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This is very confusing.
If they formed a corporation to run a business, and elected to be treated as an S corp, they would be employees and the S corp files an 1120S. All shareholders get a K-1 from that corporate tax return, which is a pass-through entity, and that is part of their 1040 prep. Shareholder-employees also are on payroll; that's a requirement.
An LLC also can elect to be treated as an S corp. LLC is State structure, so the Feds would expect you to either be partnership or corporation in treatment.
A single-member partnership cannot exist as Partnership. That person either has incorporated or is operating as a Sole Proprietorship. The SP person (owner) never is on payroll. The SP might have need for an FEIN, and need payroll for the other people who would be on payroll.
The 1120C is:
General Instructions
Purpose of Form
Use Form 1120-C, U.S. Income Tax Return for Cooperative Associations, to report income, gains, losses, deductions, credits, and to figure the income tax liability of the cooperative.
Who Must File
Any corporation operating on a cooperative basis under section 1381 and allocating amounts to patrons on the basis of business done with or for such patrons should file Form 1120-C (including farmers' cooperatives under section 521 whether or not it has taxable income).
Just what are your taxpayer's facts?
Who told them to file Schedule C?
Who told them to file 1120C?
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