S-Corp election (super late)

[ILLMAS]

New client has not filed since 2016 (business and personal), what are the chances the IRS will accept a super late S-Corp election?  FYI there is reasonable cause, but I am afraid it's been too many years.

Thanks

[Lion EA]

Has it been operating as an S-corporation since 2016? Payroll? Forms W-9? Did everything except file the election? Thought lawyer filed it? What?

[ILLMAS]

16 hours ago, Lion EA said:

Has it been operating as an S-corporation since 2016? No Payroll? No Forms W-9? They issued a W-9 and received a 1099 Did everything except file the election? Operated more like a sole proprietor Thought lawyer filed it?  No, a buddy did the paperwork  What?  TP is okay filing as a disregarded entity since if it's too late, I more or less calculated the penalty for the K-1's and it will be probably more then the SE tax if the penalty is not waived. 

 

[Lion EA]

Not to mention the P&I on all those years' worth of late payroll forms, 841, 940, etc., and amending his personal returns to account for the new W-2s and K-1s. Your fee should be huge!

They issued a W-9 stating what name, TID, and checked what biz structure?

[Max W]

Usually, the IRS will only allow a late year S-corp election to go back two years.  

[ILLMAS]

Business has no books, business bank account is intermingled with personal expenses and I can go on and on and no personal tax return has been filed for over 5 years. 

Would you recommend just making the election for 2021 and reporting prior years on Sch C? 

[Lion EA]

It sounds more like a hobby than a business.

Why would you want to draw attention to it by filing an S-election now, hoping to make it retroactive?

Why does the company want to be an S-corporation?

It's going to cost them a bundle to have you do their past bookkeeping, payroll, financial statements, personal returns, etc. I hope you have a huge retainer. Can they afford you? Can they afford all the P&I?

If they came to me and insisted on a much-too-late S-election, I'd send them elsewhere!

If they came to me to make a fresh start, I'd work with them to treat their casual hobby/business like a real business. I would not rewrite their history.

Depending on their income and long-term plans (do they want to take in a new shareholder, for instance?) I might suggest an S-election for 2023, after I've seen them make the changes I'd require.

If you have time to redo 2022, you might make a late election for 2022.

[DANRVAN]

6 hours ago, ILLMAS said:

Business has no books, business bank account is intermingled with personal expenses and I can go on and on and no personal tax return has been filed for over 5 years. 

Would you recommend just making the election for 2021 and reporting prior years on Sch C?

I agree with Lion.

You have no idea if this taxpayer would benefit from becoming an S-Corp.  Most likely not if business and personal account is  intermingled. 

[WITAXLADY]

I just did one for 2019 , 2020 and 2021 -

We did payroll for those years - minimal reasonable comp - -0-'s for 3 quarters and only filed the 4th for 2019

Possible to do Sch C's for part of the years and then go back 2-3 years as a S corp??

But now! rather than wait anymore.

Just a sole proprietor - is more reasonable than a business with payroll and shareholder not on payroll. Also in WI - most of the S Corps started as LLC and then elect S corp status so not as complicated to change

But this is not our normal - wrote a reason as above - relied on friend/etc..

D WI