How to Fix an IRS S-Corp Election Mistake
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- Опубликовано: 9 фев 2025
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ABOUT JASMINE DILUCCI, JD, CPA, EA
Jasmine DiLucci has specialized in tax since high school when she first became licensed to represent taxpayers before the IRS.
Now as a tax attorney and CPA, she works with individuals and business owners across the nation to on Tax Planning, CFO Advisory, and IRS Tax Resolution
How Jasmine Got Here…
18: Became an Enrolled Agent, licensed to represent taxpayers before the IRS.
22: Earned an Accounting Degree and a Master’s in Finance.
23: Became a CPA
24: Stepped into leadership as she took over her own CPA firm
26-28: Juggled full-time studies at SMU Law while she was growing her CPA firm.
28: Graduated from law school 4th in her class and became an Attorney, all while managing her CPA firm.
29-31: Expanded her CPA firm to seven figures, with a focus on delivering top-notch service and exceptional value to every client.
32: Launched Tax Leverage to offer free online education and combat the rise of “tax gurus,” aiming to provide real, accessible tax knowledge.
Today: She’s dedicated to running her firm and leveraging her expertise to educate and empower others, helping individuals and businesses navigate the complexities of taxes and finance.
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Disclaimer: This information on this channel is for educational purposes only and does not constitute professional legal or tax advice.
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I’ve had that happen with several clients. First red flag was not faxing the 2553 and reiterate with the customer about receiving the 2553 and to make the CPA aware when the form is received to have a copy. The IRS oftentimes does not send 2553 acceptance letter with many clients. And you’re right it’s that second year it rejects when the IRS doesn’t process it. At that point it is always a good idea to send the 2553 again with reasonable cause with 2nd attempt letterhead and that works
I have a tax business and when I submit these forms for clients I always Fax AND mail. On the mail copy I add a cover letter stating “duplicate submission, original faxed on (enter date)”. I usually file extensions automatically for my clients early and that’s when you can find out they don’t have “s-status” because extensions will be rejected if your status doesn’t match (they have you as a C Corp, and try to extend as an SCorp). Thanks for your content Jasmine.
Loving these client cases. Keep them coming!!
I have worked at a couple firms and have noticed that some CPA firms bite off more than they can handle and do not have the time to follow up on items like this and try to blame it on clients by saying they let them know, but i think its our duty to walk them through these matters as the best CPAs actually care about their clients and dont just view them as billable hours. (CA CPA)
This is super helpful even as bookkeeper for my clients to help them stay complaint.
Long video to say, 3 year late election.
From now on im certifying mail all the time to the irs
Great video. Stuff like this is why I hound my clients about if they got the SCorp acceptance letter or not.
Another awesome episode of you helping people keep these videos coming. They provide a lot of good insight and even for myself to be able to better advise people.
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Thank you! Great information!
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IRM (study the Internal Revenue Manual)
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Love your channel. Thank you for your great content. Please do more long form content like this
I am starting a business and I love your channel and signed up for your skool. I want to set up my business correctly, file correctly so I can avoid the headaches that have been highlighted. Thank you for sharing your expertise!
That CPA honestly should be looking at fines for gross negligence. Idk how you pass the CPA exam and make those mistakes.
Passing the CPA exam doesn't make you a tax expert and less if it has to do with IRS procedures. It's a misconception society have on CPA. An EA have more knowledge than a CPA in tax matters because Part 3 of the EA exam talks about representation in the IRS, the CPA exam doesn't have that.
@ interesting - I didn’t know that. I thought the CPA exam was essentially the EA exam with additional information/tests.
It does go over some basic processes like 30 day letter and 90 day letter and the court procedure but nothing like this or all the different forms you have to fill out and how.
@@K7ZHK The CPA exam cover Part I and Part II of the EA exam but in lesser depth as REG have other matters apart from Tax.
There is a new discipline part that a CPA candidate can choose if desired that one that talks about Tax planning, but that is just it.
The benefit of hiring a CPA still is that they are bound to a more stricter ethical code than just Circular 230 that can make your point valid.
@@christiancarrion291 I’ll have to look into the differences more - thanks for the comments. I’m in the middle of my EA exams so maybe it’s just because it’s so fresh in the mind that I thought of the EA part 3 penalty sections.
Perfect.
This was great! Thank you.
There was so much confusion when I filed for s classification too.
I sent the 8832 and got no response into an employer told me they couldn’t process my company without an election letter.
I still have to get with my CPA because I got a 900 tax bill from 2022 and I think this is why
I was waiting the whole video for someone to point out that an LLC whose S-election is rejected should not be a C-Corp. I was relieved she finally said that at the end of the video. An LLC is not a corporation.
The IRS Taxpayer Advocate Service might be appropriate in this case if they had done everything right; however, some risks in their fact patterm: they don't have a copy of the first 2553, the later 2553 didn't have the full SSN or percent of ownership or shares, they didn't ink-sign it, no reasonable cause for late filing. Also, need to explore the risk that she should have been an employee instead of 1099, with hindsight giving a clear answer.
Please keep making these type of videos!
#jasminedilucci, Thanks so much for posting this. I filed for S corp election this year and never got a confirmation from the IRS. So glad you are posting this info for all of us to be aware.
My accountant also said that year one of an S corp you do not need to pay reasonable salary as the owner. I can't get a straight answer from anyone else if this is correct or not. What do you think?
I am a CPA. honestly, i do not know of any regulations or cases or anything that lend credence to that. I do believe the IRS would be pretty lenient on that first year filing about “reasonable comp”, but if you have 0 or very low salary while showing tax free distributions from the s corp in very high amounts i would not expect the IRS to give that a pass if it were brought up in an assessment/audit. the substance over form in that case would be intentional avoidance of a lot of self employment tax so i can’t see that flying
@ thanks for the answer and I completely agree with your overall assessment. I am running payroll before the end of the year!
Another red flag is her employer treating her as a 1099, does she fully meet the IRS definition of an independent contractor or did her employer just tried to avoid paying their share of payroll taxes?
I have friends in a similar situation, they have intellectual property owned by the LLC which the “employer” is paying for besides just labor. The IP value is not subject to payroll taxes. I don’t know the details of this couple, but it could be similar.
hello Jasmine! the fix template leads to a 404 error, id love to look over the template if possible
Ive esigned many 2553 but lately they've been rejecting it.
Does this apply to WY LLC /Scorps that’s registered as foreign entity in TX?
Good morning. Love your channel. Insightful and I like to know more. So beautiful. ❤
The link in the description for "FREE S-CORP election fix template" shows a 404 page. I'd like to download the template. Can you fix the link? Thank you!
What if you filed a late election and accidentally marked it as 1/1/23 when you meant to write 1/1/24? Do you wait or resubmit form to hopefully override the first 2553?
If you want to take your parents house as your own when they die do you have to pay capital gains tax on?
😊
Hi Jasmine, I tried the link to download the s-corp fix template and I got a 404 error. Any tips? Second, your content is fantastic. I am a career transitioner binging as much content as possible in my free time. Thank you.
So what was the justification for the S-Corp over Schedule C in the beginning? The S has to pay out all the income to the taxpayer, where it is taxed, just the same as if the same income (and deductions) were on the Schedule C, doesn't it? Would the IRS really penalize you for filling out the forms incorrectly, if the liability didn't change?
The whole point is that the liability is different. The C Corp has double taxation and is generally less tax favored in most situations.
There are apparently no retained earnings. So, while if the C-Corp paid out all it's net income as dividends, there would be a corporate tax, but if the surplus is paid as wages, then the C-Corp would have had no net income and no corporate tax liability. Since it would be required to pay out reasonable compensation, I expect the later would be the case for this taxpayer.
I want to open an LLC causeI want to start a business
@Taxleverage_01 cool story bruv
Here is a what would you do scenario.
Taxpayer files a 2023 tax return and LLC on a Schedule C pays 25k in SE tax , made 200k net..... something told her that she overpaid in taxes so she filed to be an S election and although she claims that she asked to be an S-Corp as of 1/1/24 , IRS said she will be an S as of 1/1/23
So she said wow, IRS granted me free money and she prepared the late S-Corp, same net as the Schedule C and now wants me to prepare her amended 1040 to remove the sch-c, add the new K1 and boom get refunded all the SE taxes....of.course she argues that the IRS is making her do this and did not allow her time to act like an S corporation by doing reasonable salary.
Want would the famous Jasmine do???? Or advise clients what to do?
With the GOP and incoming administration threating Social Security my question is. Can we or will we see the public sue the Federal Government for the SS payments to be returned? As SS admin charges interest and penalties, we the public should as well.
I’ve come across a surprising situation-10 real estate agents from the same office all faced the same issue, and they all used the same CPA office in Virginia! Coincidence or a pattern? Let’s dive in!
I have an scorp but I failed to pay myself for 2024 what can I do to fix this? I haven’t taken any kind of distributions or salary. Mostly because I was just trying to build the business revenue and protect it. Not to avoid paying taxes or anything like that.
In this situation, business owners should be able to assess a dumb tax to the IRS for their mistake
You seem to know a lot a out business tax law and run a big mouth. Have tried taking the IRS to tax law and attempt to penalize them for an incorrectly assessed penalty?
Oh wait let me guess, you're like the other "geniuses" in the IRS phone queue that isn't aware of how to download the instructions for their form for free at irs.gov, probably made a tax deposit with a check (instead of EFTPS, which i941 will tell you the penalties foe doing that), and probably delinquent returns, FTF FTP pens.. the list goes on.
But by all means, seriously. I dare you to take the IRS to tax law. Given them your EIN and SSN, seriously; make my day. Then you can cry at home when you realize "oh nuts, I was wrong in my life? But I'm a 1950'a inheritance boomer! I'm always right, I inherit everything! I can't be wrong if I'm from the 50's!" And then complain to congress about the IRS (which you lose your rights to do that when you fail to understand the 16A).
You say "like" a lot. Is that a Cali thing?
Are you aware of this law? ruclips.net/video/MdRhnB4-swI/видео.html
would like your opinion if this is true 🤷🏽♂️
Poor guy keeps saying S class like a Mercedes instead of S corp
Just get a pardon