As many of you know, the deadline for submitting IRS Form 2553 was March 15. The clients that did so may now be asking, “so, now what?” CorpNet’s Nellie Akalp helps you answer that question in this pointed article.
Many of your clients that have filed for the S Corporation election this tax season may now be wondering what will happen next.
Unfortunately, no crystal ball exists to predict when they will hear from the IRS or how long it will take for approval of their S Corp status. However, the following Q&A from real-world experience may help them anticipate what to expect.
Questions and Answers About the S Corp Election Request Process
Q1. How will I know if the IRS approved my application?
Clients are supposed to receive email confirmations from the IRS regarding the status of their request and whether it was approved. Generally, the expected response time is two to three months after Form 2553 was filed. Unfortunately, some business owners wait for a year or longer to receive a response — and some never receive a confirmation from the IRS.
Q2. What should I do if I don’t hear from the IRS within two to three months?
I recommend that business owners follow up with the IRS to determine if the agency approved the application. Usually, calling the IRS to speak with an agent yields the fastest response. The IRS contact number is: 1 800 829 0115
Clients will first get an automated attendant. After selecting the language of choice, they should choose #3 for “all other business notices and letters.”
Business owners should be prepared to verify their identity and have other important information at their fingertips (e.g., a copy of their completed Form 2553, information about the business’s responsible party, Social Security Number, business EIN) during the call to answer any questions the agent might ask.
Depending on when the client calls, they might experience an “on-hold” time of anywhere from 30 minutes to two hours before speaking with a live person. This may be especially true during the height of tax season, so business owners will need a little extra patience and persistence if calling then.
Q3. If I missed the deadline, can I still apply for S Corp Election for the current tax year?
Existing LLCs and C Corporations with a tax year beginning on January 1 had until March 15, 2022, to file IRS Form 2553. Businesses that have a fiscal year other than the calendar year have until two months and 15 days after the start of their fiscal year to complete their S Corp election form. Entrepreneurs who launch a new business in 2022 have two months and 15 days from their date of formation or incorporation to file for S Corporation tax treatment for their entire 2022 tax year.
If your client has a reasonable cause for not filing Form 2553 on time, the IRS may cut them some slack and approve the S Corp election retroactive to the start of the LLC’s or C Corporation’s tax year. The business owner must explain on Form 2553 why they are applying after the deadline.
Reasonable Cause Examples the IRS Might Deem Valid
- The business’s responsible party, accountant, or tax professional failed to submit Form 2553.
- The corporation’s leadership or shareholders weren’t aware they had to submit Form 2553 to the IRS.
- The corporation’s leadership or shareholders weren’t aware of the deadline for submitting Form 2553.
When requesting relief due to reasonable cause, the client should prepare to explain the facts of why they missed the deadline and are filing late. Also, they should disclose how they handled tax affairs when they wanted to be considered an S Corp but weren’t yet approved to do so.
Another critical point to communicate is what the LLC or C Corporation did to fix the situation upon learning they hadn’t requested the S Corp election correctly. If your client has set their sights on S Corp tax treatment effective starting in the 2023 tax year, they can file their Form 2553 anytime in 2022.
Final Thoughts on S Corporation Election Filings
Clients who become impatient about waiting for word from the IRS about their S Corp election status may be tempted to complete and submit a second Form 2553. That can potentially exacerbate the delay and confuse the situation further.
“When in doubt, reach out” is typically the best course of action. Clients need to know whether their S Corp election request was approved so that you can assist them in handling their taxes accurately.