I have an LLC and have been paying myself (and partner) W-2 wages without an S-Corp filing. Help!

[JacGreene]

I have an LLC with one other partner. We filed for an S-Corp January of 2022. I assumed it would go through and began paying ourselves W-2 wages. I just found out the IRS did not make our S-Corp status eligible until January 2023.  IRS says we are not allowed to take W-2 wages as an LLC but no information beyond that. Please help! 

[Rick19744]

This is too involved for a forum such as this.

You need to meet with a tax professional to get this worked out.

[Mike9241]

first, I do not understand why you weren't granted S-Corp status for 2022. the law gives you up to 2-1/2 months after the start of the year to make the election. you say you filed in January which means unless something was wrong with the election it should have been granted for 2022  or not at all. perhaps it was the IRS that failed to get to the election in a timely manner or you specified the wrong tax year.  

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or could 2023 be the year the S-Corp return for 2022 is due  (3//15/2023). your an S-Corp for 2022.

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before taking any other steps you need to contact the IRS to find out what happened and why. you should have gotten a letter about the S-corp election, so if there's a phone number on it call immediately.

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please post back and let us know what happened and what the iRS said. 

[JacGreene]

Thanks for responding. Yes, it's been incredibly frustrating. I do have "some" answers on this that I should have included.

I sent the form to file for S-Corp in Jan 2022 via Fax with confirmation of acceptance. In June, I received a letter from the IRS stating our signatures weren't valid and we needed to resend the form in again. I responded that they were, indeed, valid signatures but I would send the same form in with new signatures (this was probably where mistakes were made). In NOVEMBER, I received another letter from IRS telling me our S-Corp status will not start until Jan '23 because "I didn't turn the form in its allotted time for 2022". I sent another letter contesting this with proof I sent the form in January and have yet to hear back. I have been unable to get anyone on the phone about this. Today is my first day of diving into our taxes and realizing what a mess this might actually be. I will obviously be going to a tax professional once our W-2s are issued and best-case scenario; the IRS will fix this. But if there is any insight on this forum before either one happens, I would love to hear it. I'm deeply stressed and frustrated by this whole situation. 

Thanks again!

[Mike9241]

this may be a situation where you should contact the IRS Tax Advocate in your state. try calling but they're so swamped you might not get through and it might be an issue that is not currently being handled by phone (taxpayers are still trying to get their refunds from 2020).

you may need to file form 911 (not well-suited for your situation) but the purpose is to get someone to take a fresh look.  

https://www.irs.gov/pub/irs-pdf/f911.pdf 

whether using a professional can get the issue resolved any better or faster than the tax advocate is unknown.