Miami, FL 33131
legal@emanay.io · emanay.io
Return Verification & Compliance Remediation
1221 Brickell Ave, Suite 900, Miami FL 33131
Contact: Alexandre R.J. Camus, Founder & MD
alex@emanay.io
Re: Verified tax amounts, IRS account findings, and required actions to file your 2022–2024 returns and remediate the S-corp, payroll, and prior-year items
Emanay has completed the verification of your three drafted but unfiled federal returns for tax years 2022, 2023, and 2024. Every line has been independently re-derived and tested against each year's applicable federal law. This memorandum presents the verified amounts, records the IRS account facts gathered by direct contact with the Service, and sets out the actions required to file your returns and resolve outstanding compliance items — including items that are material to your potential business sale.
As discussed on our call, we are disclosing one discrepancy on the 2022 return: penalties and interest are overstated by approximately $22,000 and must be corrected before filing. Your 2023 and 2024 returns are clean. The returns themselves are sound; the larger exposure sits in the structural and prior-year items covered in Sections 4, 5, and 6.
| What This Memo Covers | Emanay has completed verification of your three drafted federal returns for 2022, 2023, and 2024. Every line has been independently re-derived against each year's law. This memo presents the verified amounts, records what Emanay confirmed directly with the IRS on your account, and sets out the specific actions you need to take — and that Emanay will coordinate — once you give approval to file. |
| Bottom Line on Your Returns | All three returns are arithmetically sound and are ready to file, subject to one correction on 2022. Your 2023 and 2024 returns are clean. The more significant exposure in your file is not in the returns themselves — it is in the structural and prior-year items set out in Sections 4, 5, and 6, which we address directly below. |
| Disclosed Discrepancy — 2022 | Your 2022 return overstates penalties and interest by approximately $22,000. The failure-to-file penalty was calculated at 25% rather than the correct 22.5% cap that applies when the failure-to-pay penalty runs concurrently (IRC §6651(c)(1)), and interest was run at a flat 8% rather than the correct declining quarterly rates. Emanay will correct this before filing. |
The figures below represent your verified balances across all three years. "Tax owed" is your line-37 balance plus the Form 2210 underpayment penalty; "penalties & interest" is failure-to-pay + failure-to-file + interest. All figures are computed to a payoff date of June 15, 2026 and will drift modestly based on your actual payment date.
| Year | Tax Owed (incl. 2210) | Penalties & Interest | Total Due | Status |
|---|---|---|---|---|
| 2022 | $447,596 | $337,966 | $785,562 | Drafted; correct before filing |
| 2023 | $306,336 | $164,849 | $471,185 | Verified clean |
| 2024 | $77,463 | $29,383 | $106,846 | Verified clean |
| Total | $831,395 | $532,198 | $1,363,593 | ≈ $1.34M after 2022 fix |
2022 Correction — What This Means for You. Your 2022 penalties and interest as currently drafted ($337,966) are overstated by approximately $22,000. Once corrected, your 2022 penalties and interest come down to approximately $315,800, bringing your 2022 total to approximately $763,000. Your 2023 and 2024 returns are correctly calculated. Your combined exposure across all three years is approximately $1.34 million after the 2022 correction — and this is the number that should inform your collection strategy, payment planning, and the timing of your business sale.
| Line | 2022 | 2023 | 2024 |
|---|---|---|---|
| Total income | 1,227,144 | 897,487 | 257,167 |
| Adjusted gross income | 1,208,687 | 897,487 | 243,093 |
| Taxable income | 1,186,861 | 874,721 | 211,953 |
| Regular tax (line 16) | 402,092 | 283,976 | 45,511 |
| Self-employment tax | 36,913 | 0 | 28,147 |
| Add'l Medicare (8959) | 7,798 | 0 | 447 |
| Net investment income tax (8960) | 2,881 | 26,505 | 0 |
| Total tax (line 24) | 449,684 | 310,481 | 74,105 |
| Withholding | 17,600 | 17,600 | 0 |
| Balance before penalties (line 37) | 432,084 | 292,881 | 74,105 |
| Form 2210 penalty | 15,512 | 13,455 | 3,358 |
| Failure-to-pay penalty | 82,096 | 38,075 | 5,187 |
| Failure-to-file penalty (drafted) | 108,021 | 65,898 | 16,674 |
| Interest (drafted) | 147,849 | 60,876 | 7,522 |
| Total due (drafted) | 785,562 | 471,185 | 106,846 |
Emanay rebuilt each of your returns from source schedules rather than working off the existing drafts: total income → AGI → taxable income → regular tax → AMT → self-employment tax → Additional Medicare Tax → NIIT → total tax → balance, then every penalty and interest figure. Each year was tested against that year's law using irs.gov as the primary source, with 2024 inflation parameters confirmed to Rev. Proc. 2023-34.
| Interest Rates Applied | 7% (Apr–Sep 2023), 8% (Q4 2023 and all of 2024), 7% (all of 2025 and Q1 2026), 6% (from 4/1/2026). The failure-to-file penalty caps at 22.5% when the failure-to-pay penalty runs concurrently — this is the rule your 2022 draft got wrong. Interest compounds daily on a base that includes the FTF penalty (§6601(e)(2)(B)). |
| Items Not Yet Traced | Basis, business-use percentages, §179/bonus elections, and broker 1099-B detail were not traced to underlying source documents. These are carried as open items in Section 5 and do not block filing your returns. |
Emanay contacted the IRS directly to confirm items you were unable to document. The findings below resolve the long-standing question about your entity structure and surface two new compliance gaps you need to be aware of.
| S-corporation election, Form 2553 (EIN 83-4562553) |
No valid election ever on record |
| 2019 Form 1120S (filed 06/14/2020) | Rejected |
| 2020 Form 1120S (filed 03/04/2021) | Rejected |
| 2021 federal income tax return | Never filed — no return on record (client holds drafts) |
| Forms 941 (quarterly payroll) | Filed Q2 2020 through Q4 2024 |
| Forms 940 (annual FUTA) | Filed 2020, 2021, 2022, 2023 — 2024 not filed |
Your entity question is now settled. There has never been a valid S-corporation election for Cholo Holdings LLC. Your previous accountant filed Forms 1120S for 2019 and 2020 — both were rejected by the IRS. Nothing was attempted for 2021, and no election exists on your EIN. Cholo Holdings has therefore been a disregarded single-member LLC throughout. Your W-2 wages were actually run through payroll and remitted to the IRS (your Forms 941 are on record), and they are correctly reported as W-2 income on your returns. Because those wages were not also deducted as a Schedule C expense, your 2022 and 2023 returns require no adjustment on this point. The only follow-up is to confirm your 2024 wage treatment (Section 5), since payroll continued through that year. Formalizing your compensation through a valid S-election going forward is addressed in Section 6.
Two gaps you need to act on. First, your 2021 federal return was never filed — only drafts exist. This is your single largest enforcement exposure: under §6501(c)(3) the IRS assessment statute never starts running on an unfiled year, which means the IRS can assess against you at any time with no deadline. If 2021 produced a refund, §6511 has almost certainly closed the refund window (three years from the April 2022 due date). Second, your 2024 Form 940 (annual FUTA return) was never filed, even though your 2020–2023 returns were. Emanay will coordinate both filings as part of the remediation plan.
The following items do not block filing your verified 2022–2024 returns, but they must be resolved. Emanay will coordinate each item and will need your input or documentation on several of them.
The plan Emanay recommends is to file Form 2553 effective 1/1/2025 to establish your S-corporation status retroactively. That is achievable, but three things need to be confirmed before we proceed — they determine whether the election actually benefits you.
| 1. Late-Election Relief | A 1/1/2025 effective date is past the normal filing deadline, so your election would rely on the late-election relief in Rev. Proc. 2013-30. This relief is generally available within 3 years and 75 days of the requested date, and it requires that you intended S-corp status, had reasonable cause for the late filing (your previous accountant's failed filings provide that), and that you file consistently. Since your 2025 return has not been filed yet, the consistency requirement is still achievable. |
| 2. It Forces a 2025 Form 1120S | Electing back to 1/1/2025 makes 2025 an S-corp year for Cholo Holdings. That means Cholo must file a 2025 Form 1120S — already past its 3/15/2026 due date — with a K-1 flowing income to you personally. The late Form 2553 attaches to that return. Emanay will build the late-filing penalty and a reasonable-cause / first-time-abatement request into the plan to minimize the cost. |
| 3. Payroll Must Exist | As an S-corp owner working in your business, you are required to pay yourself a reasonable W-2 salary — the IRS routinely recharacterizes distributions as wages when owner compensation is unreasonably low. The payroll records on file stop at Q4 2024, suggesting no 2025 payroll was run. If that is the case, a 1/1/2025 election means reconstructing catch-up 2025 payroll retroactively — filing late 941s, the 2025 Form 940, and a W-2 — which is exactly the kind of backdated payroll that created problems with your previous accountant. If clean catch-up payroll cannot be documented, electing effective 1/1/2026 and starting proper payroll now is the safer path. Emanay will model both scenarios before recommending which election date to file. |
| 1. Your Previous Accountant | Emanay will formally put three failures on record with your previous accountant: the never-completed S-election, the unfiled 2024 Form 940, and the unfiled 2021 return despite your holding drafts. We will seek the underlying workpapers and any correspondence — these are important for building your reasonable-cause arguments and may reduce your penalty exposure. |
| 2. Enrolled Agent — Peter K., EA | If the previous accountant does not produce workpapers or cooperate, Emanay recommends bringing in Peter K., EA to handle the S-corp cleanup and — most importantly — the collection posture on your 2022 and 2023 balances. Your penalty, interest, and IRS collection strategy on approximately $1.2 million of your total exposure is exactly where an enrolled agent adds the most value, and Emanay will work alongside Peter K. throughout. |
To break the pattern that produced four consecutive years of late, underpaid returns, Emanay recommends the following three actions in parallel with filing:
The following items came out of the verification review and are important for your overall tax position and sale planning: