Converting a disregarded LLC to an S corp

[michaelmars]

Can a late election be made for 2022?  And in any case do I just file 2553 or do I have to do a reclassification too? 

[Lee B]

There is a Rev Proc you need to follow.

[michaelmars]

I am aware of the late election for a corp to S but what about a disregarded LLC to an S?

 

[BulldogTom]

I think you have to get to corp before you can get to S corp.   Since the LLC was operating as a disregarded entity (sole prop), I think you have to convert the sole prop to a corp and then make the election to be an S.  I don't think you can make a late conversion from a sole prop to a corp, and if I am correct then there is no way to get to S retroactively.   

This is unresearched, just me thinking through how I would approach your issue.  Beware that I may be wrong.

Tom
Longview, TX

[Lee B]

My reading says that since your client is already an LLC then they can file the 2553 to be an S Corporation.

Tom, if they were a SP then they would have to become an LLC or incorporate first.

[BulldogTom]

30 minutes ago, cbslee said:

Tom, if they were a SP then they would have to become an LLC or incorporate first.

@cbslee Not arguing, for discussion purposes.   If they are disregarded, they are already a SP.   That is the default for a disregarded SMLLC.   

I made the assumption that the LLC was formed as a SMLLC prior to 2022 (bad assumption?) and they filed a tax return as disregarded in previous year(s).   After reading the OP again, that may not be the case.   IF the LLC was formed in 2022, then I think you are correct that they can still file as an S corp this year by filing the 2553 with the first return.

However, I stand by what I said if the LLC was formed and filed prior to 2022.   But I could be wrong....

Tom
Longview, TX

[Lee B]

Several websites say that if you are an SMLLC you are halfway there.

[kathyc2]

Was the LLC formed during 2022 or earlier?  If earlier, it can not be backdated.  If in 2022 were they acting as if they were a S all year, such as taking paychecks?

[Lee B]

Why does it matter what date the SMLLC was formed?

[Lion EA]

I they are trying to be an S-corp during the time it was a SP, then they have 2 steps. If they want to be an S-corp when they were a SMLLC, then it's 1 step. IF they meet the qualifications for late election. As someone already asked, did they act like an S-corp and just fail to file the 2553?

[Medlin Software, Dennis]

I self handled creating a corp (mostly) in my naive 20's.  I would never do so again, since I am not a lawyer (or more specifically, do not have insurance to cover those types of attempts).  Just one person';s experience...

[Lee B]

Most people who do it themselves never have Articles of Incorporation or a Buy Sell Agreement etc etc

Then they don't treat their Corporation as a separate legal entity, which if they end up in a big lawsuit makes it much easier to pierce the Corporate Veil.

[kathyc2]

31 minutes ago, cbslee said:

Why does it matter what date the SMLLC was formed?

The late relief is for if they meant to be taxed as a S but just forgot to submit the form.  If they have already filed Sch C for the LLC in prior years, that argument doesn't hold much water, does it?

 

[mircpa]

@michaelmars

File 8832 to convert from disregarded entity to be elected as corporation & late election 2553. I believe late election relief is available for 8832 under Rev Proc 2009-41  & for 2553 Rev Proc 2013-30.

[grandmabee]

What is the time line for a new 2 member LLC.  Attorney filed the paperwork with the State October 1st. and received an EIN which stated they are a partnership.  Now they come to me and I asked if they filed to be a S-Corp which is what they said they wanted to be.  I don't think the Attorney filed the 8832 yet.  So can I still file a 8832 and do I need to file the 2553 also?

 

[BulldogTom]

1 hour ago, mircpa said:

@michaelmars

File 8832 to convert from disregarded entity to be elected as corporation & late election 2553. I believe late election relief is available for 8832 under Rev Proc 2009-41  & for 2553 Rev Proc 2013-30.

I just read the instructions for form 8832.   The rules for late relief are in the instructions.   @michaelmars 

Thanks @mircpa for the info.   I learned something new today.

Tom
Longview, TX

[michaelmars]

the entity was set up as a SMLLC in 2020, totally inactive till 2022.

[Lion EA]

2 hours ago, grandmabee said:

What is the time line for a new 2 member LLC.  Attorney filed the paperwork with the State October 1st. and received an EIN which stated they are a partnership.  Now they come to me and I asked if they filed to be a S-Corp which is what they said they wanted to be.  I don't think the Attorney filed the 8832 yet.  So can I still file a 8832 and do I need to file the 2553 also?

 

Because they are already a state entity, and LLC, they do NOT file Form 8832. They file Form 2553 to elect S-corporation taxation.

[mircpa]

@grandmabee

You have 75 days from its inception to file 8832 and or 2553 for it to be timely. Should you file beyond this time then follow retro relief route.

 

[Terry D EA]

2 hours ago, Lion EA said:

Because they are already a state entity, and LLC, they do NOT file Form 8832. They file Form 2553 to elect S-corporation taxation.

This is correct. I have done two of these without incident and did not file form 8832 just the 2553. Just to note. Both were filed timely and no late election was involved.

[kathyc2]

On 1/10/2023 at 3:39 PM, michaelmars said:

the entity was set up as a SMLLC in 2020, totally inactive till 2022.

With a formation date of 2020, if the agent processing the request is on the ball, they should be asking more questions before approving.  Did the principal take paychecks in 2022?  If not I wouldn't even try for late relief if it was me.  Hedging too close to being a fraudulent return IMO for me to put my name on the return.