Should I amend an s-corp because revenue was understated by 750? Client forgot to give me a 1099.

[joggergirl123]

This is Proseries 2022

[IRonMaN]

How did your cash reconcile when you prepared the balance sheet?

[nancyb1209]

Corp's total assets and total receipts were less than 250k so did not submit balance sheet

[IRonMaN]

But without preparing a balance sheet, how do you know that you aren't missing revenue or expenses, which in this case you were.  How much other revenue was there that didn't show up on a 1099?  Also, how do you know what that shareholder's basis is without a balance sheet?

[Skylane]

Yes.... and a reconciliation may help in the future. 

[PATAX]

@IRonMaN 👍 trial balance should have been prepared, even if balance sheet isn't required on corporate return.

[IRonMaN]

Folks with an accounting background tend to use trial balances.  Folks without that background often treat an 1120S like a schedule C.

[nancyb1209]

All revenue was earned through 1099's. This client was a Sched C for many years. He keeps very detailed spreadsheets on his own that I work from.  This was the only omission.  By the way, I have a master's in accounting & financial management.  Just picking brains for a possible workaround.

[Terry53029]

Being that you prepared the clients tax return, and are covered under circular 230 you should advise client that an amendment should be prepared, and advise him of the possible consequence's  but that is the clients call.

[BobKamman]

Has the shareholder's 1040 been filed yet?  I would add it to his return as "other income," and let the sleeping 1120-S lie.  De minimis non curat lex.

[Terry53029]

@BobKamman that would be an easy workaround, and I have done similar things in past. Depending on client it could become a recurring issue. If it were a new client I would rather but him through a few costly hoops, so it doesn't become habit.

[sjrcpa]

So his spreadsheets aren't good enough if he omits cash received.

[IRonMaN]

Might want to add a cash reconciliation to those detailed worksheets.

[nancyb1209]

No it hasn't, he's on ext.  That was my first thought (other income) but the 1099 has s Corp tax id.   Would that be a red flag?

[IRonMaN]

Why not just add the $750 to the K-1 net income amount on the 1040?  It's not like the IRS is going to start sending out notices that you over reported your K-1 by $750.  

[qbteachmt]

"All revenue was earned through 1099's."

Except, unless this is a medical service provider, the S Corp isn't even going to receive 1099 from customers. There is no requirement for that informational reporting.

However, your client should already be tracking and reporting all business income, even if no customer ever sends a 1099. Unless this is an investment earnings of some type?

Because there is no reason to expect nor rely on 1099-Misc or -NEC for an S Corp, when it's not required, and it's not their full financial revenue source of information.

So, before you amend for something they forgot to give you, have you confirmed the value isn't already included in their business records you used for the initial preparation? Or, have you confirmed this person only has you file against the information forms filed by others, and has in fact been ignoring their factual revenue?

[BobKamman]

Have you ever seen or heard of an S Corp receiving a CP2000?  Not that it can't happen, but then have you ever seen or heard of a CP2000 being issued for an income discrepancy of less than $1,000?  They keep the cutoff criterion a secret, but they have better things to do than to worry about small amounts with little tax consequence. 

[qbteachmt]

"for an income discrepancy of less than $1,000?"

Unless $750 is the only money they made, and the only 1099, how would the IRS even know they under-reported? If you report your business revenue, and then you get no 1099, you still need to report the business revenue. If you report $500 and the IRS gets notification you made $750, they still don't do document matching, and they don't know if your $500 is your net and you didn't report gross.

This might be much ado about nothing.

[BobKamman]

@qbteachmt  "Unless $750 is the only money they made, and the only 1099, how would the IRS even know they under-reported?"

There could have been a dozen 1099s adding up to $100,000, and IRS would notice if the income reported was only $99,250.

"All revenue was earned through 1099's." -- posted by @nancyb1209 , who apparently knows the original poster @joggergirl123 

[nancyb1209]

One and the same......

[qbteachmt]

"All revenue was earned through 1099's."

But that's the issue, isn't it?

Whether there is a 1099 issued does not matter. What matters is that the business reports its revenue. Revenue is not only based on 1099s that are issued, but based on Sales. 1099-NECs issued for S Corp labor are not what to rely on for S Corp Revenue, because when there is no requirement to even issue any 1099, what's to prevent you from deciding there is not even a reason to file, since you see no 1099?

An S Corp doesn't even "earn" through 1099-NEC for labor. Customers sending one is not required and is moot and perhaps the W9 has been overlooked. It doesn't matter how many are sent. I took it not literally but as a relationship explanation, that the taxpayer under their Sole Proprietorship and now their S Corp is not an employee of any customer and that was stated to explain this taxpayer works independently from the customer as in the past, but under this new entity type.

Specifically, if you only have 1099, that doesn't mean you have only that amount revenue to report. If you have no 1099, there still likely is revenue to report. If you have this one "missed" 1099, that does not by definition become a missed $750 of revenue, because all of the revenue was supposed to be reported, even if there is not a 1099 to match to every revenue $ that gets reported.

If the business can't reliably track and manage their revenue without waiting for 1099s, that is a separate problem that should be addressed, because as far as the IRS is concerned, an S Corp only gets reported via 1099 in limited circumstances.

What should have happened at the formation of the S Corp includes notification to clients for new contract terms since the shareholder-employee now contracts to customers as President of the Inc, not personally, and the S Corp W9 is submitted as for reference only and "not needing" a 1099, giving out the FEIN of the S Corp.

TL;DR: The 1099 is meaningless and out of context with total revenue. If total revenue included all revenue, then this $750 was already reported. There is no need to amend.