S corp status

[oceanlovin'ea]

Client set up a corporation in fall of 2004, although I didn't know anything about it. They did the incorporation on line and that is all that they did. Did not get Employer ID number, didn't apply for s status, didn't open bank account in corporation's name.

Continued to operate business as they had been as a partnership. That is how I filed tax returns for 2004 and 2005. Very informal partnership - did Schedule C's for both individuals.

I am going to get their EIN, they are going to open bank account in corporation's name and operate under the corporation starting 1/1/06.

I realize that I need to file 1120 and F1120's for both tax years with zeros as income and expenses since the corporation did not do any business.

My question is regarding the S status. How do we get relief for late S elections? From what I have read, it talks about filing returns in different situations - all of them as corporations doing business. But this corporation did not business.

I sure need some help and guidance. All help will be appreciated.

Linda F

[Bird Legs]

Linda-In what

state did they incorporate? There probably will be some kind of report to be filed in that state. In addition to paying an annual fee, whether or not they did business there.

If the state of incorporation is not the home state, and they did not apply for a certificate
to do business in the home state, probably nothing needs to be done. Just file as in the
past.

[oceanlovin'ea]

Florida

They incorporated in Florida. Do I need to file returns for the past years with zero income?
Since S status was not applied for, do I go ahead and file 1120s and F1120S?

[JON]

Start doing business

When you start doing business as a corp or have assets kicks it off. Elections 351or other may be required-who is doing the incorprating. S election filed at the same time. Within 2 and 1/2 months of start.

[Unregistered]

S corp

Hmmm, it's 75 days I do believe versus 2 1/2 months. anyway.

Linda, just let sleeping dogs lie as regards 2004 or 2005 returns. After all, the
corporation never was "perfected". but be sure to file the form 2553 by
75 days into 2006.

ChEAr$,
Harlan Lunsford, EA n LA

[Unregistered]

Why not just file C corporation returns with zero income or expenses for back years, then elect S status starting 1/1/06?

[oceanlovin'ea]

Can I do that?

Can I file C corp returns with zero income and then send in the 2553 to start s status as of 1/1/06?

Can I mail the 2553 now or wait until first part of January?

You have all been a big help. I wish people would say something to us BEFORE they do things like this.

Linda F

[Unregistered]

When to start

I see you said you "were going to get the corporate EIN", meaning you hadn't gotten it yet.

When you do, be sure to indicate on the application 1/1/06 as beginning date. Since the
corporation didn't have assets in 2004 or 2005 , nor do any business, no need for coporate
returns. However, some i's should be dotted and some t's crossed. A lawyer might be consulted to make sure the paperwork is in order for the corporation to officially continue the business of
the old organization, viz. first meeting of shareholders, etc.

You can get the EIN online as you probably know, so after you have it, and after 1/1/06 (don't confuse the IRS) then send in the 2553 before the 15th day of the third month (not 75 days as
I thought above).

ChEAr$,
Harlan Lunsford, EA n LA
(LA is just north of UF)

[Armando Beaujolais]

Client set up a corporation in fall of 2004, although I didn't know anything about it. They did the incorporation on line and that is all that they did. Did not get Employer ID number, didn't apply for s status, didn't open bank account in corporation's name.

Continued to operate business as they had been as a partnership. That is how I filed tax returns for 2004 and 2005. Very informal partnership - did Schedule C's for both individuals.

Linda F

Corporations are required to file tax returns whether or not they have taxable income (unless the corporation is exempt). The filing requirement for a corporation is if the corporation is "in existence." One of the definitions is that the corporation is formed under a state law that refers to it as a corporation.

It's true that probably nothing will happen if you pretend the corporation didn't come into existence until 1/1/06, especially if there hasn't been an EIN number applied for. There was no income, and any penalties you'd be looking at would come from a balance due. But I agree that the proper thing to do would be to file as a C corporation for 2004 and 2005. Report zero income, maybe include a statement so they don't get confused down at the IRS. Then start up 1/1/06 as an S corporation.

Not that I want to stir up anything (of course I do), but I believe this is a great example of why you should file a partnership return if you have a partnership instead of filing Schedule C's. Once you start filing a certain way because it seems easier, you can get locked up in it. You had a partnership in 2004 and 2005, but they incorporated, but you filed them as sole proprietors. Now you have a third business entity in the mix. What happens if one of them says "I thought we were operating as a corporation. I want to file that way."?

They incorporated. Maybe they thought they were a corporation. What happens if there's some liability exposure. Are they a corporation or a partnership or sole proprietors? What happens if they stop getting along and one or both decide they want to be hard to get along with and cause trouble? Problems like those are not uncommon. Decide which way you belive the returns should be prepared and do it that way. Don't leave anything up in the air, and certainly don't leave yourself hoping that all goes well with the partners.

What happens if they get sued? How about if there's a question about whether they were actually a corporation with liability protection? How about if a court finds that one of the reasons they're personally liable is because they were not operating as a corporation because they didn't file as a corporation?

Then then one guy points at the other guy and says "He's liable. We didn't have a partnership after all."

Then everyone turns and looks at you.

I know that we're called upon to clean up stuff like this. I've had lots of clients drop that bomb, after you're finished with their return they say "Where on that Schedule C does it say I'm a corporation?" You can't do anything about it if you don't know anything about it. But once they told you, then you're on the hook. I recommend crossing the T's and dotting the I's so if something happens down the road, you're safe.