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Form 1120-S CPA discusses Form 2553 | S Corporation election

Even Form 1120-S CPAs sometimes have problems with the IRS processing of Form 2253, the election to become an S Corporation. We’ve mailed Form 2553 before filing the first Form 1120-S. We’ve filed Form 2553 with the first Form 1120-S. But in 2012 we’re still having to occasionally clarify Form 2553 processing after the tax season, even when working with a specific IRS Agent. We’ve never had a Form 1120-S refused, but we’ve put some extra work into providing Form 2553 documentation to the IRS. And for the record, we invoke the correct Revenue Procedure, get it properly signed and dated, file it on time etc.

The consequences of not filing, or the IRS not efficiently processing Form 2553 include your S Corporation tax return, Form 1120-S, not being accepted by the IRS. Your company is re-classified as a C Corporation. Of course CPAs design tax positioning based on our clients being S Corporations, and much of this strategy is contraindicated with C Corporations. So potential problems with Form 2253 go beyond stress.

Form 2553 turns your C Corporation, the IRS default, into an S Corporation. You only file it once but there are multiple factors to consider:

  • Number of shareholders.
  • Type of shareholders.
  • Classes of stock issuance.
  • Timing factors.
  • Which Revenue Procedure to invoke.

“As a Form 1120-S CPA, I call the Form 2553 department of the IRS several times a year. I’d recommend anyone handling their own Form 1120-S tax return and S Corporation election to call them proactively. They actually answer the phone! We’re now calling them to verify they received Form 2553.”
– Gary Bode, S Corporation CPA

So why does Form 2553 cause problems?

Well sometimes folks file them improperly. Again, calling the IRS or letting your Form 1120-S CPA handle Form 2553 takes care of accuracy issues. The other problem, even with a correct Form 2553, is that various systems in the IRS take time to percolate through the system. There is a disconnect between departments.

I’m a Form 1120-S CPA that operates as a S Corporation. So you know I keep on emerging tax issues. Our virtual office allows us to serve your S Corporation wherever it is. For a free phone consult call (910) 399-2705.

 

 

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