Misplaced CP261 notice - Filing as C corp or S corp when S election status unclear?

Thanks for this info! So if the S election did go through, would there be any penalties for filing late since I didn't realize I was supposed to be filing an 1120-S instead of an 1120? And is there a way to check online without calling the IRS? Their hold times are insane right now.

Yes, unfortunately there could be penalties for filing late. However, you may qualify for penalty abatement under the IRS's First-Time Penalty Abatement policy if you have a clean compliance history. You'd need to explain the situation - that you never received confirmation of your S election and reasonably believed you needed to file as a C corporation. As for checking online, you can try to access your Business tax account through the IRS website, but honestly, it often doesn't show the election status clearly. Your quickest path to resolution might actually be speaking with an IRS representative directly, despite the wait times.

How does taxr.ai get access to IRS status info? Seems sketchy that a third party would have better info than me contacting the IRS directly. Does it actually connect to IRS databases or just make guesses based on the docs you upload?

I'm interested but also concerned about security. Are you uploading sensitive company documents to their system? Did they explain how they protect your data? My accountant always warns me about sharing tax docs with random online services.

The service doesn't connect directly to IRS databases. Instead, it analyzes the rejection codes and messages you received, compares them with your filing history, and uses that information to determine your most likely status. It's more about interpreting the technical data you already have rather than accessing new information. Regarding security, they use bank-level encryption for all uploaded documents and their privacy policy states they don't share your information with third parties. They also give you the option to delete all your data after you get your analysis. I was skeptical too but my accountant actually recommended it.

Wait, how does this actually work? Do you still need to talk to the IRS yourself or does someone else talk to them for you? I'm confused about how they can "hold your place in line.

This sounds like BS honestly. The IRS won't talk to anyone but you or your authorized representative about your tax matters. How would some random service get IRS agents on the phone any faster than I can myself? Seems like you're just paying for something you could do yourself.

You still talk to the IRS yourself. The service navigates the IRS phone tree and waits on hold in your place. When an agent actually comes on the line, you get a call connecting you directly to that agent. They're not talking to the IRS for you - they're just handling the hold time. I was also skeptical before trying it. The IRS has no problem with this approach because when the agent comes on, you're the one who speaks with them. You're still the only one discussing your tax information. It's just a way to avoid sitting by your phone for hours listening to the hold music.

That's actually a brilliant suggestion I hadn't considered. Would they have access to my federal filing status though? Do you just call the state tax department and ask them directly?

Yes, many state tax departments do have access to your federal filing status information because it affects how you file at the state level. Just call your state's department of revenue and ask if they can confirm whether your business is registered as an S corporation for federal tax purposes. In my case, I called my state tax department and explained the situation. The representative was able to look up my business and confirm that they had me registered as an S corporation based on information received from the IRS. This confirmed that my S election had gone through even though I never received the federal confirmation.

This is key advice. My accountant has saved me numerous times by getting notices I somehow missed. Worth every penny of their fee just for this service alone.

That's an interesting perspective. My income is still relatively low (around $90k annual profit), and I'm the sole owner taking distributions regularly. Wouldn't the double taxation of C corp be worse in my case? I was under the impression S corp is better for smaller, single-owner businesses where the owner takes regular distributions.

For your specific situation with $90k profit and taking regular distributions as a sole owner, you're right that S corp status is likely more advantageous. The S corp allows you to take a reasonable salary (subject to employment taxes) and then take additional distributions that aren't subject to self-employment tax. In contrast, if you were planning to reinvest most profits back into the business rather than taking distributions, a C corp might be better because you'd only pay the flat 21% corporate rate on retained earnings. But since you're regularly distributing profits, you'd face that double taxation issue with a C corp - 21% at the corporate level and then personal income tax on dividends. Your instinct about S corp being better for your scenario is correct.

This is really helpful advice! I'm dealing with a similar situation right now where I'm not sure if my S election went through. One question - when you say "request a transcript using Form 4506-T," how long does that typically take to receive by mail? I'm trying to figure out the fastest way to confirm my status since I need to file soon. Also, did you end up having to pay any penalties when you filed your late 1120-S, or were you able to get them waived with the reasonable cause explanation?