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Just wanted to add another perspective here. I'm a small business owner who didn't file personal returns for 2 years and then applied for S corp status without fixing those first. BIG MISTAKE. Not only did they reject my S corp election, but it triggered notices for all my unfiled returns at once. Ended up with penalties that were way higher than if I'd just dealt with the unfiled returns first. The rejection letter specifically mentioned unfiled personal returns as the reason. The IRS computer systems are much more interconnected than most people realize. When you file that 2553, it absolutely creates a compliance review.
Can I ask how long it took between submitting your S corp election and receiving the rejection/notices about your unfiled returns? Was there any warning or did they just hit you with everything at once?
It took about 6 weeks from when I submitted Form 2553 until I received the rejection letter. There was no warning at all - the rejection came first which specifically mentioned "taxpayer not in compliance with filing requirements" as the reason. Then about 2 weeks after that rejection letter, I started receiving separate notices for each unfiled tax year requesting that I file returns immediately. The notices came with proposed penalty amounts that increased with each year I was behind. The whole process created a much bigger headache than if I'd just caught up on filings first.
Has anyone used a tax professional to help navigate this specific situation? I'm wondering if having a CPA or EA submit both the catch-up returns AND the S corp election might look better than doing it myself.
I used a CPA when I was in this exact situation last year. Having them handle everything definitely helped. They filed my missing returns first, waited about 45 days, then submitted the S corp election. Everything went through without issues. They told me the key was getting the personal returns processed BEFORE submitting Form 2553. Also, they filed a disclosure statement with my catch-up returns explaining the late filing was unintentional which may have helped avoid penalties.
Thanks for sharing your experience! That 45-day waiting period between filing the missing returns and submitting the S corp election makes a lot of sense. Did your CPA mention anything about whether you needed to wait for formal processing confirmation from the IRS before submitting the 2553?
Another option you might consider is using the Social Security Administration's Business Services Online (BSO) website. Even though you mentioned having trouble with it, there's actually a specific way to report zero wage W-2s through their system. When you're entering the W-2 information, check the "Zero Wage" indicator box in the W-2 Online application. This tells the system you're intentionally submitting a W-2 with no wage information. Here's the direct link to BSO if you need it: https://www.ssa.gov/bso/bsowelcome.htm
I tried that first but couldn't find the zero wage indicator box anywhere in the interface. Is it hidden in an advanced section somewhere? The BSO interface is not exactly user friendly.
It's definitely not in an obvious place! You need to first select "Report Wages to Social Security" from the main BSO menu, then choose "Create/Edit W-2/W-2c Online." After you've entered the employee information, there should be a checkbox labeled "Zero Wage" near the bottom of the wage information section. If you still don't see it, make sure you're using the W-2 Online application and not the W-2 file upload option, as they have different interfaces. Also, sometimes you need to complete all the required fields first (name, SSN, address) before that option becomes visible. The BSO system is definitely frustrating to navigate!
Has anyone tried just using regular tax software like TurboTax or H&R Block for this? I had a similar issue last year and ended up using H&R Block's small business option. It wasn't free but it handled my zero wage W-2 without any problems.
7 One thing nobody's mentioned yet is that CPAs can get you in compliance, but tax attorneys have attorney-client privilege. That means if you discover something problematic from the past, discussions with your tax attorney are protected in ways conversations with a CPA aren't.
16 Wait really? So if I tell my CPA about mistakes I made on past returns, they could be forced to tell the IRS, but a lawyer couldn't?
7 That's exactly right. Conversations with your attorney are protected by attorney-client privilege, which means they generally cannot be compelled to disclose what you've told them about past issues. CPAs do have a type of confidentiality privilege, but it's much more limited and has significant exceptions, especially in cases involving potential tax fraud or criminal matters. If you're concerned about disclosing past problems, speaking with a tax attorney first provides stronger protection while you figure out the best approach to resolve the situation.
5 Don't forget enrolled agents (EAs)! They're tax specialists licensed by the IRS who can represent taxpayers before the IRS just like CPAs and attorneys but usually cost less. For many situations they're perfect middle ground.
Don't forget to keep detailed records of these trips! The IRS loves to challenge vehicle expenses. I got audited last year on my rental property return and they specifically looked at my mileage claims. What saved me was having a dedicated logbook where I recorded: - Date and time of each trip - Starting and ending odometer readings - Purpose of the trip (like "weekly property inspection") - Any notes about what I observed or did during the visit Just using a calendar or guessing later is not enough if you get audited. Trust me, you want solid documentation!
Thanks for the detailed advice! I've actually been using a notes app on my phone to track dates, but I haven't been recording odometer readings. Will start doing that immediately. Do you think it's worth getting one of those mileage tracker apps instead of manual logs?
Apps can definitely make this easier! I switched to MileIQ after my audit and it's been great - automatically tracks all my drives and lets me categorize them as business or personal with a simple swipe. There are several good options out there. The key is consistency. Whatever system you use, make sure you're tracking every single trip throughout the year. The IRS is suspicious of perfectly round numbers or estimates. Showing actual, specific mileage with real dates makes your deduction much more defensible.
Just wanted to add that there's a tax court case that specifically addressed this issue - Curphey v. Commissioner. The court ruled that travel to a rental property to check on it qualified as a deductible business expense, even when the owner wasn't actively collecting rent or doing repairs during those visits. The key thing the IRS looks for is whether you're engaged in the activity with the intention of making a profit. Since regular inspections help maintain your property value and prevent costly damage, they're considered ordinary and necessary business expenses. Make sure you're being reasonable though - daily drive-bys might raise eyebrows, but weekly or monthly checks are totally normal for rental property management.
This is super helpful! Do you have any other sources or resources that talk about this specifically? I'm trying to find clear guidance because my tax preparer was unsure about this deduction.
Nina Fitzgerald
Just wanted to add my experience - I filed a late 2021 return in October 2023 and got my refund about 14 weeks later. The Where's My Refund tool didn't show any info for the first 8 weeks, then suddenly updated with an expected deposit date. One thing to be aware of is that the IRS pays interest on late refunds, so you might actually get slightly more than what your tax software calculated. My refund had about $76 in interest added to it.
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Jason Brewer
ā¢Wait the IRS actually pays interest when they're late with your refund? Is that automatic or do you have to request it somehow?
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Nina Fitzgerald
ā¢It's completely automatic! The IRS pays interest on refunds that are issued more than 45 days after the filing deadline (or the date you filed, if you filed after the deadline). The interest is calculated from the original due date of the return. The interest rate changes quarterly based on federal rates. Currently it's around 7% annually which is pretty decent. The interest gets added to your refund automatically - you'll see it as a separate amount on your refund check or direct deposit description. You will get a Form 1099-INT the following January because that interest is taxable income for the year you receive it.
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Kiara Fisherman
Does anyone know if the state refund works the same way with the late filing? I'm in a similar boat with both federal and state returns.
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Liam Cortez
ā¢States all have their own rules unfortunately. What state are you in? I know NY and CA don't penalize for late filing if you're due a refund, similar to federal.
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