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.

This is such a frustrating situation, but you're definitely not alone in dealing with IRS processing delays on S-Corp revocations. I've seen similar cases where clients get stuck in limbo for months or even years. One additional strategy I'd suggest is to also consider filing Form 8832 (Entity Classification Election) along with your reasonable cause request. This allows you to elect corporate tax treatment and can serve as a backup method to achieve the same tax result as revoking the S election. Sometimes the IRS processes entity classification elections faster than S-Corp revocation requests. Also, when you draft your reasonable cause letter, make sure to emphasize the IRS's own processing delay as part of your justification. The fact that they took over a year to respond to your initial request, and then provided such an unhelpful response, actually strengthens your reasonable cause argument. You relied on their system in good faith and were prejudiced by their delay. Keep detailed records of all your correspondence going forward - dates, methods of delivery, response times, etc. This documentation trail will be crucial if you need to escalate or appeal any decisions.

I've been dealing with S-Corp revocation delays myself and wanted to share a resource that might help. The IRS Taxpayer Advocate Service (TAS) can intervene in cases where you've experienced significant hardship due to IRS processing delays. Given that your client has been waiting since June 2023 with no meaningful response until recently, this could qualify for TAS assistance. You can submit Form 911 (Request for Taxpayer Advocate Service Assistance) to initiate the process. TAS has the authority to expedite processing and can sometimes secure retroactive relief that might be difficult to obtain through normal channels. They're particularly effective when there's been a clear breakdown in IRS communication or processing, which seems to be the case here. The key advantage is that TAS works directly with IRS departments to resolve issues and can often cut through bureaucratic delays. Since your client operated consistently as a C-Corp based on their reasonable belief that the revocation was effective, this strengthens your case for TAS intervention. I've seen them successfully resolve similar S-Corp election issues in 60-90 days when the normal process was stalled for years.

This thread has been incredibly helpful - thank you all for sharing your experiences and strategies! I'm dealing with a similar S-Corp revocation delay situation with one of my clients, and seeing the different approaches people have taken gives me much more confidence in how to proceed. Based on what I'm reading here, it sounds like the combination approach might be most effective: filing a detailed reasonable cause request with Form 1120 for the affected years, while simultaneously pursuing TAS intervention through Form 911. The key seems to be documenting everything thoroughly and emphasizing both the client's good faith reliance on the original submission and the IRS's processing failure. One thing I'm curious about - for those who successfully obtained retroactive relief, how detailed did you get in documenting that your clients weren't operating as S-Corps during the delay period? I'm thinking specifically about things like board resolutions, meeting minutes, or other corporate governance documents that might support the narrative that they genuinely believed the revocation was effective. Also, has anyone had success with including a timeline document that clearly shows the sequence of events and IRS response delays? It seems like creating a clear chronology might help the reviewing agent understand just how unreasonable the processing delays were.