8832 vs. 2553

[mvp2885]

Most of my clients are personal individuals (non-business). Occasionally I get a few single member LLCs. However I got a client who filed her S-corp with a different tax firm who brought a letter referenced 3852C. Basically the IRS still classifies them as an LLC, and never received any election from them to be classified as an S-corp. My dilemma has always been if you are an LLC (single or partnership), to get S-corp status do you only file 2553? Or should the client file 8832 first, then the 2553? Or send both at the same time? The letter says they never received an 8832 and she should send one in. Then it says "you are required to file form 2553, Election by a small business corporation, to elect to classify your LLC to be treated as an S corporation." My EA Gleim book says only 2553 must be filed to elect S-corp status, but then others says 8832 as well. What is the proper steps for an LLC to covert to an S-corp? Thank you in advance for your responses.

[kathyc2]

I think you are confused on what a LLC is. It is the legal framework of the state. LLC does not have it's own tax treatment, although there are default tax treatments based on number of members. IRS is not classifying them as an LLC, but rather a SP as that is the default for a one member LLC. You are not "converting" the LLC to an S-corp. To do that client would need to file corporation paperwork with the state. What you want to do is change the tax classification from a SP to a LLC taxed as an S-corp. Use 2553 to accomplish this, but since it's a late election, you'll need to use one of the Rev Procs for late relief.

[TaxGuyBill]

From the 2553 instructions:

An entity eligible to elect to be treated as a corporation that meets certain tests discussed below will be treated as a corporation as of the effective date of the S corporation election and doesn’t need to file Form 8832, Entity Classification Election.

https://www.irs.gov/instructions/i2553#idm139773190695312

[mvp2885]

From the 2553 instructions:

An entity eligible to elect to be treated as a corporation that meets certain tests discussed below will be treated as a corporation as of the effective date of the S corporation election and doesn’t need to file Form 8832, Entity Classification Election.

https://www.irs.gov/instructions/i25...39773190695312

Thanks for the reply. An example if you don't mind helping me understand this. Client became an LLC on 2/2/18. It's March 1st 2019, and they want to be taxed as an S-corp for the previous year (2018). Even thought its not March 15th yet, they are still making a late election since they are requesting the previous year? Because, and please correct me if I am wrong, but if you are making the election before March 15th of the current year, you will be filing an 1120s in 2020 for 2019 tax year?

[TaxGuyBill]

Thanks for the reply. An example if you don't mind helping me understand this. Client became an LLC on 2/2/18. It's March 1st 2019, and they want to be taxed as an S-corp for the previous year (2018). Even thought its not March 15th yet, they are still making a late election since they are requesting the previous year? Because, and please correct me if I am wrong, but if you are making the election before March 15th of the current year, you will be filing an 1120s in 2020 for 2019 tax year?

The due date is 2.5 months after the START of the year. So if it is a calendar year, the due date for the 2019 tax return (filed early in 2020) was March 15th, 2019. So both 2018 and 2019 would be late.

There is a provision for filing a late election, but that involves that they INTENDED to be taxed as a S-corporation, but had "reasonable cause" for not filing (such as they thought it was already filed). However, if they thought the election had already been made, that means they have been treating it as a S-corporation, including being on payroll (along with payroll returns) and filing any tax returns as a S-corporation. If those were not done, it probably does not qualify for the late election.