First of all, I'm very sorry for your financial loss. I know how hard this situation is for you. You would be best served by hiring a tax attorney that would be willing to work your case on contingency (very, very hard to find in this economy). Your former employer may also be undergoing the same audit as you because it amended your Schedule K-1. Moreover, the other shareholders must have had their Schedules K-1 amended as well. It is not uncommon for the IRS to open an audit for all shareholders and the corporation under these circumstances since so many taxpayers were affected by the actions of a single person (i.e., the S corp). Even if you are the only shareholder affected, the IRS will likely force the S corp to hand over information related to your audit under they "summons" authority (a very strong administrative power the IRS has to force persons to turn over tax-related information).
There are a number of reasons why your former S corp realized net income in 2011 and reversed a prior net loss for that year. Note that simply recognizing a net gain does not require the S corp to distribute anything to its shareholders. For that matter, the S corp is not required to distribute dividends to its shareholders either. The S corp's obligations to its shareholders should be stated in its bylaws. I also note that shareholders generally have the right under state law to inspect the corporation's books and records. Depending on the wording of the buy-sell agreement, you may or may not have a case against the former S-corp. These agreements tend to have a "hold-harmless" clause in which the shareholder who is bought-out agrees to waive any claims he had/would have against the S-corp.
I wish you the best.
Any comments posted on this site are for your general information and are not a substitute for professional legal representation. Please consult an attorney to adequately address your legal issue(s).
Oscar Javier Ornelas
Anything contained in this response is for informational purposes only and neither the author nor The Ornelas Firm PLLC ("Firm") makes any representations as to the accuracy or completeness of anything contained in this response. Nothing herein shall be interpreted as legal advice from the author or the Firm, or as creating an attorney-client relationship between the solicitor and the author or the Firm. Neither the author nor the Firm will be liable for any losses, injuries, or damages from the display or use of this information. You should consult an attorney whenever confronted with a serious legal issue. The Ornelas Firm PLLC (www.ojotax.com) may be contacted at 888-764-5822 or firstname.lastname@example.org.
You will need to speak with a tax attorney. If you are currently under audit, a tax attorney can help dispute the audit and file a tax court petition if needed. If you have already been audit and you owe additional tax, then you might want talk to a tax attorney about the IRS Offer in Compromise program, Currently Not Collectible status, bankruptcy, or a payment plan. It really depends on your current financial situation, so it's best to talk to a tax attorney in person or over the phone about you matter.
This material does not constitute tax, legal or accounting advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS or NYS penalty. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. This response is not intended to create, and does not create, an attorney-client relationship between you and the author.
My fellow counselors have provided you with excellent advice and you should follow it. Since you have not received the requested information from the manager(s) of the S corporation, you may want to look into the possibility of filing an action against it for an accounting in your local court. Unfortunately, that will take considerable funds that you may not have.
Good luck in your effort to sort out your problems.
The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.