Schedule C to S corp

[oceanlovin'ea]

New client came to see me. He set up an LLC in 2009 and filed as a Schedule C. Business really picked up in 2010 (at least in the first 6 months of the year) and he will have much higher self employment income. He now wants to be an S corporation.

I know that in the first year if you have not filed for S status, you can file when you do the timely filed return. But this is not actually the "first year of the business". Technically last year was the first year of the business.

Is there some exception that will allow him to elect to be taxed as an S corporation for 2010 at this point in the year? I could not find anything that addressed this situation exactly.

Thanks

Linda

[erchess]

Rev Proc 2003-43

Check out TTB SB Ed 19- 4-5 I think this one would apply.

Also, what would you do if the LLC did not exist and a guy who filed Sch C last year wanted to become an S Corp for this year? Is not an LLC a "Disregarded Entity" and doesn't that mean literally the IRS does nothing differently on account of its existence? If I'm right then there's nothing special about your case or am I missing something?

I'm below average for this board in my knowledge of S Corps but I am under the impression that the IRS is very user friendly toward S Corp wanna bees whose owners are correctly paying their taxes as S Corps. In particular I have found that "taxpayer misread Pub whatever and overlooked need...." and "We can't prove it but we think the form was mailed timely and here is another copy...." and even "Both taxpayer and professional overlooked filing of this form among all the complications of the tax code." have flown as reasonable explanations of failure.

[ChEAr$]

Linda, I think he's stuck for this year. Anyway, it's almost over, and even if he could miraculously change the treatment of the LLC to that of S corp status, there's still the issue of reasonable compensation paid to him for the whole year. It would take one heck of a paycheck in December to make up for that issue, n'est pas?

Get the form 2553 ready for him to send in first thing on January 3.
And make sure he sets up periodic salary to himself so that he's off on the right foot.

[oceanlovin'ea]

convert draws to payroll

He has taken draws from the business so they could be converted to payroll and the payroll taxes paid to take care of the reasonable compensation issue.

In regard to Erchess reply, under Relief for Late S Corporation Elections - Revenue Procedure 2007-62, it would seem to me that this entity would qualify for relief and be able to be an S corp.
1) Fails to qualify as an S corporation solely because Form 2553 was not timely filed.
2) has reasonable cause - other accountant didn't tell him to do it.
3) has not filed a tax return for the first taxable year in which the election was intended - 2010 is the first taxable year they intended to be an S corp.
4) request filed no later than six months after due date of the tax return (not filed yet)
5) no reporting inconsistencies.

So It would seem to me that they could file the Form 2553 for 2010. If I am wrong, please tell me why and where this case is different.

Thanks.
Linda

[Lion]

Form 2553

He can send in Form 2553 now and choose 1 January 2011 as the effective date.

[erchess]

Linda, PM Someone

Maybe more than one person.

Bees, NYEA, Harlan, Veritas, or whomever you think to be the top of the heap on this board. I don't know anything about S Corps that I didn't read in TTB or other basic reference works and we have people on this board who can intelligently read the Code and other primary authorities for tax law. My point is simply that I don't think you should rely on a simple reading of TTB that was inspired by me when Harlan differs and no one else weighs in to agree with me.

[BOB W]

This is what TTB says:

Problem:

Entity did not elect
to be taxed as a
corporation and did
not file S election.

Solution:Can file if

Within six months after
return due date, not
including extensions.

Looks like too much time has passed. Make the election for 2011.

Something that bothers me for 2010 is, since this is the first year you want to be an SCorp would not that count to be eligible to attach the 2553 to the 2010 1120S tax return?

[oceanlovin'ea]

gone for 1 week

I will be gone for a week. We are going on a cruise!!!!! to where it is warm. (having a cold snap in Florida).
So hopefully by the time I get back some others will have posted and I will have an answer to give to this man.

I really appreciate all the input I get from all these brilliant minds on this board.

Linda

[JohnH]

What line and where are you going? We just got back last Sat from a Thanksgiving cruise on Celebrity Century. Had a nice visit to Roatan and a wonderful beach getaway at Cozumel, plus two days at sea. Have fun!

[oceanlovin'ea]

Royal Caribbean

We are going on Royal Caribbean Freedom of the Seas. We go to Cococay, which is RC;s private island, St. Thomas and St. Maartin. We have been to St. Thomas twice before and St. Maartin once before.
We have 4 couples that are going. We all went together 3 years ago. One couple wanted to go on the Freedom so that is what we are doing.
I would like to see Roatan. Pictures I have seen look amazing. Next time we really want to do a Southern Caribbean cruise. That is really something else.

Linda

[JohnH]

Coco Cay has an interesting history (at least for us) and some special memories for my wife and me. We went there on our very first cruise back in the late 80's. At that time it was called Little Stirrup Cay and it was Admiral Cruise Lines' out-island for the Emerald Seas. I remember parts of an airplane underwater where we were snorkeling - I assumed it was placed there for show. The day was so relaxing that every other cruise we've been on has been a search for a similar experience. Megans Bay in St Thomas came close to being the same.

Hope you all have a great time - nothing beats being pampered for a week.

[oceanlovin'ea]

Emerald Seas

Oh my goodness! I haven't heard that name in forever. Our first cruise was in the fall of 1973 or 1974. We were on the Bahama Star and the Emerald Seas was the sister ship of the Bahama Star. We went to Nassau and Freeport, no other island. 2 days in Nassau and 1 in Freeport.
We had the best time on that cruise. We were sleeping in the engine room, but were only there to sleep. The hum of the engines put us to sleep. We were just saying tonight that we thought the food on the Bahama Star was the best we have ever had on a cruise.
My daughter has been on 2 Celebrity cruises. They really like that line. 2 years ago in January we gave them a cruise on the Solstice for their 10th anniversary. Actually, we just added some money to what they had so they could go on the Solstice. They had a great time. Really loved the ship.
I'll update you when we get back.

Linda

[oceanlovin'ea]

Back to the COLD!!!!!

We got back yesterday to very cool weather. Today the high will not even reach 50. I can't believe it. Cruise was great, except for rough seas we didn't get to stop at Cococay. Were really disappointed about that.

Back to the S corp. I emailed Beanna Whitlock to ask her opinion. She said if he acted like an S corp all year and the only reason he isn't is that the Form 2553 wasn't timely filed, he can still file as an S corp and write across the top of the return "pursuant to Rev Proc 2003-48. Also attach the 2553 completed.

I asked her opinion about the payroll issue. I am waiting to hear back from her about that.

Linda

[veritas]

look at

Rev Ruling 2009-15.

[veritas]

on the wage issue

I think if you try to characterize distributions from earlier in the year as wages in the 4th qrt you potentially could have problems with the tax deposit rules.