Last week I spoke with one of my clients, Liz, who wanted to file her return immediately. She’s getting a large refund, and she’d like it now. The problem is she participates in ten partnerships, and one of those ten K-1’s hasn’t shown up. (Owners of partnerships and S-Corporations along with beneficiaries of trusts use the K-1s to report their share of the entity’s/trust’s income on their tax return.) She asked, “They sent an estimate of the income; can’t I use that?”
Perhaps she read the disclaimer on the estimate (more likely, she didn’t): “The actual amount of income could be more or less than what is shown on the estimate.” It’s good enough for an extension, but not good enough for a return.
“Well, I’d still like to file the return,” she said. I told her there were two problems. First, it’s a certainty you’d be amending the return and you want to extend rather than amend. Every amended return is looked at by a human–one who has the power to send your return to Examination (audit). Second, I can’t file a return that’s knowingly wrong and this return would be. The numbers are not final, and likely would change. I couldn’t sign tghe return.
I then mentioned, “Do you remember our conversation last year when you invested in these partnerships, that you would likely have to file extensions because some of the K-1s wouldn’t be received by the tax filing deadline?” There was a long pause…but she said, “I could really use that money.” I told her that there was one benefit of filing after the tax deadline: She would receive interest on her refund. Eventually she agreed to file an extension.
Investing in businesses can be a good way of making money, and I know Liz’s investment prowess is far greater than mine. But for her to file without all the K-1s in hand would be a very Bozo action.
Tags: BozoTaxTips