Corporate client

[Strongsilence-CPA]

S Corp stared 2017. Never filed. Long Story. Cannabis.

Expenses in 2018 and 2019.  Large, 500K NOL is projected 

A CPA colleague suggested filing an Initial and Final in 2023.  Problems?  Good Idea?

[abctax55]

IRS hasn't asked for prior year returns?  You state 'expenses' which implies activity DID take place.

What State?  If CA... they'll be wanting 2017, etc plus the $ 800 for each year (maybe not for the first year, depending...).

[Strongsilence-CPA]

IRS hasn't asked for prior year returns? No.

You state 'expenses' which implies activity DID take place.  Yes.  

What State?  If CA... they'll be wanting 2017, etc plus the $ 800 for each year (maybe not for the first year, depending...

CA, yes, $800 required.

[rbynaker]

Not many facts to go on here but I'd be shocked if there's an NOL.  Isn't IRC 280E going to limit expenses to only COGS?

[Strongsilence-CPA]

Not many facts to go on here but I'd be shocked if there's an NOL.  Isn't IRC 280E going to limit expenses to only COGS?

They performed testing only so 280E didn't apply, per the attorney they consulted in 2019. I have that letter. "no cannabis is touched....instead it sells a service." is the rationale, along with the CHAMP case.

What is the best source for regulations and latest laws pertaining to cannabis.

[abctax55]

Rick... good catch.  I skipped over the cannabis reference.

[BobKamman]

First thing I would do is figure out if I had a corporate client.  Several Tax Court cases involving California weederies have been tossed out because the company's corporation franchise was revoked by the state, for failure to do this or that.  There's a public database where you can check.  

[PATAX]

@Strongsilence-CPA If you want to punt on this and are able to: "There are other CPAs and/or tax attorneys who have more experience and/or knowledge in this complex matter than I do,  and it may be better for you to go to another CPA and/or tax attorney who specializes in this complex matter."

[Strongsilence-CPA]

Thanks. It was registered and it was dissolved by the CA SOS in 2021.  For that reason, I will file all years, instead of the 2023 as proposed by the CPA of one of the investors.

[Strongsilence-CPA]

If you want to punt on this and are able to: 

Thanks for that suggestion.  He is a friend of a friend.  And I have the cannabis guidance for any questions and issues.  S Corporations are straightforward other than that.

[PATAX]

@Strongsilence-CPA you're welcome

[Taxes-by-Rocky]

You might check on payroll tax matters first.

[BobKamman]

How do you file 2022 and 2023 returns for a corporation dissolved in 2021?  Or is that not what you mean?  And in what years was the loss incurred?  The K-1s might not do much good for the shareholders, if the statute has expired on their 1040's.  

Just make sure you follow Rule 1 for tax practitioners in situations like this. 

"Get paid first."  

[Strongsilence-CPA]

"You might check on payroll tax matters first."

yes, payroll was paid and reported in 2019 so that mandates a tax return.  That is a good point. TYVM

[Strongsilence-CPA]

"How do you file 2022 and 2023 returns for a corporation dissolved in 2021?  Or is that not what you mean?  And in what years was the loss incurred?  The K-1s might not do much good for the shareholders, if the statute has expired on their 1040's.  

Just make sure you follow Rule 1 for tax practitioners in situations like this. "Get paid first."  

1. I realized later that dissolution in 2021 means that 2021 will be the Final tax return.  There were losses in 2018 and 2019, then a big theft loss in 2020.  So, the losses can carryforward to 2021, and the SOL for refunds remains open.

2.  Payment - that is always a good tip. TYVM.  He has paid a retainer of $3,000 and I'll bill again once all this is wrapped up.

@BobKamman 

Time you can claim a credit or refund

You file a claim within 3 years from when you file your return

Your credit or refund is limited to the amount you paid during the 3 years before you filed the claim, plus any extensions of time you had to file your return.

You file a claim after 2 years from when you paid the tax

Your credit or refund is limited to the amount you paid within the 2 years right before you filed your claim.

When you didn't file a claim within the 3-year or 2-year expiration dates

You can't get a credit or refund if you don't file the claim within 3 years of filing your original return, or 2 years after paying the tax, whichever is later, unless you meet an exception that allows you more time to file a claim.

Exceptions to the 3-year/2-year expiration dates

You may have more time to file a claim for credit or refund than the 3-year/2-year rules if you:

• Agree with the IRS in writing to extend the time limit to assess tax: The time limit is specified in your agreement, plus 6 months, to claim a credit or refund. There may be additional limits on the amount of credit or refund you can claim based on any limitations on the IRS's ability to assess tax, as shown in the written terms of your signed agreement.

[qbteachmt]

You might find this useful:

https://www.irs.gov/pub/irs-npl/2022ntf-03.pdf

[Strongsilence-CPA]

Thanks, QBteach

The central issue, that I failed to directly state in my initial, involves the CPA who suggested not filing for several years (2018 to 2020) and then filing an initial and final tax return to capture all costs to produce the final NOL (2021).  His suggestion was mainly to save me time (and get his client her K-1 sooner.)  I know his suggested procedure is not allowed.  But what would be the pros and cons of his approach?

[qbteachmt · Accepted solution]

If he thinks that's how something should be done, I'd stay away from him in the future.

You can't summarize years in just one year.

You can't file taxes for a year where the entity didn't exist.

You file taxes by tax year reporting the activity for the year. Think of this as building a brick wall = one row at a time, not just the top row and call it good.

You mentioned testing. That might mean there is equipment (asset costs, not expense) and analyzers are not cheap, and it makes one wonder what happened to that equipment? If they didn't "touch" cannabis, they were not a retail operation, is that what is meant here? That makes them an ancillary service and they still fall under cannabis operating regulations.

They had payroll, and you know you are going to run into 1099-NEC issues, which includes horrendous penalties.

This is not going to end well.

[BobKamman]

I always have to look these up.  If a taxpayer doesn't receive a 2019 Schedule K-1 until 2024, what does he do with the NOL it generates?  What were the rules in 2019?  Doesn't it have to be carried back first, for three or two or maybe five years or some other number?  It doesn't depend on the starting date of the company with the loss, it depends on the shareowner's history, right? And there's some rule about an election to carry it forward instead, but doesn't that have to be made on an original return?  

[BobKamman]

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@Strongsilence-CPA wrote:

Thanks, QBteach

The central issue, that I failed to directly state in my initial, involves the CPA who suggested not filing for several years (2018 to 2020) and then filing an initial and final tax return to capture all costs to produce the final NOL (2021).  His suggestion was mainly to save me time (and get his client her K-1 sooner.)  

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And it had nothing to do with 2021 still being open for a refund claim?  Anyone who believes that, must have just fallen out of a coconut tree.