S Corporation Troubleshooting Guide: Fixing Common California Formation Problems

Problem #1: IRS Rejected Your Form 2553 S Corporation Election

Step 1: Understand the Specific Rejection Reason

The IRS will send you a rejection letter explaining exactly why your Form 2553 was denied. Common rejection codes include:

Step 2: Determine Your Relief Options

Option A: Automatic Relief Under Rev. Proc. 2013-30 (Best Option)

How to Request Relief:

1. Refile Form 2553 with "Filed Pursuant to Rev. Proc. 2013-30" written at the top
2. Attach reasonable cause statement explaining why you missed the deadline
3. Mail to the service center that issued the rejection (not your normal filing location)
4. Include supporting documents like tax returns showing S Corp treatment

Option B: Private Letter Ruling (PLR) Request

When to Use: You don't qualify for Rev. Proc. 2013-30 relief or automatic relief was denied.

Process:

1. Prepare detailed ruling request following Rev. Proc. 2024-1 guidelines
2. Pay user fee: $15,000 for most corporations ($3,000 for small corporations with gross receipts under $250,000)
3. Submit to IRS National Office (not service center)
4. Wait for response: 6-12 months typical processing time

Step 3: California Considerations During IRS Resolution

Tax Return Filing: While waiting for IRS resolution, you may need to file:

• • Form 1120 (C Corporation return) for federal purposes
• • Form 100 (California C Corporation return)
• • Amended returns once S Corp election is approved

California Franchise Tax: You'll pay California C Corporation rates (8.84%) until S Corp election is effective.

Employment Taxes: Continue paying reasonable salary as an employee even while operating as C Corp.

Problem #2: California Corporate Name Issues

Issue A: Name Rejection by Secretary of State

Solution Steps:

Step 1: Research Alternative Names

• • Use California's Business Search to check availability
• • Consider variations of your preferred name
• • Add distinguishing words (location, industry, etc.)

Step 2: Reserve Your New Name

• • File name reservation online ($10 for 60 days)
• • Provides time to prepare amended Articles of Incorporation
• • Can be renewed once to the same applicant

Step 3: File Articles of Amendment

Issue B: Name Change After Formation

Problem #3: Replacing a Resigned Registered Agent

California Requirements for New Registered Agent:

• • Individual residing in California, OR
• • Corporation with current 1505 registration on file with Secretary of State
• • California street address (P.O. Boxes not acceptable)
• • Available during business hours to receive legal documents

Step 1: Find a Replacement Agent Immediately

Step 2: Update Official Records

With California Secretary of State:

Timeline and Consequences:

Problem #4: Dealing with California Corporate Suspension Notices

Types of California Suspension:

Step 1: Determine Suspension Type and Cause

• • Check California FTB Website: Use MyFTB account to see tax obligations
• • Check Secretary of State Records: Use California Business Search to verify status
• • Review All Notices: Suspension notices specify exactly what's required

Step 2: Calculate Total Costs to Reinstate

Step 3: Reinstatement Process

For FTB Suspensions:

1. Pay all outstanding amounts through MyFTB or by check
2. File missing tax returns (Form 100S for S Corporations)
3. Wait 2-4 weeks for FTB processing
4. Verify reinstatement using California Business Search

For SOS Suspensions:

1. File current Statement of Information with all required updates
2. Pay $250 suspension penalty plus any filing fees
3. Update registered agent if that was the suspension cause
4. File immediately online for fastest processing (usually same day)

When to Seek Professional Help

Professional Costs vs. DIY Savings:

Emergency Action Timeline

If You Just Received a Problem Notice:

Critical Deadlines to Remember:

The Bottom Line

S Corporation problems in California are usually fixable, but time is your most valuable resource. The faster you identify and address problems, the more options you'll have and the less expensive resolution will be.

Remember: Every problem that seems overwhelming today was easily preventable yesterday. Focus on fixing your current issue, then implement systems to prevent future problems.