2553 late election relief reasonable cause examples Form 2020-2024

2553 late election relief reasonable cause examples Form: What You Should Know

The  Defective Election. IRC §1365(c)(3)(B) It's pretty self-explanatory...it's been on tax returns forever. IRC §1365(b)(3). It was originally designed to protect taxpayers from making unnecessary payments when filing late. IRC §1365(c)(1). The purpose of making payments is to minimize taxable income, but taxpayers sometimes choose to make late or defective payments. This practice is called making a constructive payment and is taxed at the rate of 27% per year if your deficiency exceeds 11,000. That's a lot of money for one person! The Service will also deny relief if you have a valid reason for making the late payment. IRC §1359(a)(6). The valid reason must be explained at the time that the taxpayer submits the Form 2553. IRC §1359(c)(8). Here is a short example to help you understand the concept: Example (late Sub S payments):  In early May, you received 500 from your husband for a sub s job. In early June, he stopped paying you the 500, saying he couldn't find a job. The reason? The IRS caught you making the 500 a month late and made you pay back the 500 plus interest. Example (late Defective Election): In mid-July, you received 100 from your husband to cover a 300 repair bill on his car. He also provided 200 for a car repair shop and 100 for a new car. You both agreed to pay the entire cost on or before July 13, assuming the repairs on his car would be completed on or before a certain time. But he decided to stop providing the 200 and 100. The reason? He didn't have enough money for the repairs. You and your husband had never discussed the payments in detail and, despite asking you how long you would take to pay, you never said that you would pay it on or before July 14, the same day he stopped providing the last 50 payment. So you filed a defective election to avoid paying.  Note:  The Service's only criteria for making a defective election is when you “reasonably” expected the deficiency to be paid on or before the filing date. You can't file a defective election in anticipation of the taxpayer filing a valid election.

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