Inherited Business: Determining Revenue & Scale
Understanding your inherited business's revenue helps you assess what level of tax expertise you need. Start by reviewing recent financial statements or tax returns.
Prior tax returns are the starting point. A CPA will request copies of the business's prior-year tax returns (Form 1120, 1120-S, 1065, or Schedule C) directly from the IRS using Form 4506-T. These returns reveal reported revenue, expenses, and the accounting method used. You can authorize this request as the estate representative.
Bank statements fill the gaps. If tax returns are unavailable or unreliable, the CPA will reconstruct revenue from business bank account statements. This forensic approach takes time but establishes a baseline for future compliance.
Revenue determines your compliance obligations. The accounting method, estimated tax requirements, and even which tax forms apply all depend on the business's gross receipts. Until revenue is established, your CPA cannot advise on entity elections or filing strategy.
The pitfall: Guessing at revenue and picking the wrong compliance path can trigger penalties. It is better to tell your CPA "I don't know" and let them reconstruct the picture from source documents.
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This guide cites 3 primary sources. All factual claims are traceable to the sources listed below.
- IRSIRS: About Form 4506-T, Request for Transcript of Tax Return — Requesting transcripts of prior business tax returns from the IRS
- IRSIRS: About Form 1065, U.S. Return of Partnership Income — Partnership income reporting and revenue disclosure
- IRSIRS: About Form 1120-S, U.S. Income Tax Return for an S Corporation — S-corporation income reporting and revenue disclosure