Legal Question in Tax Law in Florida

Reported business profits

My husband is 33% vested in an s-corp business. His partner files k-1 statements with the state of florida for profit sharing. We have never received a profit check or s-corp distribution since aug. 1998. Does the k-1 tell the amount of s-corp distribution or does this show up in another form.

We do not receive any paper work from his partner or accountant. The state of florida only shows him as president of the corp. K-1 forms are filed for all three partners. Will an audit find anything important and is it necessary.

Thank you in advance for any assistance.

Asked on 6/07/02, 2:15 pm

2 Answers from Attorneys

Randall A. Lenz Randall A. Lenz, Atty, CPA

Re: Reported business profits

An S-Corporation files a federal tax return each year with the IRS (Form 1120S) which includes a copy of each shareholders Schedule K-1. The return is informational - the S-Corp normally pays no tax on its income, the shareholders do.

There is also a requirement to file a Florida return - but since there is no Florida income tax, their is no further responsibility for the shareholders, individually. The profit or loss from an S-Corporation is reported to each of the shareholders annually on Schedule K-1. The shareholder uses Schedule K-1 to properly report his share of the company's profit or loss on his personal income tax return (Form 1040). Regarding your questions:

You should receive a copy of Schedule K-1 from the S-Corp every year in order to properly complete your own personal tax returns.

If properly completed, the Schedule K-1 discloses the amount of cash or property distributions paid to a shareholder during the taxable year.

If you are not receiving a Schedule K-1 from the accountant - this is very suspicious and you should meet with the accountant immediately to resolve the matter.

If your husband has no day to day managerial responsibility, he should carefully consider whether he wishes to remain as an officer of the company. There is potential officer liability for any number of issues.

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Answered on 6/07/02, 3:38 pm

Sanford Martin Martin Law Office

Re: Reported business profits

Based on your information, your tax situation is muddled, confused, suspect, or all of above. First, S corps files Form 1120S with IRS, and sends informational return to state of Florida. Form K-1 is sent to each shareholder so the individual can file his/her Federal Income Tax return. If by "vested" you mean that your husband owns 1/3 of the corp shares, it would seem that he should be receiving K-1 forms, indicating either losses or gains to be declared on his (and likely your) return. Also, since he is an officer, he is responsible for other actions such as making certain company is operating legally;, paying its taxes, etc. If you and he are filing a joint return, you also have a direct interest in this matter. If, because of the K-1 issue, your past tax returns do not include income, it could be serious. Or, if the S Corp has not been paying its proper payroll taxes, it could be serious. You are advised to request an accounting and tax returns of the company for previous years. If you are unable to analyze the situation, you are advised to consult with a tax attorney or CPA who can advise. An officer of a corp should not rely on ignorance as a defense with the IRS.

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Answered on 6/07/02, 4:34 pm

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