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shahbazi_nahid
New Member

That is right and I know even a sloe owner S-Corp must file 1120S but my question is :Does any penalty apply if a sole owner S-corp file schedule C instead of 1120S ?

 
5 Replies
Lisa995
Level 12

That is right and I know even a sloe owner S-Corp must file 1120S but my question is :Does any penalty apply if a sole owner S-corp file schedule C instead of 1120S ?

If you failed to file the 2016 corporation return by this date, penalties will apply.  It was due 3/15/17 or 9/15/17 if you filed an extension.
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shahbazi_nahid
New Member

That is right and I know even a sloe owner S-Corp must file 1120S but my question is :Does any penalty apply if a sole owner S-corp file schedule C instead of 1120S ?

Thanks for answer and I know these rules just I wanted make sure because of sole owner and since actually I am filing that business in schedule c
It doesn’t help .I have heard from some preparers that we can file schedule C instead of 1120S once the owner has %100 of the ownership .Isn’t it correct?
TaxGuyBill
Level 9

That is right and I know even a sloe owner S-Corp must file 1120S but my question is :Does any penalty apply if a sole owner S-corp file schedule C instead of 1120S ?

No, that is not correct.  The 1120-S needs to filed, as well as all of the payroll forms (you are an employee of the corporation).

I REALLY recommend going to a tax professional for AT LEAST the first year or two.  It is easy to do things wrong with a corporation, and mistakes can EASILY cost you thousands of dollars (for example, the corporate return is probably late, with a penalty of $195 per month).
Critter
Level 15

That is right and I know even a sloe owner S-Corp must file 1120S but my question is :Does any penalty apply if a sole owner S-corp file schedule C instead of 1120S ?

I agree .... seek professional help asap ...

The IRS position is that an S-Corporation MUST pay a reasonable compensation to an officer before non-wage distributions may be made.  The reason is that they feel that non-wage distributions when no wages are paid is an avoidance of social security taxes.  From the IRS website at <a rel="nofollow" target="_blank" href="http://www.irs.gov/businesses/small/article/0,,id=203100,00.html">http://www.irs.gov/businesses/smal...> :

"Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense and subject to employment taxes."

The page cites Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000) as one judicial finding on the IRS's authority to reclassify distributions to wages subject to employment taxes.  Factors to determine reasonable compensation are given in the ruling.

The AICPA has an interesting article on this topic here: <a rel="nofollow" target="_blank" href="http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx">http://www.aicpa....>

You also might want to read a lively discussion on the Tax Almanac website here: <a rel="nofollow" target="_blank" href="http://www.taxalmanac.org/index.php/Discussion_Forum_-_Tax_Questions">http://www.taxalmanac.org/inde...> .  The substance of the discussion seems to be that taking a reasonable salary is not optional and, if you took distributions with no salary, the distributions should be changed to salary with appropriate employment tax returns being filed (late, if necessary.)

The fastest way to get audited as an S-Corporation is to not report wages to officers on page 1 of the return.
Critter
Level 15

That is right and I know even a sloe owner S-Corp must file 1120S but my question is :Does any penalty apply if a sole owner S-corp file schedule C instead of 1120S ?

Until you file a final return for the S-corp the IRS expects a corp return to be filed ...

The penalty for failure to file a federal S corporation tax return on Form 1120S — or failure to provide complete information on the return — is $195 per shareholder per month. The penalty can be assessed for a maximum of 12 months.
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