About my S Corp tax return got rejected in 2020

[kiddkevin01]

Hi,

My S election got revoked in 2020 by someone or some company sending a letter to revoke my company on behalf of me without my knowledge and I am the sole owner of my company. Hence, I filed my S Corp tax return and got rejected in 2020 as a paper filing (not e-file). I have filed a new 2553 S election to IRS and now waiting for them to restore it. Once my S election is restored (ideally), I will file a 1120-S for 2020.

My question is "will I need to pay for the 2-years delay penalty for my 2020 business tax return"?

[Mike9241]

you may have other issues.  once an S-corp election is revoked, it's normally 5 years before it can re-elect.   if you just mailed in a new election without explanation, the IRS is likely to reject it. even with an explanation, the IRS may reject it. then there is the 2021 return. if the election is rejected you probably will have a late filed C-corp return. any net income would be subject to tax. in addition, late filing and payment penalties would apply. depending on what happens there could also be issues with your 1040 for 2020 and 2021. you'll have to wait to see what happens. if it's not as expected, seek the services of a tax pro. 

[Critter-3]

Maybe they will bill you and maybe they won't ... but if they so you can ask for a waiver for cause ... keep accurate records of what happened and when and good luck. 

[kiddkevin01]

Thanks for answer! That's really helpful. I did mail it with an explanation that someone filed it on behalf of me fraudulently. And I did keep accurate records of what happened and when. 

Would you suggest me to create a new S Corp and dissolve the existing one to avoid further damage in 2022 and forward?

Lastly, what is the services of a tax pro? Thank you so much!

[Critter-3]

Well it really depends ... did you pay yourself wages as required and been filing the quarterly payroll tax returns timely?   If not then the S-Corp status is really not needed ... simply file a Sch C instead and "close" the corporation by filing a first and final corp return.   

[kiddkevin01]

Yes, I have been filing the quarterly payroll tax returns timely to pay myself for more than 2 years (940/941). And I have compared S Corp vs C Corp each year and concluded that S Corp can save me significant amount of tax.

[Critter-3]

Then keep fighting for the S-Corp status ... opening a new S-corp and closing the other is an option just remember to file the 2553 form timely and get your payroll updated with the new EIN and set up with the state if needed.     https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations