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A new client of mine filed form 1120 by mistake. Is it now…

A new client of mine...
A new client of mine filed form 1120 by mistake. Is it now too late to revert that to 1120S if the IRS has already accepted it?Prashant
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3/16/2018
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,037
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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You filed the return electronically and the IRS accepted it?

This means that the IRS has it as a C-Corp. Otherwise when you filed electronically you would have gotten a reject with a "header mismatch"

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Customer reply replied 1 month ago
I understand that. Can we now convert it to S though and reverse the return?

Yes, the way that I have done that before is to file an amended return, with the S-corp as the amended return, and attach a copy of the C-corp attached marked "As Originally Filed". The IRS will process the correct return after they verify that it should be a S-corp.

I would also check with the IRS entity control unit to make sure that the return is a S-corp, and that the incorrect return was actually received.

I had a corp that we filed as a C-corp electronically for years. The IRS rejected it last year. When I checked, they said that they never got the S-corp revocation letter (we have proof that they received the certified mail). They simply changed the return from a C-corp to an S-corp each year without notifying the taxpayer!

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Customer reply replied 1 month ago
if they do the reversal, will they also give back the taxes charged on C-Corp? Also, do I need to send the 2553 form again then because today I already requested S-corp as of 2018 by sending form 2553 effective as of 2018. Have I complicated it more?

Yes, you have complicated it further. If they were already a S-corp, there is no need to send another Form 2553. Hopefully someone at the IRS will see that it is already a S-corp and return the Form to you.

The IRS should refund the taxes erroneously paid with the incorrect form.

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Customer reply replied 1 month ago
But it was not a S Corp before and they filed 1120 C for 2017 before coming to me which is why I am asking

So they have always been a C-corp? Then what is the mistake? IF you just filed the S-corp election, it will be valid for the 2018 tax year. So for 2017 they are still a c-corp.

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Customer reply replied 1 month ago
I am sorry I am not explaining. I want a 2017 reversal as they paid a very high tax

I don't think that you can get that. You would have to ask for a late S-corp election under Rev Proc 2013-30. That requires you to have reasonable cause, and that you had treated the corp as an S-corp in spite of not having made the election.

Simply paying too much tax is not basis for reasonable cause. You might be able to argue that they relied on the advice of a tax professional under IRC Reg §301-9001, but again, that would be hard to do. You would have to get a statement from the old accountant where he admitted giving bad advice and messing up on the return. He would never do that as it would open him up to a malpractice suit.

Also, the thing that would sink you is that the taxpayer did not act as if it was an S-corp. He did not include the income on his personal tax return as if the S-corp election had been made. So they would say that there was no intent to be an S-corp until after they filed and saw the tax bill, and talked to you.

So no, I don't think that you can get this reversed.

taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,037
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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