S-Corp dissolution complications - IRS rejecting Form 2553 and treating as C-Corp. What's the simplest way to close this zero-activity business?
I'm in a frustrating situation with a business entity I formed back in 2019. I created an S-Corporation through ZenBusiness and filled out the Form 2553 during the setup process to elect S-Corp status. The problem is I literally never did anything with this business - zero transactions, zero revenue, zero expenses - but I've dutifully filed 1120-S and Schedule K-1 every year just to stay compliant. Earlier this year I decided enough was enough with the paperwork hassle and filed what I thought would be my final 1120-S in February. I checked all the "final return" boxes, included the Schedule K-1, and submitted Form 966 (Corporate Dissolution or Liquidation). Got everything properly dissolved at the state level which was surprisingly simple. But now the IRS has contacted me saying they can't process my return because apparently they don't have a "valid election" for S-Corporation status on file. They're treating it as a C-Corporation and want me to complete Form 1120-X and Schedule L instead. I'm just completely done with this entity and want the simplest path to getting this resolved. Should I just give in and file the 1120-X and Schedule L as a C-Corp even though that's not what I originally set up? Or should I push back and send them proof of my original Form 2553 from 2019? If I do file the 1120-X, do I need to include another Form 966 to make sure they know it's dissolved? Any advice on how to close this chapter with minimal IRS back-and-forth would be greatly appreciated. This business literally never had a single transaction and I'm beyond ready to be done with the paperwork nightmare.
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Sydney Torres
Your situation is unfortunately common when using formation services. The most direct path forward is to contact the IRS and explain that you did file Form 2553, but there appears to be an error in their records. Ask them to search for your Form 2553 in their systems before you take any further action. If they can't locate it, you have two options. The first is to provide them with a copy of your original Form 2553 from 2019 along with proof of submission (if you have it). The second option is to simply follow their instructions and file the 1120-X and Schedule L as a C-Corporation. If you choose the second option, yes, you should include another Form 966 to confirm dissolution. Make sure to clearly mark this as the final return. Since you had no business activity, the C-Corporation return shouldn't create any tax consequences - just paperwork. The simplest solution depends on what documentation you still have. If you have your original Form 2553 and proof of filing, sending that in with a clear explanation might be faster. If not, just filing what they're asking for will likely be the path of least resistance.
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Kaitlyn Jenkins
•If they go with filing as a C-Corp even though it was intended to be an S-Corp, won't that potentially create tax issues? I thought C-Corps could face double taxation issues even with zero activity?
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Sydney Torres
•For zero-activity corporations, there wouldn't be any double taxation issues since there was no income to tax in the first place. The return would show zeros across the board. If there had been income, then yes, filing as a C-Corporation could potentially create tax issues through double taxation. But with no business activity, the difference between the forms is purely administrative rather than having financial consequences.
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Caleb Bell
I had a similar nightmare trying to close down my side business! Check out https://taxr.ai - it saved me so much time when dealing with confusing IRS notices. I uploaded my dissolution paperwork and they analyzed everything, told me exactly what forms I needed, and even explained how to respond to the IRS notice I received. The system spotted that my state dissolution wasn't properly linked to my federal filing which was causing the exact same issue you're having.
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Danielle Campbell
•How exactly does this work? Do they just tell you what to do or do they actually help with submitting anything? I'm dealing with a similar issue but with an LLC that was supposed to be treated as an S-Corp.
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Rhett Bowman
•Sounds like an advertisement. Is this service actually legit? I've been burned before by tax "solutions" that just tell me obvious stuff I could find on the IRS website.
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Caleb Bell
•They don't submit forms for you - they analyze your situation and tell you what forms you need to file, how to complete them correctly, and explain any notices you've received in plain English. It saved me from having to schedule a consultation with a tax professional. For your LLC issue, they would review your entity formation documents and IRS correspondence to identify what's causing the problem and the most efficient solution path. Their AI is trained on tax regulations and can spot issues regular tax software misses.
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Rhett Bowman
Just wanted to update after trying taxr.ai that the previous commenter mentioned. I was skeptical (as you can see from my reply), but it was actually super helpful for my own dissolution issue. I uploaded my IRS notice and entity paperwork, and it immediately identified that I had missed checking a specific box on my final return that was causing the IRS to keep the entity active. The explanation was clear and saved me from having to hire my accountant for another $300 consultation just to figure out what was wrong.
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Abigail Patel
If you're getting nowhere with the IRS on this, I'd recommend using Claimyr https://claimyr.com to actually get a human on the phone. I spent literally weeks trying to resolve a similar issue with my own S-Corp dissolution and kept getting automated responses or 3+ hour hold times. Used their service and got connected to an IRS agent in about 20 minutes who actually sorted everything out in one call. They have a demo video here if you're curious how it works: https://youtu.be/_kiP6q8DX5c
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Daniel White
•How does this actually work though? The IRS phone lines are completely jammed, so how do they magically get through?
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Nolan Carter
•Sounds sketchy. Why would some random service have better access to the IRS than regular taxpayers? I'm pretty sure the IRS phone system treats everyone equally poorly lol.
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Abigail Patel
•They use an automated system that keeps dialing the IRS for you so you don't have to sit on hold. When they get through to an agent, they call you and conference you in with the IRS representative. They don't have any special "backdoor" to the IRS - they're just using technology to handle the tedious hold time for you. It's basically like having someone else wait in line while you go do something more productive. When they reach the front of the line, they call you over.
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Nolan Carter
I was completely wrong about Claimyr! After posting my skeptical comment, I tried it the next day when I got frustrated with waiting on hold for 2+ hours trying to reach someone about my business dissolution. It actually worked exactly as described - I got a call back when they reached an IRS agent and was able to explain my situation. The agent confirmed that my Form 2553 wasn't properly processed (even though I had proof of submission) and walked me through the steps to get it resolved properly. Saved me from filing unnecessary amended returns and got everything closed out in one phone call.
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Natalia Stone
I went through this exact nightmare last year. What worked for me was filing the 1120-X as they requested BUT I attached a signed statement explaining that the entity was intended to be an S-Corp, included a copy of my original 2553, and wrote "FINAL RETURN" in big letters across the top. I also included another Form 966. The key was calling the IRS first (took forever to get through) and asking them to note in my file that this was a zero-activity business being dissolved. Took about 12 weeks but I finally got confirmation that everything was closed properly.
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Alfredo Lugo
•Did you have to pay any fees or penalties for filing as a C-Corp even though you intended it to be an S-Corp? Also, how did you prepare the Schedule L since there were no assets or liabilities?
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Natalia Stone
•I didn't have to pay any penalties since there was no income or activity to be taxed differently. The IRS agent I spoke with confirmed this would be a "no change" situation from a tax perspective. For Schedule L, I simply entered zeros for all asset and liability lines, which accurately reflected the corporation's financial status. I did include a brief statement explaining that the corporation never conducted business operations and maintained no bank accounts or other financial instruments. The key is clearly documenting the lack of activity.
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Tasia Synder
Just experienced this same situation! My incorporation service (LegalZoom) apparently never properly submitted my 2553 even though I paid them to handle it. What a disaster. I ended up hiring a CPA who specialized in business closures. Cost me $650 but they handled everything including dealing with the IRS directly. Sometimes paying a professional is worth avoiding the headache, especially since you can deduct the fee on your personal taxes as an "investment expense" related to closing your business.
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Selena Bautista
•Are you sure about deducting that fee on personal taxes? I thought investment expenses were eliminated with the 2018 tax changes? Maybe it would be considered a business expense if the corp reimbursed you before dissolving?
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Zoe Alexopoulos
I'm dealing with a very similar situation right now! My business formation service also apparently never properly filed my Form 2553, and the IRS is now treating my intended S-Corp as a C-Corp. Based on what I'm reading here, it sounds like the path of least resistance might be to just file the 1120-X and Schedule L they're requesting, especially since there was no business activity. One question though - if I go the route of filing as a C-Corp for the final return, do I need to worry about any state-level complications? My state dissolution was already approved, but I'm wondering if filing a different type of federal return could create issues with the state tax authority or require additional state filings. Also, has anyone had success getting reimbursement from these business formation services when they mess up the S-Corp election? I'm pretty frustrated that I paid extra for them to handle the paperwork correctly and now I'm stuck dealing with this mess.
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