S corp vs Sch C

[Unregistered]

Can a Sch C taxpayer elect to be taxed as a S-Corp for 2005 tax year

[Bill Tubbs]

Nope

Can a Sch C taxpayer elect to be taxed as a S-Corp for 2005 tax year

IF taxpayer was an LLC, then S-Corp status can be elected. But I believe it is even too late to get S-Corp status for 2006.

Bill

[Unregistered]

Sch c vs S corp for 2005

In order to be a corporation, a filing must be made, usually with the Secretary of State's office of the state, establishing the corporation and then the election made to be taxed as an S corp. Since 2005 has already passed, I do not think that there are provisions for establishing a corporation retroactively. Of course, states vary in their procedures.

[Matt Sova]

Wrong and wrong

There is no requirement that the entity be an LLC or file Articles of Incorporation. See Rev Proc 2004-48 on 19-4 to 19-5 of TTB and TTB page 18-13.

A business entity that is not a corp can make the election to be taxed as a corp by filing Form 8832. Once made it can be a C-Corp or elect S-Corp status. That is on page 18-13.

File the 2553 under Rev Proc 2003-43 and I don't believe you have to file the 8832. Read the Rev Proc and follow the procedures. You can easily elect all the way back to 1/1/05.

Matt

[OldJack]

You can easily elect all the way back to 1/1/05.

Matt

However, be aware that the IRS might not approve your late election and then you have amended returns to prepare for 2005. It should be obvious or you should be prepared to justify that your purpose for electing S-corp status is not simply to avoid self-employment tax.

[Gretel]

OK now we have the IRS side presented.

But why in the world would anyone like to be taxed as a corporation if, at the same time, the liability protection is not there? The liability protection comes through the state filing only.

[Bill Tubbs]

learning every day

There is no requirement that the entity be an LLC or file Articles of Incorporation. See Rev Proc 2004-48 on 19-4 to 19-5 of TTB and TTB page 18-13.

A business entity that is not a corp can make the election to be taxed as a corp by filing Form 8832. Once made it can be a C-Corp or elect S-Corp status. That is on page 18-13.

Well, that's 2 things I've learned today. I had been under the impression that a sole proprietor (non-LLC) was stuck with Sch C, but I can't find anything that restricts this. So, apparently a non-LLC sol proprietor can elect Corp.

File the 2553 under Rev Proc 2003-43 and I don't believe you have to file the 8832. Read the Rev Proc and follow the procedures. You can easily elect all the way back to 1/1/05.

http://www.unclefed.com/Tax-Bulls/2003/rp03-43.pdf

Section 2.01(1) says that elections can be made through March 15th, 2006 for the 2006 calendar year. Section 2.01(2) covers late elections -- it "...the Secretary determines that there was reasonable cause for the failure to timely make the election, the Secretary may treat the election as timely made..."

So, Matt, apparently you have had success in getting late elections under this Rev Proc? Any stock verbiage that you use? I have a LLC that formed last year (I didn't know that happened until late March) and, after I discuss the various business structures with the owner, may end up filing a late election.

Bill

[OldJack]

But why in the world would anyone like to be taxed as a corporation if, at the same time, the liability protection is not there?

You are correct that there is no liability protection here. To try to avoid self-employment tax on profits in the S-corp. Note also that late election means the S-corp paid no W2 wages to the officer/owner and therefore has a problem of possible audit as that is where the IRS is zeroing in.

BTW I fight with the IRA and am not with the IRS, therefore I don't try to present their side. My position with the IRS is that the individual income tax should be abolished as it is mental masturbation for the public to have to prepare tax returns with todays tax laws.

my 2¢±¼

[Matt Sova]

Stock letter

Dear Sir or Madam:

When I began operating my business as an S-Corporation on January 1, 2005 I was unaware of the filing requirements to be taxed as an S-Corporation. It was not until recently that I had a chance to seek out a professional to help me with the paperwork. I am filing the attached Form 2553 pursuant to Rev. Proc. 2003-43.

Due to the fact that the only reason I would not be eligible for S-Corporation status is the late filing of form 2553, and the due date of the 2005 1120S has not passed, I ask that you please accept my corporation as an S-Corporation as of January 1, 2005 pursuant to the aforementioned Rev. Proc.

Under penalties of perjury, I declare that, to the best of my knowledge and belief, the facts presented in support of this election are true, correct and complete.

Sincerely,

The above letter has worked EVERY time. Well, every time but one where the person that got it put the election in place for 05 instead of 04 as requested. A quick call to the practitioner priority line and it was taken care of.

I have NEVER had the IRS deny an S election. Never. I am not talking 2 or 3 here, I have probably done about 30 late elections with about 5 or 6 after the year had ended.

Matt

[OldJack]

I have probably done about 30 late elections with about 5 or 6 after the year had ended.

Matt

That is amazing Matt... way to go!!!!

[veritas]

Here's what I use;

I incorporated in the year 200? with the assistance of my overpaid attorney who negligently failed to prepare my S-Election. Please excuse my ignorance in not retaining someone with a clue.


Sincerely,

[Gretel]

I can see that it will work for an C-corporation, which has done business as a corporation already.

How can it work for a taxpayer who didn't do business as a corporation. Namely having a corporate bank account and using the corporation name in doing business. How could you be a corporation if you don't act like one?

[Bill Tubbs]

Sweeeeeet!

Dear Sir or Madam:
...

The above letter has worked EVERY time. Well, every time but one where the person that got it put the election in place for 05 instead of 04 as requested. A quick call to the practitioner priority line and it was taken care of.

I have NEVER had the IRS deny an S election. Never. I am not talking 2 or 3 here, I have probably done about 30 late elections with about 5 or 6 after the year had ended.

Matt

You da man, Matt! I'll likely be trying out that letter in a month or two here on one particular client.

Thanks!
Bill