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IRS says wrong form is filed

angela1
Level 2

In 16 years of practice I haven't had this happen and I have done some research and can't find much on the topic.

My client bought the building that there business is currently in. I received a copy of the state registration and the SS-4. I filed the 1065 for 2019. Last week she got a notice from the IRS stating that we had filed the wrong tax form. It said that a Form 8832 and 2553 had also been filed for an S-Corporation. Apparently she also thought she was supposed to file an 8832 and a 2553 for a partnership. It said we would need to file a S-Corporation tax return because they were rejecting the 1065 9 months later.

Do I respond to the letter with an S election termination and tell them the S-Corporation paperwork was filed by mistake and they want to be a partnership or switch them to an S-Corp and redo the s-corp and personal tax returns?!?! Thoughts?

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5 Replies 5
BobKamman
Level 13

@angela1 "I received a copy of the state registration and the SS-4"

So who prepared the SS-4?  Is she someone else's client also, or are your fees so high she feels that she has to do the work herself?  Did you receive a copy of the IRS notice that was issued with the EIN when the SS-4 was filed?  Does it say this is a partnership?  Or is it an LLC, electing to be taxed as an S corporation?  Seems that IRS thinks so, based on filing the 8832 and 2553.  Well, at least she avoided paying a lawyer for business-planning advice.  

angela1
Level 2

I do her other S-Corp monthly and yearly. I did all of the paperwork for her other company. Then she said hey we bought our building and here is all of the paperwork. Her state and IRS registration says partnership. I asked her about it these other forms when I got the notice and she said yes she filed them as well but didn't know what she was doing. Clearly. 

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TaxGuyBill
Level 14

@angela1 wrote:

Then she said hey we bought our building and here is all of the paperwork. Her state and IRS registration says partnership. 


But let's take a step back.  How does owing a building result in a Partnership (or S-corporation)?  Is there a separate business involved with owning this building?

angela1
Level 2

Her and her husband own it together. They created the partnership to rent out the building to their existing S-Corp that is in the building. 

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TaxGuyBill
Level 14

@angela1 wrote:

Do I respond to the letter with an S election termination and tell them the S-Corporation paperwork was filed by mistake and they want to be a partnership or switch them to an S-Corp and redo the s-corp and personal tax returns?!?! Thoughts?


 

An S-termination would change it to a C-corporation, so you don't want to do that.  You would need to file Form 8332.

I would first try to call the IRS and try to get them to ignore the original 2553 because it was a mistake, and have them treat it as a Partnership.  I suspect it won't work, but it may be worth a try.

If that doesn't work, you can look into the late-election rules for 8332, but my first thought is your client doesn't qualify.  But check into them anyways.

If those don't work, I suspect you need to file 2019 and 2020 as a S-corporation.  File the 8332 for this upcoming 2021 year.