First S corp return, with late response to form 2553.

[Confused605]

Hello!

Started LLC in August 2021.

S election(2553) sent Oct 2021. (no business income yet), (first dollar made mid December 2021, total rev in 2021 =8500).

With still no response from IRS no payroll was ran (first paycheck would have been paid January 2022 anyways). Per IRS over the phone in December 2021, "do not treat your LLC as an s corp until we approve you."

No response  until Mid-Late February 2022(approved- with effective date of 08/2021).

By this time my 1040 with schedule C (8500 in revenue) was filled. 

2553 instructions state to file required tax forms while waiting for response.

took that as: file personal taxes due in April since you haven't heard back. 

Also the IRS over the phone stated in end of January 2022 that it could be several more months before I would have their response to 2553.

So now I'm disposing of my schedule C on 2022 1040 with an asset disposal date of 1/01/2022 and moving depreciated assets to 1120s, and showing no income or deductions on schedule C 2022. Stating incorp date on 1120s as Aug 2021, with Aug 2021 as effective date, checking the box saying this is my first scorp return for the business. Am I going to die?

Facts: 1 employee shareholder(CEO), with 91k in wages for 2022, total rev =200k in 2022.

[Mike9241]

No response  until Mid-Late February 2022(approved- with effective date of 08/2021).

see a tax pro because you have income tax issues.  you rushed to file your 1040 for 2021 (not due until 4/15/2022) which is incorrect because the S-Corp status was approved in plenty of time to file an S-Corp return and include the k-1 on your 1040.  right now the 2021 return is late and late filing penalties are about $2400. though the IRS is generous about abating first-time penalties.  this might actually save you some taxes because with Schedule C net income you paid social security and medicare taxes but probably took an incorrect amount for the QBI deduction. the 2022 S-Corp return is due about 3/15/2023.  can't see your returns but by filing schedule C there may be other erroneous items on your return 

[Confused605]

Hey thanks for the response! What do you make of this on the 2553 instructions though?

“Do not file Form 1120-S for any tax year before the year the election takes effect. If the corporation (entity) is now required to file Form 1120, U.S. Corporation Income Tax Return, or any other applicable tax return, continue filing it until the election takes effect.”

Definitely get your point and have heard it elsewhere. I have yet to find this rule in the tax code that covers late penalties surrounding these types of  conversions with significant delays from the irs involved.

The 2021- 1040 was sent timely I’d say, not really rushed(especially with the propaganda during the time with delays in processed returns/refunds). The reason the 1040 was filled was  because the backlog at IRS and was working on their advice. I’m thinking of pushing through an extension for 2022- 1120s before I do anything. This may trigger a response from them requesting what happened to 2021… The last thing I want to do is send out an amended 2021-1040, late 2021- 1120s, and 2022 -1120s. This will be too confusing for them. 

Thanks again for the input!

[AliciaP1]

As Mike9241 posted, you would probably do best to seek a tax professional in your area for help. 

In my experience, once you file to elect to be considered an S-Corp for tax purposes you should operate your business like an S-Corp and file all applicable tax forms timely.  So, I agree with Mike9241 in that you should have filed your Form 1120S for a short year (8/2021 - 12/2021), your 2021 1040 with no Schedule C, and you would then be set to file your 2022 1120S.  Sending amended and late returns does not confuse the IRS.

@Confused605 

[Confused605]

Thanks! Unfortunately CPA's and lawyers read from the same tax code that I do and they haven't been able to answer the questions I've had for them in the past (so I'm on my own, plus you guys 😉 ). The IRS isn't some scary government entity, they are nice people (when you aren't trying to break the law). Since the rules say they had 60 days to respond to the 2553 I should be in the clear and be able to argue the case. Especially after following their guidance to not file a 1120s until I am accepted (told me this in December 2021, January 2022 and February 2022), with no mention of filing an extension for the first year. Wish me luck! It would have been best on their part to reject my 2021 1040 schedule C and send a letter stating that this entity (EIN) is taxed as a s corp 😕 Lots of gray areas here. Truly appreciate input from all!

[serene_0121]

HI Experts ,

If I may ask a related question . I did not get a response to my first 2553 from 5 months ago ( October 2022) . I did get a mail from IRS  regarding signature of shareholders  which I replied 2 months ago (January 2023) . 

Can I resend 2553 as late election along with my 1120 S filed through  Turbo tax even though I am waiting on approval for the initial filing ?  Or is there a better approach  than refiling 2553? 

TurboTax automatically add   "FILED PURSUANT TO REV.PROC. 2013-30' for late election  on S Corp status 

I adding the reason - "Information necessary to make an informed decision about entity status was not available at the time of tax filing . "

Should I include any additional details  to reason for late election - ?Should I also mention my  initial 2553  filing  did not get a response  and include the letter reference from IRS  ? 

[RobertB4444]

I would file an extension and wait for the approval from the IRS before filing.

Your way might work fine, and your way might cause an issue with them trying to find a different form.  Always best not to confuse the IRS.

If you insist on filing now then file by mail and include a letter of explanation.

@sebikjose