Why would you Attach Form 2553 to a Partnership Form 1065?

[JRC]

I have a client who has been sitting on my Completed return for over a month only to send me a New K1 to be included to the return showing a Loss for the year. Great for me having to shred their prior completed return and include the Loss but with no capital account information showing on the K1's to deduct the loss in question. Then client sent the completed 1065 return to me and still no capital account information but with the return it seems they filed a Form 2553 election which raises more questions!!!  Why would they file a 2553 S-election and attach it to the Form 1065 when they want the election to begin with the initial return and start of business?  Inquiring minds want to know.....

Thank you.  

[dkh]

Who prepared the F1065 ?     

[qbteachmt]

Did they already file it, or are they asking you to include it now? What is the date of election?

[JRC]

It seems to be self prepared by a Partner who was consulted by others to file the 2553 so they could pay W-2 wages to the partner. The Others I was told includes members of a large accounting firm and I got the impression It would be over my head and expertise. 

[JRC]

The election is to begin 01/01/2022. Date incorporated on Form is 03/08/2022 and is attached to 2022 Form 1065.  

[dkh]

The person preparing the F1065 is confused.  S Election goes with an SCorp return.  

[qbteachmt]

Not only would there be 1120 or 1120-S instead of 1065 (to be treated as a corporation), but everybody who does any work for that entity is on payroll, not just that one person (you no longer have guaranteed payments) and that means your taxpayer client for whom you thought you prepared their 1040 is supposed to also have a W2, unless they are not involved in any of the activities? You don't incorporate just to put one person (the general partner?) on payroll. Perhaps they are thinking they might be able to sell the enterprise or attract venture capitalists.

[JRC]

It's going to be a mess for them in the future. Also I should state it's a rental property!  good grief..

[qbteachmt]

Rental property and S Corp?

One thing I had to do is understand which other professionals in my area I will no longer work with. Bad guidance from a bad CPA or attorney is no fun, when you have clients in common.

[dkh]

Sounds like an extension for that client until the preparer of F1065 gets that mess straightened out

[JRC]

Now if I were the IRS I would not Accept the Election for 2022 because of its flaws and either accept it for 2023 beginning or not at all.  But they do not act rationally. The individuals return will not change tax wise but only where the Loss came from F1065 or F1120S.  

I have something to look forward to....

[dkh]

What if there will be changes to F1065 because payroll was done for members instead of Guaranteed Payments.  Or if it is accepted as an SCorp by IRS, what if payroll should have been done instead of Guaranteed Payments.      

[joshuabarksatlcs]

Is the F1065 being filed for an LLC ?

An LLC may elect to be treated as an S corp by filing Form 2553. 

This is from a Tax Advisor article available on the internet:

Deemed election to be treated as a corporation

An LLC that is eligible to elect S status and timely files an S election (Form 2553, Election by a Small Business Corporation) is considered to have made the election to be taxed as a corporation (Regs. Sec. 301.7701-3(c)(1)(v)(C)). These entities are not required to file Form 8832, Entity Classification Election. Other entities file the election to be taxed as a corporation on Form 8832 in accordance with Regs. Sec. 301.7701-3(c).

The fact pattern could make sense if the entity was an LLC, electing to be treated as S corp.  Form 2553 can be used for the purpose in lieu of using  8832.  But then, the election would be for 2023.

Perhaps the preparer either

(1) made a mistake (2022 elected instead of 2023); or

(2) Somehow correctly or incorrectly applied the late election relief per Rev Proc 2013-30.  I said correctly or incorrectly because I don't know if the Rev Proc would be applicable to the entity.  Therefore "correctly if it would be, and incorrectly if it wouldn't be applicable.  

Just a few thoughts from a half fried brain on 4/15 before the 4/18 deadline.

[JRC]

I have a copy of the F1065 and nowhere on it does it show Wages or Guaranteed payments being made for 2022.

They could have made an error on the F2553 and entered 01/01/22 instead of 01/01/23 for effective date, but I do not know why it would be included with the F1065 instead of sending it separately on its own. And there is no reference on the F2553 for filing a late election with the Return. 

Very late in the Season to have this pop up.  I'm old so I can let it go and won't lose sleep over it.. haha

[JRC]

Thanks all for your input it is greatly appreciated....

I haven't contributed much this season to this forum for personal reasons and do apologize.

As my dad use to say, "ENJOY YOURSELF"..

Back to work..

[qbteachmt]

"But they do not act rationally. The individuals return will not change tax wise but only where the Loss came from F1065 or F1120S."

But it affects all individual returns where there is W2, or where there should have been W2. If they did any payroll at all, of course.

What a mess.