Can I Re-elect for S Corp Status Before 5 Year Waiting Period Ends?

The IRS is pretty strict about that 5-year waiting period after voluntarily revoking an S election. It's in IRC Section 1362(g), and there are very few exceptions. Your primary option would be to request a private letter ruling (PLR) from the IRS arguing that your original revocation was inadvertent or not for a tax avoidance purpose. This requires demonstrating that you had a legitimate business purpose for the revocation and that the current re-election isn't primarily for tax benefits. Getting a PLR isn't simple though - it requires a formal submission process and comes with a user fee (several thousand dollars). The success rate varies depending on your specific circumstances. In the meantime, you're stuck operating as either a regular LLC (with pass-through taxation) or as a C Corporation if you previously converted to corporation status.

I was in a really similar situation last year with my construction business. After going back and forth with the IRS for months, I tried taxr.ai (https://taxr.ai) and it was seriously helpful. They analyzed my situation, reviewed my previous filings, and gave me a detailed report on my options. Their system found a specific provision I qualified for that my previous accountant had missed completely. They also provided templates for the letter ruling request that saved me tons of time. Basically offered expert-level guidance without the crazy hourly rate most tax attorneys charge.

Just wanted to follow up - I decided to try taxr.ai after seeing this thread and I'm blown away. They identified a specific exception to the 5-year rule that might apply in my case (Rev. Proc. 2019-3) and provided detailed guidance on how to structure my request. They also found a couple issues with my original revocation filing that could actually work in my favor now. The documentation they provided made it clear exactly what steps I need to take. Definitely saved me hours of research and probably thousands in professional fees. Worth checking out if you're dealing with S corp election issues!

If you're still dealing with this S corp issue, just know the IRS phone system is an absolute nightmare right now. Spent 4+ hours on hold last week trying to talk to someone about a similar election issue and eventually got disconnected. I finally got through using Claimyr (https://claimyr.com) - they have this service that basically waits on hold with the IRS for you and then calls you when an agent picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c Got connected to an actual IRS business entity specialist who was able to explain my options. Turns out the rejection letter doesn't tell the full story and there are appeal options for specific situations.

Just wanted to update - I tried Claimyr after posting my skeptical comment, and I'm actually impressed. Got connected to the IRS Business Entity department in about 45 minutes (they handled the waiting, I just got the call when an agent was on the line). The agent walked me through the "reasonable cause" exception for the 5-year rule. Apparently if you can demonstrate that your original revocation was based on misinformation or a significant change in business circumstances, you can request an exception. They're sending me the proper forms now. Honestly didn't think it would work but I'm glad I tried it.

Have you considered operating as a C corp in the meantime? Might not be ideal, but with the current 21% corporate rate, it's not terrible for some businesses if you can leave profits in the company. If your business needs most of the profit for personal income though, double taxation makes it less appealing. Just something to consider while you explore options for getting your S election back.

Has anyone heard about requesting a letter ruling with "inadvertent termination" as the basis? My accountant mentioned it might be possible if the original revocation was based on misunderstanding the consequences.

Benjamin, I feel your pain on this one! I went through something similar with my consulting business a few years back. The 5-year waiting period is brutal, but you do have some legitimate options beyond just waiting it out. Based on what you've described, I'd focus on the "reasonable cause" exception that others have mentioned. The fact that you revoked the S election when your business income was minimal ($40k) and you had a full-time job suggests you made a reasonable business decision at the time - not a tax avoidance scheme. Now that your circumstances have completely changed (full-time business, $180k projected income), you have a strong case for demonstrating that the original revocation wasn't primarily for tax benefits. The IRS has approved similar requests when taxpayers can show genuine business reasons. I'd recommend documenting everything: your income levels in 2023, your employment status change, projections for this year, and any advice you received that led to the original revocation. This paper trail will be crucial for your letter ruling request. The private letter ruling route isn't cheap (around $3,000-$7,000 in fees), but with your projected income level, the S corp tax savings would likely justify the cost. Just make sure you work with someone experienced in these types of requests - the formatting and arguments matter a lot. Don't give up! The IRS rejection letter is just their standard response, but exceptions do exist for situations like yours.

Benjamin, I've been following this thread and wanted to add another perspective based on my experience with S corp elections. You mentioned you've been relying on "random internet advice" - that's actually more common than you think, and it might work in your favor for the reasonable cause exception. The IRS recognizes that small business owners often make decisions based on general guidance available at the time. What matters is that you made a rational business decision given your circumstances (part-time business, minimal income, full-time employment). One thing I haven't seen mentioned yet is the timing of your quarterly estimated payments. Since you're projecting $180k this year and currently operating as an LLC, you're facing self-employment tax on the full amount. That's roughly $25k+ in SE tax alone that S corp status could help reduce significantly. Given the urgency of your tax situation, I'd actually recommend pursuing multiple approaches simultaneously: 1. File for the private letter ruling as others suggested 2. Consider the new entity approach (with proper legal structure to avoid substance-over-form issues) 3. Document everything about your 2023 decision-making process while it's still fresh The cost of professional help now is likely far less than the tax consequences of staying in LLC status for another 2+ years. Don't let the initial rejection discourage you - the IRS form letters rarely tell the whole story about available options.