Filing a late S-Corporation Election is now much easier and has a longer or no deadline for many filers. Previously, if a business intending to be taxed as a Sub-chapter S Corporation failed to to file a timely election, but proceeded as one, relief from this mistake was potentially possible under a few Revenue Procedures (Rev.Proc. 2003-43, 2003-1 C.B. 998; Rev. Proc. 2004-48, 2004-2 C.B. 172; and Rev. Proc.2007-62, 2007-2 C.B. 786), though it was rather unknown and obscure. I had detailed one such method earlier.
However, this is all superseded by the new Revenue Procedure 2013-30. I’ll lay out the new guidelines as to who qualifies, how to apply, and what deadline, if any, applies.
- Intended to be classified as an S Corporation
- Relief requested within 3 years and 75 days after the Effective Date. This is essentially the day that if the filer had timely filed that the election would have gone into effect. However, see below for an important exception to this deadline.
- The failure to qualify as an S Corporation is solely because the election was not filed. In other words, the company must meet all other qualifications and must be acting as an S Corporation.
- Reasonable cause for filing to make a timely election and due diligence to correct the error upon discovery must be present. This can include a mistake upon the part of an employee or another entrusted to file the correct paperwork.
- No deadline applies if:
- The corporation is not seeking a late corporate entity classification election;
- The corporation fails to qualify as an S corporation solely because Form 2553 was not timely filed;
- The corporation and all of its shareholders reported their income consistent with S corporation status for the year the election should have been made and all later years;
- At least six months have passed since the corporation filed its first S corporation year tax return;
- The IRS did not notify the corporation and the shareholders of any problem with the S corporation status within six months after the return was filed; and
- The completed election form includes statements from all shareholders from the date the election was to have been effective to the date of the filing stating that they have reported their income consistent with S corporation status.
HOW TO FILE
Complete Form 2553. Include “Filed Pursuant to Rev. Proc. 2013-30” at the top of the form. An officer and anyone who was a shareholder from the Effective Date until the Form 2553 is completed must sign. Include signed statements from all shareholders that all income was reported consistent with the S Corporation election since the Effective Date. The statement indicating the reasonable cause must include this language:
“Under penalties of perjury, I (we) declare that I (we) have examined this election, including accompanying documents, and, to the best of my (our) knowledge and belief, the election contains all the relevant facts relating to the election,and such facts are true, correct, and complete.”
Those also seeking late corporation classification must include further statements relating to that relief.
Current Year 1120S
File Form 2553 with the current year 1120S. State “Includes Late Election Filed Pursuant to Rev. Proc. 2013-30” at the top of the Form 1120S. If you are subject to the 3 year and 75 day deadline, be aware that an extension of time to file the 1120S does not extend the time under this Revenue Procedure.
Late- Filed Prior Year 1120S
File Form 2553 with the late-filed returns. All overdue returns must be included. State “Includes Late Election Filed Pursuant to Rev. Proc. 2013-30” at the top of the Form 1120S. Again, the 3 year and 75 day deadline, if applicable, is not extended.
Form 2553 Filed Separately
Form 2553 can be mailed alone to the applicable IRS Service Center.
If this Revenue Procedure does not apply, relief may still be possible through a letter ruling. Consult a tax professional for help if you need to go that route.