Amending Return to Update Schedule L Balance Sheet - Beginning Retained Earnings

[jeffreyeng]

Hi,

If I were to file an amended 2022 S-Corp tax return to update the Schedule L Balance Sheet beginning balance in retained earnings due to a change in the 2021 S-Corp tax return, is it ok to override the retained earnings beginning balance on Schedule L or should it be done differently?

I plan to adjust both an Asset account's beginning balance and the Retained Earnings beginning balance.

[Strongsilence-CPA]

What is the adjustment in 2021 you need to make?  Wouldn't you need to do an amended 2021? Is it material?

[IRonMaN · Accepted solution]

If there isn't any change to the 2022 taxable income, there is no need to amend the return.  Just adjust the beginning retained earnings on the next open year to file by overriding the prior retained earnings balance. 

Edit - that is assuming the 2021 was previously amended for the change.

[jeffreyeng]

The 2021 tax return was amended due to an increase in taxable income from the Employee Retention Credit (ERC) and an ERC Recievable asset account was booked to balance the debits and credits.

I still think it is better to amend the 2022 return to add in the changes to the beginning balance asset and retained earnings account so that the correct balance sheet balances will rolled forward to the 2023 tax return, but that's just my opinion.

[IRonMaN]

If there is no change to income, the IRS doesn't want it.  If it makes you more comfortable, attach a note to the 2023 return explaining the change to opening retained earnings.

[jeffreyeng]

Even if IRS doesn't want it, we still may send them the amended returns with updated Balance Sheet. But we will think about it before filing them.

[judys3]

I had this same issue.  I hate the way the IRS made us handle the and amend the returns.  I am now fighting late penalty and interest letters because of the increase in tax.

I did as Ironman suggested and just did an override. 

[jeffreyeng]

I usually pay the tax due (with late payment penalty and interest) from amended returns online through IRSDirect Pay.

I will do an override as well.

[judys3]

yes but this being new and receiving the funds in 2023 for previous year returns there are no penalties and interest.  Just making the IRS understand that is fun.

[jeffreyeng]

The approach we have been taking is paying the balance due (including late payment penalty and interest) on IRSDirect Pay.

I believe the IRS can assess late payment penalty and interest due to amending 2020-2021 returns for ERC. But the IRS also includes interest on the ERC refund checks so it balances out in a way.