S Corp

[tonia2021]

I have a client that didn't file the 2553 in the first year. They didn't know if had to be done and assumed the lawyer did it.

We sent in a 2553 and the IRS now accepted it for 1/1/2007 and forward. However, they didn't accept it for 2006 because the 1120S was filed late. The taxpayer did file their tax return as though it was 1120S income.

What should the taxpayer do? Is there a way the IRS would revise the letter we received? Should the taxpayer pay the C Corp taxes and amend their personal return so no 1120 S income shows up on it?

Any advise would be appreciated.

[erchess]

Bump

Not sure, but it sounds to me as though this is a situation where the IRS is following the law. However you might check out TTB on the subject and you might call the author of the letter you got.

If you do end up treating the Corp as a C Corp for 2006 you will obviously have to amend the 2006 1040 but you may also have to amend the 2007 1120S and therefore the 2007 1040 if there were gains in 2006. This is because of the issue of "Built in Gains" which happens when a corp that was a C but is now an S has retained earnings from its time as a C. Of course if the corp lost money in 2006 then "Built in Gains" will not be a problem.

[BHoffman]

You can send in the late 2553 with a letter explaining why the election is late. I think in this case, you might cite Rev. Proc. 2003-43 if it won't fall under 2007-62, but not sure.

Giving you a bump and hoping one of the better researchers will answer.