How To Handle a Late S Election

The procedures for filing a late S corporation election are set forth in Revenue Procedure 2013-30, which has been in effect since September 3, 2013. There are four general requirements for obtaining relief for a late S corporation election: (1) the entity requesting relief intended to be classified as an S corporation as of the effective date of the election; (2) the requesting entity failed to qualify as an S corporation solely because the election was not timely filed; (3) there is reasonable cause for the failure to make a timely election and the entity acted diligently to correct the mistake upon its discovery; and (4) the entity requests relief from the IRS under Revenue Procedure 2013-30 within 3 years and 75 days from the effective date of the election.

If the four general requirements are satisfied, then the entity seeks relief for a late election by completing the standard election on Form 2553 (Election by a Small Business Corporation) and (1) attaching it to the S corporation’s current year Form 1120S (U.S. Income Tax Return for an S Corporation), (2) attaching it to one of the corporation’s prior year Forms 1120S, or (3) filing it with the IRS independent of Form 1120S. The late election form must state in the top margin of the first page that it is being “FILED PURSUANT TO REV. PROC. 2013-30.” The election form must also include a “Reasonable Cause/Inadvertence Statement,” expressly made under penalty of perjury, that describes (1) the entity’s reasonable cause for failure to make a timely election, and (2) its diligent actions to correct the mistake upon its discovery. While the statement was previously often made in a separate document, the statement can be included in Part I, Item I, on the first page of Form 2553, directly above the officer’s signature. The election form must also include statements from all of the S corporation’s shareholders, also made under penalty of perjury, that they have reported their income on all affected returns consistent with the S corporation election for the year the election should have been filed and for all subsequent years. This requirement can be satisfied by completing Part I, Item K (Shareholder’s Consent Statement), on the second page of Form 2553, or by attaching a similar document to Form 2553.

There are additional representations that must be made on a separate attachment if the entity is also requesting a late corporation classification. to be effective on the same date that the S corporation election was intended to be effective. However, so long, as the entity is merely filing a late S corporation election and not a late corporation classification as well, all of the necessary information can generally by included on the Form 2553 in what remains a relatively painless procedure.