[ITSTIMETOPASS]

So I’m working on a partnership 1065 tax return for a client. They provided me the year end balance sheet and income statement. The retained earnings doesn’t roll correctly from the prior year. What is the process to go about rolling retained earnings without asking for the general ledger.

I know how to roll retained earnings by seeing if beginning account balances tie to the prior year’s ending balances and if income statement accounts are closed out.

Anyone know how to get started with this?

AUD: PASSED!
REG: Q4 2015
FAR:
BEC:

[turo9992000]

Did they enter the adjusting entries from last year? Is the balance way off?

[Sir Plus]

that means the client booked activity to retained earnings, after you did the tax return.

You will need to scan the general ledger, so you can see exactly what they added, so that you can reverse it out to match CY beginning RE (on books) to ending RE (from PY tax return).

It's usually a prior period adjustment for a PY error, which you can show separately on the M-2, as such. If it's a minor adjustment, you can even book it to office expense in the current year income statement. In theory, you shouldn't do that though, it should be on the M-2.

Fixing RE, should be step number 1, before you start to do anything else on that return. Once you match, you can proceed as normal.

[Anonymous]

I would ask for the 2016 Book Balance Sheet and compare that to the 2016 Tax Balance Sheet. Post the differences on a spreadsheet and all the differences should balance and fix your Retained Earnings. Actually just did this for a client an hour ago.

[Sir Plus]

why can't you just ask for the GL?

you'll spot the error in two seconds and see the actual adjustment that way, instead of spinning your wheels spending all your time reconciling, and backing into a number you may not quite understand, at first glance.

keep in mind billable hours, always.

[Anonymous]

You have to reconcile back to the 2016 Tax Return, so the PL accounts don't matter. You just need to adjust the BS accounts, so that you have the correct starting point.

[ITSTIMETOPASS]

i'm off by about $371,000.

We have the PY tax return and they gave us there PY book b/s as well. so do i make a spreadsheet with 2016 book b/s balances in one column and the 2016 tax return b/s. find the differences. whats the next step?

AUD: PASSED!
REG: Q4 2015
FAR:
BEC:

[Anonymous]

That's it. Post all the differences as adjustments to your 2017 BS. It should include your difference in Retained Earnings and it should balance. Should be pretty easy.

[Anonymous]

Is the discrepancy in the client's favor?

[Recked]

I'd probably start with last years work papers, and or talk to the person who prepared last years return.
371k is a rather large difference. If I saw that difference it would make me a little worried about what else might be screwy with the books.
Perhaps there is a known recurring issue with that clients books that can be corrected quickly.

[Anonymous]

370k isn't THAT big. It's all relative to how large the company is. That could be 1 transaction that they ended up booking in 2016 vs 2017.

[Recked]

You are correct, it's all relative.
For the majority of my clients, a 370K swing in RE is very material.

[Tncincy]

Since we are asking real life questions: I have a client that inherited her mother's home. she and her two siblings sold the home. They had a cash buyer, not appraisal, estimates or etc. She received a 1099S for 15,000. The house sold for 45,000 according to the settlement statement. They did not rent or live in the home. Each received 15,000. This is a capital/ordinary gain with no adjustments? Am I recording the sales price of the home or simply reporting the 15,000 received. I think I am over thinking the transaction and it's reporting.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Recked]

I would only report the portion she received.
If the 1099S has her name and SSN, I would match the 1099S and report the kick outs to siblings as cost of the sale.
Numbers matching to IRS trumps all. You can easily explain if under audit.

Also, her basis should be about what she sold it for. There should be limited capital gains/income due to the stepped up basis.
If this went through a trust/estate I would show a basis equal to or slightly higher than the sale price, less the costs of sale = capital loss via K-1 kicked out to the 3 siblings. (Assuming an appraisal or value was established when the trust/estate was created.)

[Bourne]

I don't know much/don't have too much tax experience, but I would assume the full 15k is not taxable IF they would have gotten an appraisal. It would've been wise to get an appraisal at the date of death to figure out the basis they each would have, which would then limit their gain to the FMV. In this case, with no records of what the FMV was, I would think they almost have to report the full 15k as gain.

I'd like to hear from Recked on this one.

[Bourne]

Spoke too late lol

[Author]

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