Two companies are related with Company A owning a controlling interest in Company B. Both are LLCs taxed as partnerships so Members get K-1s and the entities file a form 1065.
I have a scenario where the accountant for Company B drafted K-1s and distributed to Members including Company A. The Company B accountant did not mark the K-1s as draft. Company B filed an extension on April 4th (until August 15th). The Company B CPA verbally stated to the Company A CPA that the K-1 was draft and not final but no one told the Company A Manager.
Although the accountant for Company A KNEW the Company B's K-1 was a draft, he issued K-1s to Company A members and provided a form 1065 to the manger. The invoice from the Company A CPA to the manager states "finalized form 1065."
The poop hit the fan when Company B made major changes in the final K-1's relative to the draft and sent a new (and now truly final) K-1 to the Company A Manager. The Company A Manager only finds in August that the "finalized" form 1065" from April is basically worthless. All K-1's and the 1065 must be be redone and each Member may have to change their personal tax returns. The original Company CPA quits and forces the manager to start from scratch. With 19 members this is expensive and ugly.
Should the Company B CPA have marked as DRAFT the K-1 sent to Company A in April (final was not done until August)?
Is it proper for a CPA to present to the Company A manager a tax return as "finalized" if he knew a related pass through entity (Company B) has not provided a finalized K-1?
No so Golden in Golden, CO