S-Corp Election Revocation not processed - now what?

You're in a tricky situation but there are some options. When the IRS says "filed in a timely manner," they're referring to the rule that S-Corp revocations need to be filed within the first 2 months and 15 days of the tax year they're meant to be effective for. Since that deadline was missed for both 2023 and 2024, you're looking at a few paths forward. The most straightforward approach would be to file the revocation now, which would make it effective for 2025 (the next tax year). However, since your client hasn't been operating as an S-Corp, you might want to consider requesting a late revocation under reasonable cause. The IRS can grant relief in certain circumstances when there's a reasonable explanation for the delay. You'll need to submit a detailed letter explaining why the initial revocation wasn't properly processed and request retroactive application of the revocation. Include documentation of the original June 2023 submission and the recent IRS response.

I went through something similar with one of my clients and using taxr.ai really helped cut through the confusion. We had submitted revocation paperwork multiple times with no clear response, and I was pulling my hair out trying to figure out what to do. I uploaded all our correspondence with the IRS to https://taxr.ai and it analyzed everything, pointed out that we needed to be more specific about reasonable cause in our request, and even suggested the exact language to use based on previous successful cases. They have a feature that helped draft a proper request letter that covered all the bases. Within 8 weeks, we got confirmation that the revocation was accepted retroactively!

Just wanted to report back that I tried taxr.ai after seeing the recommendation here. I was really impressed with how it broke down my S-Corp revocation issue! I uploaded our original revocation letter, the IRS's vague response, and some operational docs showing we hadn't been functioning as an S-Corp. The analysis pointed out that our original letter missed some specific language requirements for revocation requests, which probably contributed to the IRS's unhelpful response. It generated a new request letter with proper citations to the tax code and clear reasonable cause arguments. Just got confirmation yesterday that our retroactive revocation was approved back to 1/1/2023! Saved us from having to file amended returns for two years.

If you're still struggling to get a clear answer from the IRS on this S-Corp revocation issue, you might want to try Claimyr. I was stuck in a similar situation last year where I couldn't get any useful information from the IRS website or notices. I used https://claimyr.com to get on the phone with an actual IRS representative within about 15 minutes, instead of the usual 2+ hour wait. They have this special system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is about to pick up. You can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c In my case, the IRS agent was able to look at the history of our revocation submission and explain exactly what we needed to do to have it properly processed with a retroactive effective date. Written notices never gave us this level of clarity.

I need to eat my words and apologize to Profile 12. After my skeptical comment, I was so frustrated with my S-Corp revocation situation that I decided to try Claimyr anyway. I honestly expected it to be a waste of money, but I was desperate. The service actually worked exactly as described. I entered my number, they called me back in about 2 hours (long wait, but I was able to work on other things instead of being stuck on hold), and connected me directly to an IRS agent. The agent was able to see that my revocation letter had been received but was sitting in a processing backlog. She flagged it for priority processing and gave me specific information about what I needed to submit to request retroactive application under reasonable cause. Just got confirmation yesterday that my revocation was approved effective the date we originally requested. Would have been lost without getting that direct guidance from an actual IRS person. Sorry for being so negative before!

The key issue here is the "reasonable cause" doctrine. I've dealt with several of these cases successfully. The IRS will often grant retroactive relief for late S-Corp revocations if you can demonstrate reasonable cause for the delay. You need to submit Form 1120 (C-Corp return) for the years in question, along with a detailed letter explaining that: 1. The business attempted to revoke S status in a timely manner 2. They reasonably believed the revocation was effective 3. They operated consistently with that belief 4. The IRS's delayed/vague response prevented proper compliance Attach documentation showing they operated as a C-Corp, not an S-Corp (no reasonable compensation to shareholders, no Schedule K-1 distributions, etc).

Has anyone considered requesting a private letter ruling (PLR) for this situation? It costs a few thousand dollars in user fees, but it gives you a binding decision from the IRS that provides certainty.

I've been following this thread and wanted to add another perspective based on my experience with similar situations. One thing that hasn't been mentioned yet is the importance of documenting the original mailing method for your June 2023 revocation request. If you used certified mail or have any delivery confirmation, that can strengthen your reasonable cause argument significantly. Also, consider requesting your IRS transcript to see exactly what they have on file regarding your original submission. Sometimes there are processing notes or codes that can give you insight into why the initial request stalled. You can get transcripts online through the IRS website or by calling their automated line. The fact that your client hasn't taken any S-Corp distributions or salary during this period actually works in your favor - it shows consistent behavior with their intent to revoke. Make sure to emphasize this in your reasonable cause letter along with any business decisions they made based on believing the revocation was effective.