Category: S-Corp Taxes

Planning and preparing S-Corporation tax returns

  • NEW S-Corp Late Filing Election Procedure

    Filing a late S-Corporation Election is now much easier and has a longer or no deadline for many filers. Previously, if a business intending to be taxed as a Sub-chapter S Corporation failed to to file a timely election, but proceeded as one, relief from this mistake was potentially possible under a few Revenue Procedures (Rev.Proc. 2003-43, 2003-1 C.B. 998; Rev. Proc. 2004-48, 2004-2 C.B. 172; and Rev. Proc.2007-62, 2007-2 C.B. 786), though it was rather unknown and obscure. I had detailed one such method earlier.

    However, this is all superseded by the new Revenue Procedure 2013-30. I’ll lay out the new guidelines as to who qualifies, how to apply, and what deadline, if any, applies.

    GENERAL REQUIREMENTS

    1. Intended to be classified as an S Corporation
    2. Relief requested within 3 years and 75 days after the Effective Date. This is essentially the day that if the filer had timely filed that the election would have gone into effect. However, see below for an important exception to this deadline.
    3. The failure to qualify as an S Corporation is solely because the election was not filed. In other words, the company must meet all other qualifications and must be acting as an S Corporation.
    4. Reasonable cause for filing to make a timely election and due diligence to correct the error upon discovery must be present. This can include a mistake upon the part of an employee or another entrusted to file the correct paperwork.
    5. No deadline applies if:
    • The corporation is not seeking a late corporate entity classification election;
    • The corporation fails to qualify as an S corporation solely because Form 2553 was not timely filed;
    • The corporation and all of its shareholders reported their income consistent with S corporation status for the year the election should have been made and all later years;
    • At least six months have passed since the corporation filed its first S corporation year tax return;
    • The IRS did not notify the corporation and the shareholders of any problem with the S corporation status within six months after the return was filed; and
    • The completed election form includes statements from all shareholders from the date the election was to have been effective to the date of the filing stating that they have reported their income consistent with S corporation status.

    HOW TO FILE

    Complete Form 2553. Include “Filed Pursuant to Rev. Proc. 2013-30” at the top of the form. An officer and anyone who was a shareholder from the Effective Date until the Form 2553 is completed must sign. Include signed statements from all shareholders that all income was reported consistent with the S Corporation election since the Effective Date. The statement indicating the reasonable cause must include this language:

    “Under penalties of perjury, I (we) declare that I (we) have examined this election, including accompanying documents, and, to the best of my (our) knowledge and belief, the election contains all the relevant facts relating to the election,and such facts are true, correct, and complete.”

    Those also seeking late corporation classification must include further statements relating to that relief.

    Current Year 1120S
    File Form 2553 with the current year 1120S.  State “Includes Late Election Filed Pursuant to Rev. Proc. 2013-30” at the top of the Form 1120S. If you are subject to the 3 year and 75 day deadline, be aware that an extension of time to file the 1120S does not extend the time under this Revenue Procedure.

    Late- Filed Prior Year 1120S
    File Form 2553 with the late-filed returns. All overdue returns must be included. State “Includes Late Election Filed Pursuant to Rev. Proc. 2013-30” at the top of the Form 1120S. Again, the 3 year and 75 day deadline, if applicable, is not extended.

    Form 2553 Filed Separately
    Form 2553 can be mailed alone to the applicable IRS Service Center.

    If this Revenue Procedure does not apply, relief may still be possible through a letter ruling. Consult a tax professional for help if you need to go that route.

  • Beware the IRS Mistake in Your Favor

    According to the National Association of Tax Preparers newsletter, the IRS is issuing refund checks to certain taxpayers …. by mistake! I wouldn’t cash that check you receive (without checking with me or another tax preparer) if the letter that came with it says, “We changed the amount of self-employment tax on Line 56 of your Form 1040 because there was an error on Schedule SE, Self-Employment Tax.”

    The IRS seems to have been making an incorrect calculation in tax returns filed like these:

    • Multiple Schedule C filed
    • Schedule C and an S-Corp K-1
    • S-Corp K-1 with health insurance premiums paid by the S-Corp

    There may be other situations that are triggering this mistaken refund check even though the IRS says they have fixed the error. Keep an eye out and this time, do look a gift horse in the mouth!


  • Late Filing Your S-Corp Election Part 1

    Did you just realize that no one filed the one piece of paper that changed your C-corporation or LLC into an S-corporation?

    The election to S-corp should have been filed the year before it applies or within 2 months and 15 days into the year it applies So, if you are an existing calendar year business, file Form 2553 by March 15, or better yet, the year before. If you are a new business, it needs to be filed within two months and 15 days of the first tax year. For example, if you started your business July 1, file by September 15. But that’s probably all past history. You missed those deadlines, so now what?

    Well, there is actually a rare second chance to get the S-corporation election right. How you file does depend on certain conditions and you do need to have a good reason why the S-corp election wasn’t filed or filed correctly. In this first article about late filing S-Corp elections, I’ll cover IRS Revenue Procedure 2007-62 and who can use this very simplified method for obtaining relief.

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