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Filed 2553, but not sure if we should act as S-Corp

Technical topics regarding tax preparation.
#1
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I have a client who decided in April 2021 that they wanted to bring in a new shareholder on July 1, 2021 and move from a partnership to an S-Corp. Their year end is 12/31. I filed the 2553 in April & requested consideration for the late filing (rev proc 2013-30). As you would imagine, we still haven't heard anything from the IRS here in June 2021. My client is very anxious about whether or not they'll be granted the S-election for 2021 as that will affect the deal with this new S/H.

If read numerous anecdotal stories about CPA's filing the 2553 timely and then immediately beginning that client on payroll & then filing the 1120-S despite not having heard anything from the IRS by the filing deadline for the 1120-S. With how backed up the IRS has been recently, I don't expect them to issue a determination on the 2553 any time soon.

Giving that we filed the 2553 late & are requesting late consideration, and given my client's circumstance of adding another S/H this year, would you tend to move forward with this client under the assumption they'll be an S-Corp (e.g. begin payroll; file an 1120-S for tax year 2021; etc), or would you urge them to wait to make any changes until we've received a ruling from the IRS?
 

#2
JR1  
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Isn't it automatic?
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#3
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JR1 - My understanding is that it is only automatic if you file it within the 2.5 month window from the client's year-end.
 

#4
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HuskyCPA wrote:JR1 - My understanding is that it is only automatic if you file it within the 2.5 month window from the client's year-end.


I have yet to hear of a late 2553 not being accepted, assuming you meet the criteria of the ruling. I wouldn't have any anxiety about this arrangement.
~Captcook
 

#5
JR1  
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That's what I thought, too. It is an automatic for late election as long as you meet the requirements, which most everyone does. So I wouldn't worry about it....tho' we all love to have that acceptance in the file.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#6
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For an LLC taxed as a partnership: Making an S election is actually 1) making an election to be taxed as a corporation, and 2) the corporation making an S election.

#1 can happen at any time, even retroactive back to 75 days without being late. You could do a Form 8832 for this, but the IRS says that's not necessary for this exact situation. The Form 2553 will automatically include the 8832 election.

#2 S election can be effective starting when the corporation's first year starts, which isn't until the effective date of #1.

Not sure if I missed it - did you want the effective date to be 1/1/2021 or 7/1/2021?

So you've got until mid-September to timely file a Form 2553 with an effective date of 7/1/2021. Since it's timely, the IRS should accept it no problem, so you could start operating immediately on the effective date under the assumption that it is an S corporation, regardless of whether you've heard from the IRS.
 


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