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I am an Enrolled Agent and I've prepared taxes and provided tax representation for the last 9 years.
The fiscal year of the company did not change with the ownership of the company. This was only a change in ownership of the shares. So, the tax year should remain the same.When preparing the 1120-S, you should be able to show on the K-1 you prepare the allocation of income based on who owned the shares during a given points during the tax year.
I am going to provide you with reference information shortly.
Hello again,Please refer to the Instructions for the 1120-S page 22. It describes an Election that must be taken to divide the tax year into two due to termination of a shareholder's interest.http://www.irs.gov/pub/irs-pdf/i1120s.pdfSo to clarify, selling an S-Corp does not result into two individual tax returns - one for before the sale and one for after it. The income and expenses are allocated based on the amount of shares owned and the time period the share were owned within the same tax return. This is not the final 1120-S return for the sellers, nor the initial tax return for the purchasers of the company. An S-Corp is a distinct separate business entity from its owners.
Not sure what to tell you other than I have checked with several sources and filing two separate 1120s in the same tax years is not the correct method of filing this return. The California FTB does not file 1120s. And whomever you spoke to gave you an incorrect answer.I'm sorry I can not be more helpful. Good luck with finding a definitive answer to your question.
Hello Romulus,I have consulted directly with two of the top Enrolled Agents in the country, and they both state that the way the tax return was filed is incorrect.
One question. Did they sell the assets of the company, or did they sell the stock? If they sold the assets, then a new company could be formed. If the sold the stock, then their needs to be one tax return. There are two methods in regards ***** ***** this tax return. "Per share, per day" or "Closing the books" http://www.law.cornell.edu/cfr/text/26/1.1377-1http://www.thetaxadviser.com/issues/2008/dec/allocatingpassthroughitemstoscorporationshareholders.html
I appreciate your acknowledgement that I am trying to provide the best information I can. Ultimately, it is your choice and your decision to make, and I respect that. Good luck and I definitely hope it works out the best for you and your client. Have a great Easter weekend yourself.