S Corp Late Election

[KC-CPA]

I have a new client who has the following:

Established Business (2 member LLC) in October of 2016.

Filed SS 4 for EIN and received EIN in October 2016, Assignment EIN Letter stated number assignment and based on information received expect Form 1065 to be filed by 03/15/2017.

Their income over the last two years (2018 and 2019)has been $150k and $220k. They filed as a partnership (Form1065) in 2018 and prior years. They do NOT have any official payroll or a salary for themselves or their business but do have partner draws.

They really should be filing as an S Corp for tax savings and now realize this and I plan to move them to an S Corp in 2020.

Here is my question, is it possible to file them as an S Corp in 2019 and what would be the requirements/criteria to get this accomplished. I do not believe they have the ability to that even with an S election but then I read about late S Corp elections for up to 3 years that can be achieved.


Here is my question, is it possible to file them as an S Corp in 2019 and what would be the requirements/criteria to get this accomplished.

[TaxGuyBill]

No, you can't do it for 2019. Even 2020 is questionable.

The "relief" is for if the election is accidentally filed late. It is not because you decided after-the-fact it would be a good idea.

The LLC must have intended to be taxed as a S-corporation as of the starting date. Intending to be taxed as a S-corporation means they would have been TREATING it like a S-corporation, including payroll. They also must have "Reasonable Cause" for filing late.

https://www.irs.gov/instructions/i2553#idm139773190562656

[Sparky]

I agree. I had a similar situation where the LLC started paying himself a salary and treating the business as an S Corp. We filed for late consideration because there was good cause. (business exploded in a positive way and mother died unexpectedly) In fact it took months and months to finally get word that the S corp status was approved - Jan to June I want to say.

So we filed an extension for his disregarded entity because the S corp was not approved by April 15th last year. I know I research what extension he should be filing, and the IRS still sent him a penalty for not filing an S Corp extension. So then there was that. For the life of me, I cannot re-locate that regulation about the extension.