Memo – Partner or Stockholder? Are You Given A Full Copy Of That Company’s Tax Return At Year End?

Many of my clients are the main partner of their partnerships or their corporations. Some of my business clients are closely held, just by a few people. If that is your situation, then you probably already get a copy of the year end tax returns for your company to review.

This memo is for a different kind of partner and corporate owner.

It is for people who own part of a corporation or partnership, but they don’t control the filing of the tax return.

This could mean a lawyer in a large law firm, a doctor in a large medical group, or an investment advisor, all of whom are equity partners (owners). These owners don’t control the daily accounting, and usually do not interface at all with the company’s CPA.

My advice here does not necessarily apply to Limited Partners who do not have an active role in the day to day operations. But, even Limited Partners should demand a full copy of any tax return where their name and social security number appear.

I have seen a rash of situations in the past 2 years where general partners or stockholders of corporations, who are actively working in, and running their companies, are not given copies of the tax returns of the companies which they own. And those returns are filed without their permission.

This is unconscionable to me and it’s something that you should not allow. 

Are you only given a Form K-1 at the end of the year and nothing else?

I want you to demand that for all the years where you appeared as a general partner or stockholder, you are given full copies of those tax returns.

You might be saying, of course those returns will be provided to me. But I wouldn’t assume that.

I’m interested to see if your first request is denied. I think you’ll be surprised that it may not be given to you so readily.

If you are about to sign an operating or stockholder agreement, or renew an existing one, I want to stress that you include the following wording, of course written out in the proper legal ease by your attorney.

1. Within any operating agreement you sign for an LLC or a stockholder agreement for a corporation, be sure it is clearly stated that you will be given a full copy of the tax returns for your review, and that those returns cannot be filed without your written authority.
2. Within any operating agreement you sign for an LLC or a stockholder agreement for a corporation, be sure it is clearly stated that you, and your independent CPA, will be given full access to all the company’s books and records upon request.
3. You should also demand that you see the underlying supporting accounting records that went into creating those returns. These are usually procured from the accountant or CPA preparer.
4. Have all of these things independently reviewed by me, to make sure I am comfortable with them on your behalf.

This may seem like overkill, but it is your company, regardless of the amount of your equity position. You can be held responsible for the financial and income tax mistakes of those signing your company’s returns, so you deserve to have oversight over those returns. At least you deserve to make a thorough review of them and the underlying documents used to prepare them, before they are filed.

I am concerned to see how many owners of companies do not properly safeguard their interest with the steps I have described here.

Questions? Concerns? Call me on (732) 673-0510.

Please reach out to me without hesitation with any tax, business or

accounting question, and to schedule a consultation.

Tax Laws are complex.

It is very easy to make mistakes that can incur penalties.

Do you have a Tax, Accounting or Business Question?

Call Me Immediately. (732) 673-0510.

Is your CPA or Attorney

ignoring your Phone Calls and Emails?

Call Me Immediately. (732) 673-0510.

Remember,

“If We Aren’t Working For You, Then You Aren’t Working At Your Best”

Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com

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