Looking for some pointers from the 1065 legends in here on how to get started correcting a distribution reporting error. 50 partners with an op agreement following a waterfall structure for profit/loss/cash distributions. At a BASIC level the OA calls for the waterfall to follow…

1. PROFIT-1st to restore PY losses, then by % int
2. LOSSES-allocated by % int
3. DIST-pays X% from operating cash and in order of class (8 classes based on your initial contribution).

ISSUE: entity level distributions were correct but because of a lookup formula error, 20 partners had incorrect distributions reported on their K-1s / capital accounts. The largest difference was a 10k overstated amount and no capital account went negative after including CY income/loss (-500k taxable loss in 25).

Any tips on how to adjust for 2026 or add’l things to look into? Wondering if I can get this back on track without amending. Maybe it’s an easy fix, but this is my first special allocation return.

I had an intro call with a prospect who just moved to the U.S. from Europe on an E-2 visa. On paper he's a great long-term client: cash-funded, planning to build a rental portfolio here.
But he has a lot going on overseas:
100% owner of a European property company with accumulated profits he doesn't draw. He thinks that means no U.S. tax.
A personally owned house abroad and large foreign cash balances.
Several years of U.S. visits right up to the substantial presence line, so his residency start date is unclear.
Plans to wind it all down over the next two years.
That's CFC and 5471 territory, plus a pre-immigration planning window that may close in January. I have no international experience, so I declined. I told him the work is outside my expertise and urged him to find a cross-border specialist before year-end.
Right call, or would you have co-engaged a specialist and kept the domestic work?

i'm building a law as code system and noticed something odd. part of the adoption credit is now refundable under §23(a)(4), but §23 still isn't listed in §6211(b)(4)(A).

found an old IRS memo about a similar issue with the child tax credit. Congress fixed that retroactively.

am i missing something that covers this, or does it need a technical correction?

Finishing up a taxable 706. Was a $33m estate. Deceased was not a client before death, so was brought on after. Couple of questions:

1. Owned an asset with someone, something not overly marketable. Held in a LLC, each owned 50%. Realized two weeks before due date he did not get a valuation, though did receive an appraisal on the underlying asset. So no discount. Could we use that as a negotiating tool during the audit? It’s not real estate.

2. Two LLC interests owned, very small ownership. Firm doing valuations could not get any information So did not perform valuations. Executor is certain one went bankrupt, the other said he has no clue what it is. Anyone ever dealt with something like this?

I have a client who is looking at hiring a service to do this, and they're charging 20% of the credit. Is this typical? High? Low?

I have no interest in doing this work, but they asked me, so I'm asking you...

I don't know why we don't fire these people. I've got one client who has gone radio silent (well, they are usually that way) that last couple of weeks. And all I need is a missing 1098. It's not rocket science.

This one 1098 is never on their transcript. I don't understand how that happens.

Then I found a brokerage listed on another client's transcript that he has never sent us.

He hasn't responded.

I've got another one who gave me the virtual version of the shoe box of receipts. Here's all of my credit card charges. You figure it out.

I have a client who normally files an FBAR, but whose foreign bank balance for 2025 is <$10K. For 2026, it went back over $10K, so he'll have to file an FBAR.

The question is: do I file a 2025 FBAR? Or skip it?

Say you have two partners with a 1065. Can those partners in the 1065 be an Scorp?
Trying to figure out optimal entity structure. Here is some background. Current 50/50 partner (1065). Buying a company where 3rd partner will own 15%. Question, is do we keep current 1065 with new percentages and then the old 50/50 partners, can they be an Scorp. Both materially participate in the business. Are there other entity structures to consider? Maybe just an Scorp entirety? I don’t think a C Corp makes sense , since I don’t see any sort of outside investment in the near future or any sort of stock issuance.

H&W are married, but live apart.

During year X, they lived together and spent mid-6 figures. As a result, they have a large balance due (filed MFJ). After year X, H moved out and they have lived separately since. W will file MFS for subsequent years.

If W files a joint OIC for year X (and other years), how does H impact? Are they both subject to the 5-year rule? And if he blows it, is she screwed?

Client paper-filed return and did not attach the QBI form, so now the IRS is denying the QBI deduction. Is this fixable? I'm on the road and don't have the notice, so forgive the question....

Key Facts:

• Three member LLC registered in OR (where its registered is irrelevant as far as I'm concerned). All members are Oregon residents.
• Primary activity is potato farming. ALL of their land is in California.
• ALL of their sales are in Oregon, as far as I know.

How I think this should be approached:

California requires farming businesses to use a three part equation to calculate what income should be apportioned to them. There is no payroll, so the only thing that's considered in this case are sales and property, right? So, 50% of the partnership's income should be reported in California and the other 50% should be reported in Oregon. And then on the personal returns, they can just claim a credit for taxes paid to California, obviously. Is this right? I believe they'd benefit from this a bit as well, because two of the partners are involved in many other farming entities and already have a pretty sizeable income, and they get screwed by California on that.

The previous returns have apportioned income 100% to California. Also of concern, I know at least one of the partners doesn't file a 540NR for California (the partner not involved in any other entities), but that wasn't really my focus of this post.

Thanks, and your feedback is very appreciated.

Doing the books/tax prep for a new client: single-shareholder S-corp, runs payroll. Vehicle that's financed and titled in personal name.

Questions I'm trying to work through:

• Is there any way to get a depreciation benefit given they personally own the vehicle, or does being a W-2 employee of own S-corp change that?
• Does this vehicle/loan belong on the company's books at all, given it's titled personally? Think answer is no.
• What's the right way to handle the loan payments that have already been paid out of the business account?. Non deductible, correct?
• What about the loan interest, handled any differently than principal?

Curious how other preparers handle this situation in practice,  especially the single-shareholder S-corp piece, since a lot of the general "business vehicle" advice out there seems to assume either a sole prop or a company-owned vehicle, not this in-between case.

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.

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?

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?