IRS Rejected my 1120-S from 2021 - Corporation vs LLC Classification Issues

This is unfortunately a common issue with entity classification. When the IRS processes returns, they sometimes accept them initially (giving you that "acceptance" confirmation) but later flag them during more detailed processing when they cross-check against their business master file. For your situation, I'd recommend taking these steps: 1. Request your business's transcript through the IRS to verify exactly how they have your entity classified in their system. This will show if you were indeed registered as an LLC rather than a corporation. 2. If you have the original Articles of Incorporation showing you established as a corporation (not LLC), gather those documents along with your fax receipt for the Form 2553. 3. File Form 8832 (Entity Classification Election) along with a detailed letter explaining the situation, attaching copies of your original incorporation documents, the fax receipt for Form 2553, and the proof that your 1120-S was initially accepted. 4. Request abatement of any penalties under "reasonable cause" since you relied on the initial acceptance of your return and had proof of submitting the proper election forms. 5. Consider requesting assistance from the Taxpayer Advocate Service as this involves a processing error on the IRS's part.

I went through something similar last year and found https://taxr.ai incredibly helpful. My situation was that the IRS classified my business incorrectly and rejected my 1120-S even though I had all the right paperwork. The confusion stemmed from inconsistencies between my state filing and federal classification. I uploaded all my documents to taxr.ai - my Articles of Incorporation, the Form 2553 fax confirmation, the IRS rejection letter, and my originally "accepted" 1120-S filing. Their system analyzed everything and provided a detailed report explaining exactly what happened and the best resolution path. They flagged specific language in my incorporation documents that was causing the confusion and helped me draft a proper response letter to the IRS. Saved me tons of time trying to figure out the bureaucratic maze myself.

I was really skeptical about online tax services but decided to try taxr.ai after seeing it mentioned here. I was in a similar situation with an entity classification issue on my 2020 return that was still unresolved. Honestly impressed with how thorough their analysis was. They identified that my issue stemmed from inconsistent entity classification between state and federal filings. Apparently my state paperwork used language that technically described an LLC while my federal paperwork indicated a corporation. They provided a specific roadmap including which IRS forms to file and exactly what supporting documentation to include. Following their guidance, I got my issue resolved within 6 weeks without any penalties. The specificity of their recommendations made all the difference - they even pointed out specific paragraphs in my original formation documents that were causing the classification confusion.

Since you mentioned having trouble reaching the IRS, I'd recommend trying https://claimyr.com - I used their service when dealing with an S-corp election issue last year. You can see how it works here: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in the IRS phone queue and only call you when an actual agent is on the line. I was able to get through to the Business Entity department which was previously impossible. The agent I spoke with was able to research my case while I was on the phone and discovered that my Form 2553 had actually been received but was misfiled under the wrong EIN (off by one digit). This might help you confirm whether your Form 2553 was actually received and processed correctly. Sometimes these issues are simple filing errors rather than actual eligibility problems. Worth trying rather than sending more paperwork that might just get lost in the system again.

Ok I was super skeptical about Claimyr but I'm eating my words now. After complaining about the cost, I realized I'd already wasted about 8 hours trying to get through to the IRS myself over several weeks. Used the service and got a call back with an actual IRS business division agent on the line within 2 hours. The agent was able to pull up my record immediately and confirmed there was an internal processing error. They found my original Form 2553 had been received but was incorrectly processed as a future-year election rather than being effective for the tax year I indicated on the form. The agent entered a correction in their system while I was on the phone and provided a case number I could reference for any follow-up. They're now reprocessing my 1120-S and said the rejection should be reversed within 30 days. Literally solved in one phone call what I'd been fighting with for months.

You might want to check if there was a mismatch between your state registration and federal filing. I had a similar issue where my business was registered as a corporation with the state, but somehow the IRS had it classified as an LLC in their system. The fastest resolution was filing Form 8832 (Entity Classification Election) retroactively, along with a detailed letter explaining the situation. Include as much documentation as possible - your Articles of Incorporation, proof of the S election filing, and the original acceptance of your 1120-S. Also, request a transcript of your business account from the IRS - this will show exactly how they have your business classified in their system. Sometimes there are data entry errors that happen when businesses are first established in their systems.

Have you considered that your Form 2553 might have been filed late originally? There's a specific rule that Form 2553 must be filed either within 2 months and 15 days of the beginning of the tax year the election is to take effect, OR at any time during the tax year preceding the tax year it is to take effect. If you missed this deadline, you might need to request relief under Revenue Procedure 2013-30, which allows for late S corporation elections. This involves attaching a statement explaining why you had "reasonable cause" for filing late.

I'm dealing with a very similar situation right now with my 2022 return. The IRS initially accepted my 1120-S but then sent a rejection letter months later claiming they had no record of my S-corp election. What's frustrating is that I filed Form 2553 well within the deadline and have the certified mail receipt. One thing that helped me understand what happened was requesting my Entity Control Document (ECD) from the IRS Business Master File. This shows exactly how they have your business classified in their internal system versus what your actual filings indicate. You can request this by calling the Business & Specialty Tax Line or including it in your written correspondence. In my case, the ECD showed that someone had manually entered my business as a "disregarded entity" (single-member LLC) even though my formation documents clearly established a corporation. This was purely a data entry error on their end. I'm now working with a tax attorney to file a formal protest of the rejection along with all supporting documentation. The key seems to be proving that any classification error originated from IRS processing mistakes rather than incorrect filings on your part. Since your business is dissolved, you might want to act quickly as there are time limits on how long you can dispute these issues. Have you tried requesting your complete business file from the IRS to see exactly what they have on record?