Help with SCorp/1120 Filing Issues - S Corp Election Not Recognized by IRS

This is actually a pretty common issue with S Corporation elections. The IRS doesn't always send confirmation when they approve S Corp status, and the electronic acceptance of a return doesn't necessarily mean they've processed and approved the election. First, don't panic. You've taken good steps already by submitting a new election request with backdating. The IRS is generally understanding with these situations, especially when you've been consistently filing as an S Corp and the shareholders have been reporting accordingly. I wouldn't recommend getting a new tax ID - that creates more problems than it solves and doesn't address the existing issue. Starting fresh doesn't erase past filing obligations. Your best approach is probably to wait a bit longer for the IRS response to your backdating request. However, since you're approaching a deadline, you might want to file Form 1120-C by the due date (with an extension if needed) to avoid any potential late filing penalties, then amend later if your S Corp status is approved retroactively. Also, double-check that the original S Corp election (Form 2553) was properly filed. Sometimes these forms get lost or misprocessed. If you have a copy with proof of mailing/delivery, that will help your case significantly.

This is actually a pretty common issue with S Corporation elections. The IRS doesn't always send confirmation when they approve S Corp status, and the electronic acceptance of a return doesn't necessarily mean they've processed and approved the election. First, don't panic. You

I went through almost the exact same nightmare situation with my construction business. After countless hours of stress, I found taxr.ai (https://taxr.ai) and it was a complete game-changer for resolving my S Corp election issues. I uploaded all my rejection notices and previous filings, and their AI analyzed everything and gave me a detailed action plan that made total sense. Their system spotted that my original Form 2553 had been processed but not properly linked to my tax account in the IRS system - something that wasn't obvious to me or even the IRS phone representatives. They generated a perfect letter explaining the situation with all the right references to the tax code that I could submit to the IRS. The best part was being able to talk to their tax specialists who've handled this exact situation with S Corp election problems. They even provided templates for the request for backdating that were way more comprehensive than what I would have done on my own.

I was super skeptical of taxr.ai at first (referenced in another comment), but after struggling with a similar S-corp issue for months, I finally gave it a try. Wow, was I wrong about it. The system immediately identified that my original Form 2553 had actually been received by the IRS but was misclassified in their system. They helped me prepare a proper backdating request with specific references to Revenue Procedure 2013-30, which apparently is crucial for these cases. Their specialists walked me through exactly how to document that I had "reasonable cause" for seeking retroactive relief - something I wouldn't have known to emphasize. Most impressively, they drafted correspondence that addressed exactly why my previously accepted 1120-S didn't constitute acceptance of S-corp status (citing specific IRS internal procedures). Within 6 weeks of submitting their recommended documentation, I got confirmation from the IRS accepting my S-corp status retroactively. Saved me from having to amend multiple years of returns!

When I had problems with my S-corp filing getting rejected, I spent WEEKS trying to get through to someone at the IRS who could actually help. It was like hitting my head against a wall - hours on hold only to be transferred and disconnected. Then I found Claimyr (https://claimyr.com) and it changed everything. They got me connected to an actual IRS representative in under 45 minutes when I had been trying for days on my own. You can see how it works at https://youtu.be/_kiP6q8DX5c - they basically navigate the IRS phone tree for you and call you when they have an agent on the line. With a complex issue like yours involving entity classification, you really need to speak with someone in the right department who can see your full filing history. The IRS agent I finally spoke with was able to see that my S-corp election had been received but was sitting in pending status, and they expedited the processing. Saved me from filing the wrong forms and potentially creating an even bigger mess.

I have to eat my words about Claimyr from my previous skeptical comment. After another week of failed attempts to reach the IRS about my business tax issue, I gave in and tried it. I honestly couldn't believe it when my phone rang about 27 minutes later and it was actually an IRS representative on the line! The agent I spoke with was able to look up my S-corp election history and confirmed it had been received but was marked as "pending review" for over a year. They put a note in my file to expedite the review and gave me specific instructions on what additional documentation to send in to support my case. Best part was I got to speak with someone in the Business & Specialty Tax department who actually understood S-corp elections and entity classification issues. They explained that electronic acceptance of my return was just a confirmation that the electronic filing system received it, not that the entity classification was correct. Would have saved me so much confusion if I'd known this earlier!

Just wanted to add something important about penalties that nobody's mentioned. If you end up having to file as a C-corp retroactively, make sure to request first-time penalty abatement! The IRS will often waive penalties if you have a clean compliance history (which it sounds like you do). IRS has something called "reasonable cause" relief too. Given that you filed what you thought was the correct form on time, and it was accepted electronically, you have a strong case for reasonable cause to eliminate any potential penalties. Just make sure to document everything, including dates of all your communications with the IRS. Also, consider filing Form 1138 if you need to extend the time to pay any potential tax differences. If your business showed losses either way, there might not be much tax difference between S and C status, but the form types and compliance requirements are different.

Has anyone addressed the shareholders' personal returns in this situation? Since they've been reporting S-Corp income/losses on their personal returns via K-1s for multiple years, what happens if the IRS doesn't approve the retroactive S-Corp status? From my experience, the IRS is more likely to approve the backdated S-Corp election since it would create a bigger mess to unwind all those personal returns. But if they don't, are the shareholders looking at potential penalties for incorrect reporting on their personal returns too?

This is definitely a challenging situation, but you're handling it well by being proactive. I've seen similar cases where the IRS systems don't properly sync S-Corp elections with tax account records. Given the deadline pressure, I'd recommend filing Form 1120 (C-Corp return) by the due date as a protective measure, clearly marking it as "PROTECTIVE FILING PENDING S-CORP ELECTION APPROVAL" at the top. This protects you from late filing penalties while your backdating request is pending. A few additional considerations: 1) Request a copy of your complete tax account transcript from the IRS - this will show exactly what elections they have on file for your entity. 2) If you have proof of mailing the original Form 2553 (certified mail receipt, etc.), include that with any follow-up correspondence. 3) Consider reaching out to the Taxpayer Advocate Service if your backdating request takes too long - they can help expedite resolution of these administrative issues. The good news is that with consistent S-Corp filings and losses in both years, the IRS generally wants to resolve these situations favorably rather than create a compliance nightmare for everyone involved. Your documentation of accepted 1120-S returns will work in your favor as evidence of good faith compliance efforts. Keep detailed records of all communications and don't stress too much - these issues get resolved, they just take patience!

This is exactly the kind of situation that highlights how frustrating IRS administrative processes can be. I'm dealing with a similar issue right now where my LLC election seems to have gotten lost in their system. One thing I'd add to the excellent advice already given - when you do file that protective Form 1120, make sure to attach a statement explaining the situation. Include details about your pending S-Corp election request, the dates of your original filing, and reference the fact that your previous 1120-S returns were accepted. This creates a paper trail that will be helpful if an IRS examiner ever looks at your file later. Also, consider requesting penalty relief under Revenue Procedure 2013-30 if you haven't already - it specifically addresses late S-Corp elections and provides a framework for reasonable cause relief. The fact that you've been consistently filing as an S-Corp and your returns were electronically accepted gives you a strong reasonable cause argument. The waiting is definitely the hardest part, but based on what others have shared here, it sounds like the IRS generally tries to resolve these situations favorably when there's clear evidence of good faith compliance efforts. Your documentation of accepted returns and consistent filing behavior should work in your favor. Hang in there - these administrative tangles do get sorted out eventually!

As someone who's dealt with similar IRS entity classification issues, I want to emphasize that you're absolutely on the right track with your approach. The fact that your 2020 1120-S was electronically accepted does create a reasonable expectation that your S-Corp status was valid, even though we now know the IRS systems don't always sync properly. One critical point I haven't seen mentioned yet - make sure you're documenting the business purpose and timing of your original S-Corp election. The IRS looks favorably on elections made for legitimate business reasons (like pass-through taxation for losses) rather than tax avoidance motives. Since your business had losses, this actually strengthens your case for backdating approval. I'd also recommend checking if your state has any corresponding S-Corp elections that need to be aligned. Sometimes state and federal elections get out of sync, which can create additional complications down the road. The protective 1120 filing is definitely the smart move here - it shows good faith compliance while protecting against penalties. Just make sure to clearly mark it and include that explanatory statement others have mentioned. One last thought: if this gets resolved favorably (which seems likely given your circumstances), consider setting up a reminder system to verify your entity status annually going forward. These IRS system glitches aren't uncommon, and catching them early makes resolution much easier.

This thread has been incredibly helpful - thank you all for sharing your experiences and advice! As someone new to dealing with IRS entity classification issues, I'm amazed at how common these S-Corp election problems seem to be. I'm particularly grateful for the detailed explanations about protective filing with Form 1120 and the importance of creating a clear paper trail. The Revenue Procedure 2013-30 reference and first-time penalty abatement options are things I never would have known to look into on my own. One question that occurred to me while reading through all this - for those who successfully resolved similar situations, how long did the entire process typically take from start to finish? I know everyone's case is different, but it would be helpful to have some realistic expectations about timeframes, especially for planning purposes with other business compliance matters. Also, has anyone dealt with this type of issue where there were multiple years involved? I'm wondering if having filed 1120-S returns for both 2019 and 2020 before the problem was discovered makes the case stronger or more complicated for backdating approval. This community is such a valuable resource for navigating these complex tax situations. The practical, real-world advice here is worth its weight in gold compared to trying to decipher IRS publications on your own!