ADP-ACP failure - owners on K-1 income

[pmacduff]

I can't believe in all my years of administration I've never run into this before, but here's the situation:

LLC that had owners with W-2 wages in 2023 (and prior) decided in 2024 to put the owners on K-1 income.  This Company traditionally fails the ADP-ACP testing.  Accountant gave us preliminary K-1 information so that we can at least run preliminary 2024 testing and determine refunds prior to 03/15.  We'll then make adjustments when the final K-1 info is available, and the client will have to pay excise tax on any late refunds.

Am I missing anything?  I guess because 99% of my K-1 and Sch C clients are safe harbor I haven't run into this ever before.  I can't believe it's very common, though, is it?

Thoughts?

[CuseFan]

5 hours ago, pmacduff said:

LLC that had owners with W-2 wages in 2023 (and prior) decided in 2024 to put the owners on K-1 income. 

??? Was this a change in how the entity was taxed, switching from S-corp to partnership? Otherwise, what is the basis for this? Anyway, yes, you handle like you would any sole prop or partnership in that regard.

[pmacduff]

I'm not an Accountant, but I believe that an LLC owner or owners can change from W-2 to K-1.  Much like our industry however, I don't believe they can switch back and forth.    

[C. B. Zeller]

It is possible to revoke an S corp election, but you have to notify the IRS.

https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-election