An entity that electronically files an extension as an S corporation may receive the following reject:
Reject Code: F7004-905-03 | Category: Database Validation Error | Severity: Reject
In Form 7004, Line 1, 'ExtensionReturnCd' the return for which the extension is filed must match the return type established with the IRS for the EIN.
*** Additional Information: 25 ***
On Form 7004, 25 is the code for an S corporation filing an extension request, so this reject indicates that the IRS database does not list this entity as an S corporation.
To be able to file as an S corporation:
- The corporation must file Form 2553 with the IRS, either in the year preceding the year in which the S corporation election is to take effect or no more than two months and 15 days into the year in which the election is to take effect.
- The corporation must receive from the IRS Notice CP261, notifying the corporation that its election has been accepted and also the starting date of the election.
If this is the corporation's first year filing with the S corp election, you'll need to indicate that in the extension request. To indicate this is their first year filing as an S corp, from the Form 7004 menu select Reason if Tax Year Less than 12 Months and choose Initial Return.
Otherwise, without Notice CP261 in hand they cannot file as an S corporation, though they may be able to file Form 2553 seeking relief for a late election. The Form 2553 instructions discuss the late election process.
If the extension request rejected before the filing deadline, the preparer may wish to consider paper filing the extension, then file Form 2553 and seek late election relief.
Diagnosing the reject
You should ask the corporate officer several questions:
- Did the corporation revert back to filing as a C corporation?
- Did they receive Notice CP261 from the IRS accepting the S corp election?
- If they don't have Notice CP261 in hand, have they filed Form 2553, either timely or seeking late election relief?
If you're still unable to determine why the IRS is rejecting the extension request, you'll need to liaise with the IRS directly.
Additional Information: