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socrateaser, Lawyer
Category: Tax
Satisfied Customers: 38910
Experience:  Retired (mostly)
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My husband passed away and was a 1/3 partner in an s-corp.

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My husband passed away and was a 1/3 partner in an s-corp. The s-corp essentially purchased shares in large gas company, created an LLC and divided each share up and sold partial shares to investors. The s-corp took a 10% share in the LLC, for creating it. For the past 3 years, I have been seeing a loss in the s-corp. Last year, I found out that the gas company had been seeing millions in profits. I found this out, only by a stroke of luck. It seems the LLC has been receiving large dividends, but the s-corp is showing a loss. When I confronted the other 2 partners, they stated that as a 2/3 majority they had elected to gift away the s-corps 10% to the other investors. I know this isn't true, I'm fairly sure they pulled their profits from the LLC. My question. what if the IRS asks why the s-corp is showing a loss, when it owns 10% of the LLC. Who would be held liable if the s-corp is showing a loss, when it should be seeing a large gain.
Assuming that the S Corp were audited, if it really gifted away its profits, this would not alter the fact that it had taxable profits. A gift is not deductible, so the S Corp's gift giving, whether or not bona fide, would not turn a profit into a loss.

In short, your partners appear to be sewing the emperor's new clothes.

If you want to report the S Corp to the IRS, you can file a Form 211, and see where it goes. You could end up getting some money from the deal, if the IRS collects from the S Corp management. If the IRS believes there's tax money to be had, it will audit the S Corp, and if it decides that the management is engaged in some sort of fraud, the management could be looking at criminal charges.

Hope this helps.

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Customer: replied 4 years ago.

The s-corp never put the profits into the s-corp. So, would the IRS know by looking at the LLC return?

If you mean that the LLC didn't issue a K-1 to the S Corp showing the profits, and the two organizations are under control of the same management, then the IRS could audit the LLC and determine that a conspiracy to evade taxes was ongoing.

If you make out the 211 form and explain what's happening, the IRS investigator will figure out how to enforce compliance.

Hope this helps.
Customer: replied 4 years ago.

Would I be able to collect my husband's share of the s-corp profits, he should have seen? I am personal representative of his estate and have the partnership document and the stockholder certificate. The two organizations are under the same control of the same management.

That's an entirely different issue. The IRS is interested in enforcing the tax laws of the USA. It has no interest in seeing that you receive the profits to which you may be believe you are entitled. The only way that you can collect the profits is to sue the S-Corp and LLC and its management for fraud, misappropriation and breach of fiduciary.

If that's what you're looking to obtain, then for a competent business litigation attorney referral in your jurisdiction, see this link.

Hope this helps.
Customer: replied 4 years ago.

Thank You, XXXXX XXXXX As much as I want to retain a lawyer and sue them, I've seen to many cases where plaintiff pays attorney and defendants are uncollectible. I have 4 small children, I think what they did is disgusting, not to mention illegal, but I would like to see them get their comeuppance. Stealing monies from a widow with 4 small children, just because you think you can get away with it is sickening. I have all the documents, including the monies that came into the LLC. I would very much like to see them in handcuffs and taken away. I may not get all the monies I am entitled too, but it would put a smile on my face to see them answer to their crime. Thank You very much, this really helped!

You're welcome and good luck.
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