C corp by default

[oceanlovin'ea]

How would I do that? I faxed the completed 2553 and the statement of reasonable cause this morning to the person I talked to yesterday.

Do I write another statement of reasonable cause? Do I fax that one to the fax number or just mail it in to Ogden?

I appreciate your help. I really would like to be able to file an 1120S for her.

Would I go ahead and file the 1120 so that there would be no late penalty? Then amend if we get the approval.

Linda F

[Vgene]

Try again

I believe you have a valid reason for the late filing of the 2553. You have a client dependent upon a tax professional that let them down. Take a look at Rev Proc 2003-43 it gives some guidelines for late filing. (If you use Lacerte, a Rev Proc entry section is available as part of the regular 2553 application.) We have had excellent success in filing way late for various reasons under this Rev Proc. Do not take what some IRS representative said on the phone as the final answer.
Good Luck

[oceanlovin'ea]

One of the new clients I inherited from a friend who has retired from the tax business is a lady who does painting. She and her boyfriend incorporated in November 2005. She sent in the election to be an s corp in Oct of 2006 and requested s status back to Nov 2005. They sent her back a letter stamped Oct 30,2006 and said she could start the s corp as of 1/01/06. They sent the 2553 back to her because she and her partner did not sign where the officers are supposed to sign. She took this to the other accountant, BUT the other accountant never did anything with it. When she brought the files to me last weekend, I found the letter. I called IRS yesterday and the election can start 1/01/07 now. I can't go back to 2006. Time has expired. So I will have to do the return as a c corporation for 2006. That is going to hurt her BAD.

I have only done 1 c corp before and it has huge losses every year. I read what is in the TaxBook about corporation returns. I want to make sure that I am doing this correctly. I don't want to make matters worse for her.

She had gross income of around $25,000 and expenses brought it down to net income of around $14,000. She has to pay corporate tax of around $2000 on that money. Then you deduct the corporate tax paid from net income. She is a CASH basis business. I mean totally cash basis - no bank account. So all the profit would be considered a distribution. Is that correct? So the distribution would be around $12,000.

That will mean that she will have to pay a couple hundred dollars of personal income tax.

Am I figuring this correctly? Am I missing anything?

Thanks for your help.

Linda F