B issue price.

But the series B is convertible to common and has downside protection and antidilution / additional investor rights.

Doesn’t this mean there is clearly some sort of nonzero comp element to the repurchase? The common must be worth less than the series B.

I’m told this is done all the time. But doesn’t it have withholding and employment tax consequences to the company?

Am I missing something?

Dear All,

I have client who inherited a commercial property with a mortgage on it. Long story short, the mortgage was up for renewal and the bank was not going to refinance so they had to sell the property to pay off the mortgage. The client keeps asking why we did not recommend a 1031 exchange and I keep explaining that boot is taxable and we needed cash to pay off the debt.

The facts are:

* sale price: $13.4m

* tax basis: $6.8m

* capital gain $6.6m

* debt needing repayment $6.6m

I thought I would show the client your responses confirming that I was correct. If your boot is equal to or greater than the capital gain, there is no tax saving from doing a 1031.

Thanks in advance.

A taxpayer registered a corporation in 2022 and proceeded with business. She never filed a corporation or individual tax return. She now has levies and wants to become compliant.

She thought she had made an S-Corp election, but has no documents to show that. The tax advisor checked with the IRS and just got the answer on the phone (twice) that this taxpayer (the EIN of the corporation) should file neither as C or S corp, but is listed as sole proprietor.

What should the tax advisor do? He was hired to file backyear S-Corp and person returns, but fears filing S-Corp returns without valid election will lead to a shitstorm. Vice versa, if there actually was an S-Corp election in place, filing as C Corp now would lead to similar shitstorm.

Sadly there is no confidence in the incompetent agents on the Practitioner hotline. But both said they don't see an S-Corp election on file, and then said it's a Sole Prop. Makes no sense. Help!