did not sign the election. The property contributed to the corporation by both Bill and Frank is...

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did not sign the election. The property contributed to the corporation by both Bill and Frank is community property.The shareholders came to you in March 2020 to file the tax return. You were busy with other flow through returns at that time, and were also strained by the early concerns about COVID-19, which affected your normal operations. As a result you extended the 2019 return until September 15, 2020.You now discover the Form 2553 that Bill and Frank prepared.REQUIREDWrite a memo to Bill and Frank explaining any concerns you have about the previously filed Form 2553. Then recommend a course of action.Be sure to cite primary authorities.

ACCT 540 Writing Assignment 2 A corporation is formed on February 12, 2019 and it intends to elect S status. The election was filed on April 11, 2019 and it was signed by two shareholders – Bill Johnson and Frank Gentry. Bill and Frank each live in Texas and have been married for decades. Bill’s wife Sharon did not sign the election. Frank’s wife Corrine did not sign the election. The property contributed to the corporation by both Bill and Frank is community property. The shareholders came to you in March 2020 to file the tax return. You were busy with other flow through returns at that time, and were also strained by the early concerns about COVID-19, which affected your normal operations. As a result you extended the 2019 return until September 15, 2020. You now discover the Form 2553 that Bill and Frank prepared. REQUIRED Write a memo to Bill and Frank explaining any concerns you have about the previously filed Form 2553. Then recommend a course of action. Be sure to cite primary authorities.

acct-540-writing-2-davb5qbs.docx

Sweety · Accepted Answer

MEMO
DATE 3/8/2020
TO   BILL AND FRANK
FROM: Director of the corporation.
SUBJECT: Explaining the concern about previously filed form 2553.
It is to inform that form 2553 does not include consent of spouse. Though spouse holds zero percent share but they should still provide their consent. They are not owners but “Consenting spouse.  In case of election as an s corporation all person who are shareholder on the day of election must provide their consent to the election. There are seven community property states among which one is Texas. In case of community property ownership is between the spouses then in such case each spouse owns an undivided one half interest in each item of community property irrespective of the way the property is titled. Each spouse is required to provide their consent to the S election. If the consent is not provided then it will be regarded as invalid. As a result of this the profit distribution may also be subject to retroactive double taxation and penalties. However Revenue procedure 2004-35 provides automatic relief. To be eligible for automatic relief:
· The s election should be invalid and the only reason should be that signature of community property  spouse , who was a shareholder pursuant to state community property laws, is not their in form 2553, and 
· All the items of income, gain, loss,

did not sign the election. The property contributed to the corporation by both Bill and Frank is community property.The shareholders came to you in March 2020 to file the tax return. You were busy...

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