Discussion:S Corp Election Botched Big time
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Discussion Forum Index --> Basic Tax Questions --> S Corp Election Botched Big time
Discussion Forum Index --> Tax Questions --> S Corp Election Botched Big time
| 27 October 2008 | |
| I have acquired a client, the attorney set up and did the first year return, 2006, as an S Corp. They received a letter that they were not an S Corp April 2007. Attorney had them file 8832 with 2006 return electing corp status and again in May of 2007. No 2553 filed! Second preparer files 2007 1120s without checking for S approval. They get a IRS notice April 2008, need to file 2553 within 30 days or convert to 1120. They take to a second attorney who sits on it. I get this client a week ago, wanting to transfer Dad's mineral rights into LLC, with Dad's land that was already transferred to the LLC. (Land has basis from 1965, and has tripled in value on 750 acres - approx 2.5 Million gain). They have the S dissallowed notice in the information they dropped of. I get POA and get a sweetheart that tells me that they are converted to 1120 when they filed 8832 in Jan 2007. Only 3 of the 4 members signed.
I thought I had a problem with it being a S Corp and not a 1065. It is past the 24 months to file under any rev proc. No gift tax return filed when dad transfers land to kids and then kids and dad put into LLC. Is a rev rul likely to get me back to 1065? | |
| 27 October 2008 | |
| 5 years before they can revert to llc taxed as partnership if they don't request PLR. PLRs are not cheap.
I hope the attorney has errors & omissions insurance. JR will be so proud to bookmark this "check the stupid box" discussion. | |
| 27 October 2008 | |
| They take it to 3rd attorney who sues first attorney? And maybe second attorney also? | |
| 27 October 2008 | |
| oh and he will also bookmark this as a prime example of why NOT to own real estate in a corp or LLC taxed as a corp.
when they revert to a 1065, it will be a taxable transaction to liquidate the corp. again I hope the attorney has e&o | |
| 27 October 2008 | |
| Crow, do attorneys like to sue eachother or is this a matter of 'professional courtesy" to overlook the transgressions of their fraternity? | |
| 27 October 2008 | |
| Kevin,
As of Friday afternoon, he was still adamant that he filed the 8832 to elect S Corp status! I could not get thru to him that I needed a copy of the 2553 that was filed to elect S Status. So no, he does not know. I have a letter from him to the client for his 2006 tax cover page that 'a large accounting and tax firm in this part of the State suggest they use the form 1120s'. Stupid Box designation would be funny, if I didn't have to sit accross from these people. I told them PLR were not cheap, but the tax to get this straighten out is unreal for one man's huge mistake. I pray he has errors & Ommissions insurance. This family cannot afford the consequences of his mistake. I was hoping someone could make this nightmare go away. Long shot I know. Thanks for your insight. I may contact you directly as this goes along for some assistance with the PLR, if you would be so kind. | |
| 27 October 2008 | |
| Yes, they will sue other attorneys. It's a specialty within a specialty (malpractice law). At base, it's an insurance claim, as you know.
This is the curious circular logic behind the whole thing: I keep insurance in case I'm sued, but the fact I have insurance almost insures that I will be sued. No one is interested in a case with low policy limits. lol. So you have to get the right lawyer with experience in doing this. Watch the statute of limitations (usually two years from discovery, but have a qualified lawyer CHECK your state's law, it's not my bailiwick). | |
| 28 October 2008 | |
| If still trying for a late S corp filing have you attempted to file the 2553. I have done this after the fact (even past two years) a couple times and have been successful both times. As you undoubtedly know when filing late one should indicate at the top of the form that it is being filed pursuant to revenue procedure 2007-62 or the like. | |
| 28 October 2008 | |
| 8832 doesn't elect S corp tax status, 2553 does. In the 'olden days' of LLCs, you had to file an 8832 electing Corp taxation, followed immediately by a 2553. New rules just require a 2553. I think they changed this 4 years ago. Attorney doesn't know taxes. | |
| October 28, 2008 | |
| Storm, while this does serve as a bookmark in many categories, I'm restraining my laughter due to your deep pain. Assuming that you want to try and help the client do what was intended...I think I'd cut thru the crud and just call the the Taxpayer Advocate. They're the only ones who have the authority to do whatever they think is best, no cost to you. They can instate the S without a 2553, etc. My two cents. Good luck. | |
| 28 October 2008 | |
| Gentlemen,
Bookmark, I think this is a poster child! Thank you for your suggestions. My game plan is to try the taxpayer advocate. But through all my research and a quick call to a classmate who is an RA with IRS, I am almost positive this will have to go thru a PLR. The RA looked at it and is not even sure what the IRS is doing with it. No tax was assessed when it was converted to an 1120 for 2007. The individuals all reported as 1120s on federal and applicable state returns. With the land in the now 'C corp', I would like to go back to original 1065 treatment, if at all possible. The tax treatment on the individual past returns would not be significantly different. The client is posturing for a lawsuit, but I hope will settle for the attorney covering the costs to get this taken care of. | |
| 28 October 2008 | |
| It has been my experience that an atty will file the incorporation papers, but don't follow up on the s election. The acct has to do that. | |
| 28 October 2008 | |
| Barb, CPA, did you even read this thread? It is about an LLC being taxed as a corp or S corp, NOT about incorporating. | |
| October 29, 2008 | |
| LOL! Well, she's right, gotta give her that. Just for another thread is all.
If I get a hole in one on the football field, does it count? That's the question. | |
| 30 October 2008 | |
| If you get a hole in one, you put the spare on. What you're doing down on the football field is between you and your wife (or girlfirend). Always carry a spare. | |
