S-Corp Silliness

Today Robert from Sparta, NJ is upset. “I paid a filing company to register an S-corp for me back in 1997. I filed returns back in 97 & 98 and just got a letter from NJ claiming that since I am a C corporation, I owe them $7,000 for 1997.

I have since learned that the company failed to register me as an S-corp in NJ.

My question is, since I was not notified earlier hasn’t the statute of limitation run out for NJ to assess a tax from 1997?

Why wouldn’t they let me know sooner before the tax and penalties added up. Please help.”

Dear Rob,

I am not familiar with the corporate rules in NJ. So I don’t know their statute of limitations. On the other hand, if NJ is looking for a tax return for a c-corporation and never got one – the statute is open on that return until it is filed.

Going back to your problem about the incorporator who didn’t file your S-Corporation election – they never do. They just establish the corporation and send you the forms to fill in and sign to choose to be an S-Corporation. It’s in that kit they sent you. Most people don’t realize that and never read all the paperwork that’s included in the corporate binder – so this problem is common.

In fact, IRS has a special provision for people who had intended to be an S-Corp, but didn’t do the paperwork properly. Look at the instructions for IRS’s S-Corporation Election, Form 2553. https://www.irs.gov/pub/irs-pdf/i2553.pdf

Look at the bottom of the first column on page 2 and the top of the second column. See where it says to write FILED PURSUANT TO REV. PROC. 98-55′ on top of your form?

Since ,any states will follow IRS’s rules, it’s likely NJ will too. So, find the correct form to register an S-Corp for the state of New Jersey. Fill it out.

On the top, write FILED PURSUANT TO REV. PROC. 98-55′

Once you’ve prepared those forms for NJ and IRS, call the phone number on the NJ notice and chat with the good folks at the NJ Department of Revenue. Explain the problem and see if they will accept it. Most likely, they will.

Naturally, you’ll find answers to all kinds real estate & tax questions – and lots of tax resources – free, where? Where else? At TaxMama.com !

File Download (3:09 min / 0.7 MB)