How may I correct a wrongly reported non-dividend distribution error on my 2016 taxes?

[Ashwin1]

I own a single-member LLC taxed as an S-Corp. For the tax year 2016, my tax preparer did not have the right numbers on my schedule L - the cash amount. Also on the schedule K and M-2, which do not show the non-dividend distributions to myself. As a result, the cash amount for the start of 2017 is incorrect - the retained earnings was reported too high for 2016. In reality, there were non-dividend distributions which aren't recorded as such, but show up as retained earnings. To correct it for this year, I was planning on showing those distributions on this year's (2017) tax return in addition to this year's non-dividend distributions. The end result is that I see correct balances on this year's tax return. The discrepancy is only on the schedules K and M-2 for last year (2016) vs my balance sheet. The taxes for that amount was already paid last year, so it seems that it is formality more than anything. Is this logic correct in that since I already paid my proper taxes last year, that I can do the amendment on this year's return rather than go through the complication of changing something on last year's return? I hope that I explained that properly and not confuse the reader.

Thanks,

Ashwin

[Periwinkle65]

It is my opinion that you will need to amend last year's return. If you don't it could get more complicated trying to explain what you have done. The logic may be entirely correct, but since the IRS considers each year's return separately, it is best to do the correction of the return filed in error. If you used TT last year, you can use the software provided to amend your 2016 return.

[Ashwin1]

Thanks Periwinkle. Those four schedules - K, L, M-1 and M-2 don't actually make any difference to the bottom line for the 1120-S. The taxes paid are the same regardless of whether that cash stays in the company account or is distributed to the shareholders as non-dividend. As such, those schedules are mainly informational (from my limited knowledge) - so on the one hand, I can see your opinion, but on the other hand I can see my own as well. My tax preparers have stated that they think there is nothing wrong with the return from last year (Their name starts with an H and ends with the letter K) even if my balance sheet does not match Schedule L. I disagree - only question is if I have go through the rigamarole of amending that return - which means I also need to get an extension this year. Don't want to do that if I don't absolutely need to. But thank you for the devil's advocate answer to my solution.

😄

I presented myself with that argument too, and since the alternate was easier, decided to ask if that is ok. LOL.