qbteachmt
Level 15

"Doing this will save him in self employment tax."

Not really. He is supposed to be an Employee of that Corporation. And there should be assets (equipment), insurance, etc, in the Company name, which should be the C Corp. Then, the Corporation pays the employer share of payroll tax. And the employee pays the employee share of payroll tax. And, a C Corp has its own Income tax. That's a reflection of Bad Guidance. Someone had him set up a C Corp, so there should have been a specific reason to do this. Otherwise, he would operate as Sole Prop or S Corp and not C Corp.

"Question: Is this allowable?"

Well, what's been done so far is Not Kosher. There is no C Corp operating, apparently. How can it have only expense, no income, and was there payroll?

"Is this within the IRS law? Will this make his original 1120 tax return a "Frivolous" tax return?"

It seems there needs to be more Legal guidance here.

"Will he have late filing fees?"

Well, what happened to 2019 tax filings? Which forms? You describe 2018, and are asking about 2020.

"Now in 2020 he would like to amend the 1120 return to show $400k in income and expenses of $340K."

Amending 2018?

"What kind of penalties and interest will he owe and what percent?"

No one can answer this until all facts are revealed, and all errors are identified and rectified.

 

Nothing about this makes sense. I recommend you either find a mentor or pass this person to someone with more experience than you have.

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