I received a letter stating that I should have filed a 1120S instead of 1120. The IRS said I could do nothing if I had not made any changes and they would make the correction for me, what should I do. I am the only shareholder, I did not have any taxable income for 2010, but I did pay myself a salary which I included on my personal income tax return. Do I need to do anything or just allow the IRS to convert the tax return to an 1120S?

Let the IRS make the correction, then review the corrected return by asking for a copy of the tax transcript. After evaluating it, you may want to amend it.