Retained Earnings Adjustments

[GSon]

I have a client that failed to deduct the interest expense on a loan over 4 years to the amount of $35,000. Do I have to amend the 3 years of tax returns or can this be an adjustment to Retained Earnings on the Tax Return? They are required to file their Balance Sheet on the return.

 

[GSon]

After further discussion with the client, the loan holder (a shareholder) never reported the interest income on any of his prior returns, since no 1099 was issued.