Hello,

I am helping a friend with his bookkeeping and notice that he is a c-corp. However when examining his personal tax returns, the person who did them, filed a schedule c, as if he was a sole prop. He has not gotten any notices from the IRS yet but I'm afraid he might owe lots of money in penalties and interest.

He has been paying himself as draws from the business.

I am assuming that we need to do the 1120 tax returns for the last 3 years, and the amend the 1040 tax returns for the same years as well.

We are in the state of WA if that matters so no state income tax.

I have set him up on payroll now to take a decent salary and he is exempt from L&I workers comp and unemployment security (managed by WA state). we will taking more money for the federal unemployment taxes.

Any other thoughts on how to proceed from here? things to consider? would I have to create W-2s for all those years he paid himself as a draw? would we need to submit 940s for those and pay taxes and penalties?

Thanks