topic Will a flag be thrown at the IRS if my EOY retained earnings in 2020 does not match the beginning year balance on the 2021 tax return? in Business & farm

Will a flag be thrown at the IRS if my EOY retained earnings in 2020 does not match the beginning year balance on the 2021 tax return?

PipersAlley — Mon, 09 Mar 2026 09:16:44 GMT

My accountant last year did not properly report my EOY retained earnings in 2020 on Schedule M-2. This year I'm using Turbo Tax for business and caught the mistake. Does anyone have an opinion on whether or not this will throw a flag at the IRS with my 2021 filing? Should I refile the 2020 return to fix Schedule M-2?

Re: Will a flag be thrown at the IRS if my EOY retained earnings in 2020 does not match the beginning year balance on the 2021 tax return?

Rick19744 — Thu, 03 Mar 2022 00:12:06 GMT

Form 1065 or 1120-S?

Re: Will a flag be thrown at the IRS if my EOY retained earnings in 2020 does not match the beginning year balance on the 2021 tax return?

PipersAlley — Thu, 03 Mar 2022 00:13:21 GMT

1120-S

Re: Will a flag be thrown at the IRS if my EOY retained earnings in 2020 does not match the beginning year balance on the 2021 tax return?

Rick19744 — Thu, 03 Mar 2022 00:54:50 GMT

The Schedule M-2 on the 1120-S is your accumulated adjustments account (AAA).

This is not the same as retained earnings; due to book tax differences.

If you are saying the error only impacts your balance sheet, then I would not worry about it.

If you are saying that the error impacted the income side, and should have been run through AAA, then that does most likely require amending the 1120-S and K-1's and shareholder individual tax returns.

Re: Will a flag be thrown at the IRS if my EOY retained earnings in 2020 does not match the beginning year balance on the 2021 tax return?

Mike9241 — Thu, 03 Mar 2022 01:09:27 GMT

i wouldn't waste the time or money to change 2020 unless you get a notice from the IRS.