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S-Corp Election Acceptance / Late - Filing Question

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    #1

    S-Corp Election Acceptance / Late - Filing Question

    For 2021, SMLLC reported all on Sch C as in the past. Filed Form 2553 for S-Corp Election in Oct. 2021. Took eight months till a response was received in late May 2022 indicating acceptance of the election as of 1/1/2021 and for the accounting period ended 12/31/2021. Again, acceptance was not received until May 2022. In the meantime, Form 1040 w/ Sch C was filed in March 2022 with all income and expenses as no knowledge if acceptance would take place and given the significant IRS delays. So, question now is 1) Go back and file the 2021 Form 1120S with all $0 indicated and include a note of what happened, or 2) File 2022 and indicate as the "Initial" return?

    The first scenario seems correct but then I'm sure a failure to file letter and penalty will be in the mail. The second scenario is easier. Just wondering if I'm opening up the can if a 2021 1120S is filed.

    Any thoughts much appreciated.
    "The hardest thing in the world to understand is the income tax" - Albert Einstein
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    #2
    Neither?

    They filed the late election in October. Was that a late election for 2021? Or did they mistakenly mean to elect for 2022?


    Assuming they were doing a late election for 2021, they told the IRS they were treating the business as a S-corporation for all of 2021 and made that election. They should not have filed Schedule C.

    They should properly file a 2021 1120-S (yes, there will be late filing penalties) and amend the 1040 to remove the Schedule C.


    As a side note, if they were intending to be taxed as a S-corporation for 2021, were they on payroll?




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      #3
      The election was meant for 2021 but no payroll. For 2022, no salary for the owner but they plan to issue a 1099 tomorrow as a portion for salary (Yes, I know, not the proper way). I'm inclined to advise to submit a statement of revocation to the service center where the annual return is filed and state the corporation revokes the election made under Section 1362(a). Thoughts? Will that even further mess up everything?
      "The hardest thing in the world to understand is the income tax" - Albert Einstein

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        #4
        If the election was meant for 2021 and it was accepted, it should be filed that way.

        A revocation would make it taxed as a C-corporation. I suspect that isn't what you want.

        A revocation would start for 2023. That's not going to change the 2021 and 2022 returns.

        Comment

          #5
          Ok, point noted on that. Thanks so much.
          "The hardest thing in the world to understand is the income tax" - Albert Einstein

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