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IF
New Member

Partnership to S Corp mid year - taxes and 1099

We switched from a two member partnership to a two member S Corp around March 2019. Until March, vendors paid me the partnership. 

Is it allowed for the vendors to switch the entirety of the 2019 payments to the S Corp TIN? I am getting mixed answers when I asked the vendors  - some say yes but others are not sure if this can be done. 

is there any law or rule against this sort of thing? If possible, this would save me multiple 1099s and a partnership tax return in addition to the S Corp return. 

 

Edit - sorry for any confusion. I should have been more clear - we created a NEW S Corp. 

13 Replies
soultax09
Level 5

Partnership to S Corp mid year - taxes and 1099

Different EINs = different 1099s.....it's going to be totally confusing for everyone if not done that way.

Carl
Level 15

Partnership to S Corp mid year - taxes and 1099

This can (and most likely will) get confusing *VERY* quickly. You may find it more beneficial to seek professional help for this. Especially if your state taxes personal income.

Basically, the partnership is closed/disolved permanently and forever. The partnership must file a "final" 1065 and issue each partner a "final" K-1. Each partner will need that final K-1 for their personal 1040 tax returns.

 

Next, the S-Corp opens with the *SAME* *EXACT* *OPEN* *DATE* as when the partnership was originally created/open for business. But the incorporation date (be it incorporated as an S-Corp or a C-Corp) ***MUST*** be one day *AFTER* the partnership was closed/disolved.

Remember, the business open date and the business incorporation date Are two completely different dates and do not have to be in the same tax year.

Then for 2019 the S_Corp will issue each owner a K-1 when each owner will need to file their personal 1040 tax return.

So for 2019 each owner will have two K-1's.

 - A "final" K-1 from the partnership for the period Jan 1 2019 through March ??, 2019.

 - Their first K-1 from the S-Corp for the period March ??+1 through Dec 31 2019.

 

 

soultax09
Level 5

Partnership to S Corp mid year - taxes and 1099

The other thing maybe the vendors are aware of is 1099s aren't required to be issued to corporations with only a few exceptions.

Anonymous
Not applicable

Partnership to S Corp mid year - taxes and 1099

each entity has to file its own returns.  in any event the partnership would have to file a final return for 2019.  payments made to the partnership have to be reported by it and the same is true for the S-corp.     if the partnership has net income, the partners will owe self employment tax which they will be evading if the income is reported by the S-Corp.   By the way the S-Corp needs to pay salaries to its owners for services perform

 

payments the partnership and S-Corp makes to it's vendors has to be reported by eachon their own return in order for each of them to properly report their income or loss.  S-corps shareholders do not pay SE tax but

do have fica and medicare taken out of their wages. 

 

what should be done if the S-Corp   deposited income checks for services performed by the partnership.    the partnership should be the one to report it.

 

payments made by the S-Corp for products or services purchased or incurred by the partnership should be reported by the partnership.

 

 their is a code section that deals with your situation. its 162 which allows a deduction for ordinary and necessary business expense incurred in carrying on a trade or business. the wrong entity taking the deduction would mean that the expense is not ordinary and necessary and could be disallowed by the iRS   

other code sections, court cases, etc  deal with self employment taxes and the wrong entity picking up the income.

 

if you have little knowledge of the tax aspects of an S-Corp, I suggest you use a pro to do the first year's return.       The pro can bring you up to speed on things you need to do and watch for that don't apply to a partnership.   Mess up in certain areas and the IRS could revoke the corp's S-Corp status. 

 

 

besides the IRS there could be state tax issues. 

 

 

  

 

 

 

 

 

Rick19744
Level 11

Partnership to S Corp mid year - taxes and 1099

There are a number of issues here that need to be addressed and documented so hopefully you received professional guidance when you changed entity type.

Some comments:

  • Was the conversion handled by a state conversion?
  • Was the conversion handled via the "check-the-box" rules?
  • Have you received documentation from the IRS that the S election has been accepted?
  • Depending on the response to bullet 1 and 2, this will have an impact on your basis in the S corp.
    • You could have an assets-over approach
    • You could have an assets-up approach
    • Depending on which approach is used, the basis in your S corp stock and any physical assets will be different.
  • As you can see, there are a number of issues that need to be addressed so hopefully you consulted with a tax professional
*A reminder that posts in a forum such as this do not constitute tax advice.*
Critter
Level 15

Partnership to S Corp mid year - taxes and 1099

SEEK PROFESSIONAL ASSISTANCE ASAP ...

 

Not only does the partnership need to file a FINAL return it is also a SHORT year return which not only can be tricky but you also need to use the same 2018 TT BUSINESS program (if you just used it to complete the 2018 return) to complete the 2019 short year return which  is now LATE !!! and the penalties are accruing.  I cannot stress enough your NEED to seek local professional assistance NOW. 

IF
New Member

Partnership to S Corp mid year - taxes and 1099

What if the partnership is to stay open moving forward?

IF
New Member

Partnership to S Corp mid year - taxes and 1099

 

  • Was the conversion handled by a state conversion?

There was no conversion.  The S Corp is a new, separate entity.

 

  • Was the conversion handled via the "check-the-box" rules?

No conversion.

 

  • Have you received documentation from the IRS that the S election has been accepted?

Yes

  • Depending on the response to bullet 1 and 2, this will have an impact on your basis in the S corp.
    • You could have an assets-over approach
    • You could have an assets-up approach
    • Depending on which approach is used, the basis in your S corp stock and any physical assets will be different.

Not sure how this applies to me.

 

IF
New Member

Partnership to S Corp mid year - taxes and 1099

Thanks for your reply.

 

To clarify, the short return is only needed if the Partnership is to be dissolved, correct?

 

I may opt to keep it open and use it to contract with the S Corp and hire my children (as they provide services) via the partnership to avoid S Corp taxes when hiring children.   I am still exploring this avenue.

Critter
Level 15

Partnership to S Corp mid year - taxes and 1099

Ok ... you are very confusing ... in the original post you said the partnership was converted to an S-corp so we gave answers based on this statement.  Now you say the partnership stayed open and a new business was created.  If this is so why did you need to ask a question at all.  The person paying you is paying 2 different entities and the corp is not required to get a 1099 period. 

Critter
Level 15

Partnership to S Corp mid year - taxes and 1099


@IF wrote:

Thanks for your reply.

 

To clarify, the short return is only needed if the Partnership is to be dissolved, correct?

 

I may opt to keep it open and use it to contract with the S Corp and hire my children (as they provide services) via the partnership to avoid S Corp taxes when hiring children.   I am still exploring this avenue.


AGAIN ... you really need local professional guidance and education since you are confused on the payroll requirements for an S-corp owner and how to pay your children under 18.  

IF
New Member

Partnership to S Corp mid year - taxes and 1099

Sorry if it was not clear. I never wrote converted, but I can see how it can be assumed from the post, which I now edited.

 

It is a NEW S Corp.

 

I understand what you are saying - I guess my question is can the  vendors shift the  older entity Partnership payments to the newer entity S Corp?

Anonymous
Not applicable

Partnership to S Corp mid year - taxes and 1099

the answer is still the same as previously provided.  each entity should report only its own income and deductions.  

 

no they can't shift.     they would be violating the tax laws by intentionally issuing 1099's to the wrong party.

 

the big issue is self-employment taxes that you and your partner owe on the partnership's income.  even if they issue the 1099's  only using the S-Corp EIN number, you have a responsibility to ask that they be corrected.       

 

as i said you still need to file a final partnership return.  if you don't expect a notice from the IRS.

 

you and your partner are are trying to avoid SE taxes.    don't know the amount involved but the higher the amount the more risk you run if caught.   

 

if you wish to pursue your desire to have everything reported by the S-Corp you should consult with a tax pro and seek further guidance 

 

 

 

 

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