Tax Guru – Ker$tetter Letter

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Revoking S Election

Posted by taxguru on May 15, 2007


Subject: quick S Corp question

Want to revoke S Status for corp. Never filed a corp return. Am three years behind in filing. Want to file as C with fiscal year ending in March 31. Is this possible. I believe we filed 2553 in 2004.




It won’t be as easy as you think for various reasons dealing with both IRS and your state tax agency. 

You need to work with an experienced tax pro to work out the best method to resolve this matter.

Some possible issues you will encounter:

IRS and the State will probably refuse to accept the revocation until you file all of the past due 1120S returns.  Even with no activity, you have to let IRS and the State know that.  You didn’t say what state you’re in; but if you are in one with a minimum annual tax, such as California’s $800 per year, you are looking at some large past due amounts, including penalties and interest.

Since an S corp is required to have a tax year ending on December 31, you will need to formally request a change.  As I’ve mentioned several times before, IRS is not friendly to the concept of non-December tax years; so they are not very likely to honor your request.  Also as I’ve said on countless occasions, it may very well be much easier to set up a brand new C corp, where the fiscal year is completely open, than to try to adjust what you already have.

Again, an experienced tax pro should be able to help you straighten these issues out.

Good luck.

Kerry Kerstetter





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