We incorporated our company on February 16th 2007 in California as a corporation. Our intent was to file the election (Form 2553) so that our company may be treated as an S-Corp for tax filing purposes. However, due to a misunderstanding between us, and the attorney, Form 2553 was never filed. As we, were working on filing our taxes (for 2007), our CPA informed us that we could not file form 1120S as our company did not file the Form 2553.
Our questions are as follows:
1) For 2007 tax purposes, I believe that we can file the 1120S form, the K-1 form as long as we file the Form 2553 at the same time (along with the 1120S form) ... is my understanding correct?
2) Would IRS accept our 1120S filings even though we are very very late?
3) On form 2553, Line E, what date would be appropriate? Please note that we incurred a few expenses, on behalf of our yet to be formed company, prior to February 16th, 2007.
4) On Form 2553, Line F, would I have to check the box that says "Calendar Year"? If so I guess I do not have to fill anything in Part II and Part III ... is my understanding correct? OR, do I have to check box #1, on line O (in part II)?
5) On Form 2553, line H, what would be a valid reason for our not filing our form in a timely fashion? Would stating that there was a misunderstanding, and that we are a start-up with limited tax knowledge be a valid reason for the IRS?
6) Are there any other forms that I have to be concerned with on this issue?
I would really appreciate a prompt response on this issue as the deadline to file these forms is fast approaching. Thanks in advance for your time and patience.
If you have questions about the 1120S you can type in the 1120S in the search box in the upper right hand corner of the page.
Also, if you didn't file the 2553 on time, you can fax the form to them, but I believe you need an EIN. You will have to apply online for it, and put "applied for" in the EIN section. To apply for EIN, you need to do a form SS-4. Here's the link for the fax numbers:
Read the reasonable cause section on that link, under the header RELIEF FOR LATE ELECTIONS. You may be able to do REV PROC, which you can actually write that on the top of your form 2553 when you fax it.
Hope this helps.
Posts: 1029 | Location: Greater Cincinnati Area | Registered: 06-03-02
Rules about subchapter s status are very strict. Here's the way I would answer:
If you filed your articles of incorporation with the Secretary of State, you are now a "C" corporation. All "S" corps go through this stage.
If you want to claim "S" status, you have to take all the steps necessary and on time. You will be considered a "C" corp by default until you meet the obligations because of the way subchapter S of the code reads. (All "S" corps are subject to "C" corp rules unless otherwise stated.)
To claim "S" status as a pass-through entity rather than a taxed "C" corp, you have to file form 2553 within 2 months and 15 days of the beginning of the corporation's taxable year or the corporation's existence, whichever applies. If you miss the deadline, you'll be considered an "S" corp in your second tax year and you have to file 1120 this year (no sched K).
The "first day" of business is the earliest of:
1) the first day you issue shares of stock 2) the first day you acquire business property 3) the first day you start business 4) not necessarily the first day of your business calendar or date of incorporation--it's very possible that your first year is a partial year.
Be careful in how you interpret this. A corporation is a seperate legal entity. It's not the first day "you" did business, it's the first day that the "corporation" did business. Because of this, filing early for "S" status is never allowed because you can't elect "S" status for a corporation that doesn't yet exist.
I don't know how to answer your other questions about the form because I don't have one in front of me. Your CPA will take care of all the tax forms you need each year, anything beyond that depends on what you've done so far.
What you really need to pay close attention to is the payment of dividends to the shareholders. Whenever a "C" corp does business for awhile and then becomes an "S" corp, as it sounds like you've done, there is an issue with "accumulated earnings". You will find severe penalties as an "S" corp if you don't liquidate these earnings. Your CPA can help you with this, too (in fact, it's routine for us to calculate your earnings as an "S" corp from year to year for you).
There is also a penalty for incorporating an "insolvent" business. I don't know if this applies to you or not, but if you have a sole proprietorship or anything else, and you incorporate at a time when your liabilities are higher than your equity, the difference is taxable income to you personally as the owner of the proprietorship, and it can be a considerable surprise.
Posts: 94 | Location: United States | Registered: 06-01-08
