Entity/EIN issue

[JBP]

Looking for thoughts on how to help a brand new client with entity issues:

In 2018 she started an LLC. Later, she got an EIN as a corporation. (With the intention of becoming an S Corp, but the election wasn't filed)
Has paid no wages to herself and has no employees or ind contractors. All of her income is reported on 1099's.

In 2018 her LLC was filed on a Schedule C with no EIN listed. Don't know if 1099's were issued to SSN or EIN.

For 2019, all income will be on 1099's reported to her EIN. Based on her EIN request, the IRS will be looking for an 1120 to be filed for 2019.

However, she acted as a sole prop all of 2019 -- she did not pay wages to herself, and took regular 'draws'.

Her previous tax preparer is saying to just continue to file as a schedule C and the EIN will 'wither on the vine.'
I don't want to do this, since the 1099's are reported to the EIN. Plus, the client is clear she wants to be an S Corp.

It makes sense to me to file her as a Schedule C for 2019 using the EIN, then cleanly set her up as an S Corp for 2020 (using same EIN, making S Corp election by 3/15 and starting payroll asap).

Can we file a Sched C for 2019, then make S Corp election for 1/1/2020 and explain it to the IRS after the fact if they contact her looking for an 1120? Or is there a cleaner way to handle this?

Thank you.

[Lion]

Does she qualify/does she want a late elections? https://www.irs.gov/businesses/small...lection-relief

[JBP]

Thanks Lion.

We could go the late election route, and file as an S Corp for 2019.... my concern is that she didn't pay herself wages.

I'm thinking it makes more common sense to file as Sched C for 2019 using her EIN so the 1099's can be matched in IRS computers, then explain later where the income was reported if the IRS inquires.

Then we start cleanly as an S Corp for 2020. Just not sure if I'm overlooking a better option....?

[Uncle Sam]

Hold it - if the 1099's were issued in the CORPORATE NAME, how can you use the Schedule C to report that income without nomineeing the income to the Corporation, whether C or S?
THEN apply for S status for new year.

[spanel]

Looking for thoughts on how to help a brand new client with entity issues:

In 2018 she started an LLC. Later, she got an EIN as a corporation. (With the intention of becoming an S Corp, but the election wasn't filed)
Has paid no wages to herself and has no employees or ind contractors. All of her income is reported on 1099's.

In 2018 her LLC was filed on a Schedule C with no EIN listed. Don't know if 1099's were issued to SSN or EIN.

For 2019, all income will be on 1099's reported to her EIN. Based on her EIN request, the IRS will be looking for an 1120 to be filed for 2019.

However, she acted as a sole prop all of 2019 -- she did not pay wages to herself, and took regular 'draws'.

Her previous tax preparer is saying to just continue to file as a schedule C and the EIN will 'wither on the vine.'
I don't want to do this, since the 1099's are reported to the EIN. Plus, the client is clear she wants to be an S Corp.

It makes sense to me to file her as a Schedule C for 2019 using the EIN, then cleanly set her up as an S Corp for 2020 (using same EIN, making S Corp election by 3/15 and starting payroll asap).

Can we file a Sched C for 2019, then make S Corp election for 1/1/2020 and explain it to the IRS after the fact if they contact her looking for an 1120? Or is there a cleaner way to handle this?

Thank you.

Very first thing you should do Is get the SS4 and see what the income tax/payroll filing requirements are. LLC does not automatically mean C corp unless she told the IRS so when applying for the EIN.

Chris

[JBP]

Agreed -- the SS-4 was the first thing I asked for. It was filed 9/11/18 as a corporation, and says that an 1120 needs to be filed for 2018.

However, the 2018 tax preparer told her to disregard the SS-4 and filed as a schedule C for 2018.

[AZUKHiker]

SS-4 is not the election for an LLC to be taxed as a corporation. So anything that the SS-4 states other than the EIN is irrelevant. Unless your client filed Form 2553 to be taxed as an S Corp or Form 8832 to be taxed as a C Corp, her LLC is a a single member LLC which by default is disregarded for tax purposes and so reports on Sch C. Prior preparer was correct.