EA Apprenticeship

My client have the 2024 refund not release due to investigation of income. He's previous CPA prepare his 1120, ( did not do payroll just pass trough the profits no k1) to his 1040 schedule C, where he did not describe the origin of his income on Schedule C. Should I Amend 2024 and put the info of his Corp of origin of income? Doing so will trigger audit on 1120 and payroll fines?

Nicole,

The client is reporting self-employment income from his or her closely-held corporation that qualifies the client for an earned income tax credit when no Form 1099-NEC was issued?  How much money did the client extract from the corporation during the year in addition to the amount reported as self-employment income as loans or informal - and unrecognized - dividends?  Did you look at the corporation's return to see if what the client has told you is consistent with the filing?  The IRS is especially concerned about tax practitioner due diligence when EIC claims are based on Schedule C income.  See Due diligence training.             

The IRS is skeptical of claims an officer-shareholder is properly treated as an independent contractor, especially when the work performed by the officer-shareholder is integral to the corporation's business.  Is it possible?  Yes, see as examples Rev. Rul. 58-505 and PLR 8009025.  But, in both cases, the IRS determined the corporation lacked the required control over the individual in providing the services for which the officer-shareholder was treated as an independent contractor, the corporation recognized the officer-shareholder was an employee for services performed as an officer, and it was determined the officer-shareholder was acting in two separate and distinct capacities.  Making your client's situation especially problematic is if the corporation failed to issue a Form 1099-NEC.  Also, if the corporation has no individual who is treated as an employee, but rather the shareholder performs all of the work generating the corporation's income, the chance of convincing the IRS of contractor status is especially poor.    

My client have the 2024 refund not release due to investigation of income. He's previous CPA prepare his 1120, ( did not do payroll just pass trough the profits no k1) to his 1040 schedule C, where he did not describe the origin of his income on Schedule C. Should I Amend 2024 and put the info of his Corp of origin of income? Doing so will trigger audit on 1120 and payroll fines?