S-Corporation Filing an extension with profits

So, you have a S-Corporation with profits, there's an ownership dispute with a court date in May, after the filing date of March 15th.

Should the S-Corporation file an extension? So normally, when you file an S-Corp tax form, the K-1 passes the income to the shareholders, but in this case, does the tax (on the profits) not become due until the S-corp files the return (after the 6 month extension)???

Partner Tax Distribution Profit Sharing

asked Jan 13 '13 at 12:54

N L
18 points

1 Answer

So normally, when you file an S-Corp tax form, the K-1 passes the
income to the shareholders, but in this case, does the tax (on the
profits) not become due until the S-corp files the return (after the 6
month extension)???

Of course not. Make sure your personal estimates are paid on time based on what you expect to see in your K-1, assuming the court decides the worst possible way for you (tax-wise, i.e.: assuming the K-1 shows the most taxable income of all possibilities). File an extension for yourself till October so that you wouldn't be subject to late filing penalty, and calculate everything during the summer when all the numbers are known.

If the court decides in your favor, you'll get a refund, if the court decides against you you'll be covered as your estimates were based on this scenario anyway.

The tax is due when the money is earned, not when you get some piece of paper, and the money has been earned already.

This is not a tax advice, and should not be relied upon to avoid any taxes or penalties. Talk to a professional tax adviser (EA/CPA) for a tax advice.

answered Jan 13 '13 at 13:45

Littleadv
5,090 points

Yeah, that seems to make sense. Let's say the dispute was over 40% of the company. If the 60% majority owner felt like the dispute was going to show them owning 100% after a court decision, then they would file an extension but pay 100% of the potential tax on the profits. The minority shareholder has no way of knowing what to possibly pay, since the s-corp hasn't filed yet, and the majority shareholder may not actually share enough information in a timely manner to inform them of their potential 40% tax liability. – N L 12 years ago
@NL that is a legal issue. You'll have to have some legal advice here. I'm assuming you have the necessary information. – Littleadv 12 years ago

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