S Corp Extension E-file Rejected

[David]

S Corp started in 2014 and had no activity in 2014.  I filed a 2014 zero return and attached Form 2553. The IRS accepted that e-filed tax return. 

I could never get the client to send a signed 2553 since he was out of the country and out of town quite a bit. I filed on 10/15 and decided to attach the unsigned 2553 knowing that the IRS would send the TP a letter stating that they needed a signature on the 2553.

According to the TP, he never received a notice from the IRS asking for his signature.

The IRS evidently recognizes this entity as an 1120.

I marked the box stating that the corporation is electing to be an S Corp beginning this year but the extension is still being rejected.

Should I e-file the extension now as an 1120 and later file the tax return as an 1120S with late S Corp election? Or will the TP incur S Corp late penalties?

Or should I paper file the extension with an explanation that the S Corp election was filed last year and attach a signed 2553?

Thanks.

 

[David]

 

13 minutes ago, David said:

I filed on 10/15

Whoops! I meant to say that I filed the 2014 1120S on 9/15.

[rfassett]

So you filed the 2014 as an S but did not have a signed 2553?  And still do not have a signed 2553 for 2015?  You are most likely correct that the IRS has this return coded as an 1120.  And that is not going to change until they receive a signed 2553.  Review the late 2553 rules and see if your client can fit any of the different forgiveness patterns.  Otherwise, the corp is going to be taxed as a C.  And for the record, you are already late to have year 2016 considered to be an S.

Now all of that said, if you are looking to mount a consistency in treatment argument, you should continue to treat your filings as if the Corp is an S.  You do realize that the deadline for fling corporate extensions (C or S) was 3 days ago, right? 

Good luck!

[David]

3 minutes ago, rfassett said:

You do realize that the deadline for fling corporate extensions (C or S) was 3 days ago, right?

Yes, that's why I e-filed the extension. My question is what is the best way to cure the e-file rejection. I have until the 20th.

[Lion EA]

Paper.  Maybe both 1120 and 1120S, including the rejection notice.

[rfassett]

47 minutes ago, Lion EA said:

Paper.  Maybe both 1120 and 1120S, including the rejection notice.

Agreed!  That will at least get the entity extended.  That will give you six months to determine what return type will need to be filed.

[BHoffman]

Rev. Proc. 2013-30 works great for late S elections.

[David]

1 minute ago, BHoffman said:

Rev. Proc. 2013-30 works great for late S elections.

Yes, agree. So why is the extension being rejected? I marked the return as the first year for S election. That usually works for late elections.

[BHoffman]

Hi David - you said the client never signed the 2553.  I think the IRS just round filed the form.  In any event, until the IRS gets a signed 2553, I think your client is going to have trouble and confusion with the IRS.

[David]

I think you're right about that.

Usually the IRS would send a letter saying that the 2553 wasn't signed and to send back a signed 2553. The TP said he never received a letter from the IRS.

Since there was no activity in 2014, I thought I would file the extension as any other extension that was planning to file a late S election. That being, mark the tax return as the corporation is electing to be an S Corp the beginning of the year. This has always worked in the past. I don't know why it isn't working in this case.

If I file an 1120 extension, won't the TP incur late filing S Corp penalties even if we later file an 1120S with a late S election?

That's what I am trying to do. File an extension so the TP won't incur late filing penalties.

So if I file a paper extension for both the 1120 and the 1120S won't I have the same problem - the IRS will accept the 1120 extension and not accept the 1120S extension? Therefore, the TP will still incur the S Corp late filing penalties, won't he?

Thanks for your help. 

[kcjenkins]

Just don't let HIS failure to do what you told him he needed to do be treated as your fault.  If he does end up with a penalty, it clearly will not be because of your lack of trying.  

[BHoffman]

8 hours ago, David said:

I think you're right about that.

Usually the IRS would send a letter saying that the 2553 wasn't signed and to send back a signed 2553. The TP said he never received a letter from the IRS.

Since there was no activity in 2014, I thought I would file the extension as any other extension that was planning to file a late S election. That being, mark the tax return as the corporation is electing to be an S Corp the beginning of the year. This has always worked in the past. I don't know why it isn't working in this case.

If I file an 1120 extension, won't the TP incur late filing S Corp penalties even if we later file an 1120S with a late S election?

That's what I am trying to do. File an extension so the TP won't incur late filing penalties.

So if I file a paper extension for both the 1120 and the 1120S won't I have the same problem - the IRS will accept the 1120 extension and not accept the 1120S extension? Therefore, the TP will still incur the S Corp late filing penalties, won't he?

Thanks for your help. 

I hope not because I had to the same thing . The late file penalty is pretty easy to get abated.

[David]

On 3/19/2016 at 9:55 PM, BHoffman said:

I hope not because I had to the same thing . The late file penalty is pretty easy to get abated.

The penalties for S Corps are harder to get abated anymore. If you have had success please give us your secret. :-)

 

[BHoffman]

The IRS used to grant the first time abatement over the phone.  It's been two years since I've had one.