Can an LLC elect C corp status retroactively for the previous tax year?

Thanks for the info. What would qualify as "reasonable cause" in this situation? And if we get denied for the retroactive election, would there be any penalties or just means we have to file as an LLC for the past year?

Reasonable" cause typically involves showing that you acted reasonably and in good faith. This might include relying on the advice of a qualified tax professional who gave you incorrect information, or circumstances beyond your control that prevented a timely filing. Simply not knowing the rules generally'doesn t qualify. If your retroactive election is denied, there'wouldn t typically be penalties - you would just need to (file or amend if'you ve already) filed your tax returns as an LLC for the past year. You could still elect C corp status going forward with the propertiming.

Did it help you with the actual reasonable cause letter? That's the part I'm struggling with - not sure how to word it properly so the IRS doesn't just reject it immediately.

This sounds suspiciously like an ad. Did you actually get your retroactive election approved? What was your reasoning for reasonable cause that worked?

It actually has templates for reasonable cause letters that you can customize based on your situation. The template I used focused on how I received advice from my former accountant who didn't properly explain the election deadlines to me, and I included dated emails as evidence. Yes, my retroactive election was approved! My reasonable cause argument centered on professional advice that I relied on. I had documented communications with my previous accountant who told me we could "handle the election whenever it made sense financially" without explaining the strict timelines. The IRS accepted this since I had documentation showing I tried to be compliant based on the information I had at the time.

How does this actually work? I tried calling the IRS business line like 20 times last month and just got disconnected each time.

Yeah right. Nothing gets you through to the IRS faster. They're understaffed and overwhelmed. You probably just got lucky with timing or something.

It works by essentially waiting on hold for you. You put in your phone number, and their system calls the IRS and navigates the phone tree. When they finally get a human on the line, the system calls you and connects you directly with the agent. It's like having someone else do the hold time for you. I was skeptical too until I tried it. I'm not saying it's magic - it doesn't create more IRS agents. But what it does is handle all the redial attempts, navigating phone menus, and hold time so you don't have to waste your day. My call was on a Tuesday around 10am if that helps - might be better times to call than others.

That's a good point! We've actually discussed S corp as well. Our main motivation for C corp is that we're planning to reinvest most profits back into the business for the next few years, and we've heard the tax rate might be more favorable. Also considering some potential investment opportunities that might be easier with a C corp structure. But definitely worth another look at S corp. Do the same retroactive election rules apply for S corps?

Yes, the same basic retroactive election rules apply for S corps, but with S corps you have an additional form - Form 2553 instead of just the 8832. For an S corp election, you generally need to file no more than 2 months and 15 days after the beginning of the tax year for which you want the election to take effect. If you're reinvesting profits back into the business, then C corp taxation could indeed make more sense because you'd only pay the 21% corporate rate on profits left in the business. S corps make more sense when you're distributing most profits to owners. Just make sure to run the numbers both ways with your specific situation.

I got a retroactive S corp election approved last year. Had to write a letter explaining that I relied on incorrect advice from my previous tax preparer (which was true) and included copies of emails with the preparer as evidence. Also included a statement that I'd been operating as if I was an S corp (keeping minutes, taking reasonable salary, etc). Took about 8 weeks but got approved.

This is really helpful! I'm new to this whole entity election thing and just joined this community. Can you clarify what you mean by "modeling out the tax differences"? Are there specific calculators or worksheets that help compare the actual dollar impact between LLC, S corp, and C corp status? I'm trying to understand this for my own small business (much smaller revenue than the OP) but want to make sure I'm thinking about it the right way from the start.

Great question! When I say "modeling out the tax differences," I mean calculating the actual tax burden under each entity type given your specific business situation. You'll want to look at factors like: 1. Your expected business income 2. How much you plan to take out as owner distributions vs. reinvest 3. Self-employment tax implications (LLCs pay SE tax on all profits, S corps only on salary portion) 4. State tax considerations (some states don't recognize S corp elections) There are online calculators, but honestly the best approach is to work with a tax professional who can run scenarios using tax software. They can show you side-by-side comparisons of your total tax liability under each election. For smaller businesses, S corp election often provides the biggest savings due to SE tax reduction, but it depends on your specific numbers. The key is to model multiple years out since entity elections have long-term implications. Don't just look at year one - consider where you expect the business to be in 3-5 years. Also remember that changing elections later can be difficult or impossible in some cases, so it's worth getting this decision right from the start!

This is really helpful information about Revenue Procedure 2013-30! I hadn't come across this in my research. The $3,271 fee seems steep, but if it's more straightforward than proving reasonable cause, it might be worth it given our revenue levels. We haven't filed our LLC return yet for the fiscal year that ended May 31st (we usually file closer to the extension deadline), so it sounds like we might qualify for this procedure. Do you know if there are any other specific requirements we'd need to meet? And would we still need to file Form 8832, or is there a different form for this relief procedure? I'm definitely going to bring this up with our accountant - this could be exactly what we need to avoid the whole reasonable cause headache. Thanks for sharing this!

You're absolutely right about Rev. Proc. 2013-30 being a potentially better route! Since you haven't filed your LLC return yet, you should definitely qualify for the late election relief procedure. For Rev. Proc. 2013-30, you'll still file Form 8832, but you need to write "FILED PURSUANT TO REV. PROC. 2013-30" at the top. The main requirements are: (1) you haven't filed a return for the tax year you want the election effective for, OR you filed consistently with the requested election, (2) the election is filed within 3 years and 75 days of the requested effective date, and (3) you pay the user fee. One important thing to double-check - make sure your requested effective date falls within the 3 years and 75 days window. If your fiscal year ended May 31st and you want the election effective from June 1st of that year, count forward to see if you're still within the timeframe. The procedure also requires you to include a statement that you're eligible for the relief and that you're requesting the election under Rev. Proc. 2013-30. Much cleaner than trying to prove reasonable cause, and the IRS processes these more routinely since it's a established procedure rather than a discretionary determination.

This is really valuable insight from a CPA perspective! As someone new to this community and just starting to understand these entity elections, I'm curious about the accumulated earnings tax you mentioned. Could you elaborate on what constitutes "too much profit" and what would be considered a valid business purpose for retaining earnings? Also, when you mention modeling scenarios over 5 years, are there specific software tools or templates that work well for this kind of analysis? I'm trying to educate myself on the right questions to ask when I eventually consult with a tax professional about my own small business. The long-term strategic considerations you raised (investors, stock options) are things I hadn't really thought about yet, but they seem crucial for making the right choice upfront rather than having to change course later.