Tardy S Corporation Election in New Jersey
In a previous article on why a Tardy S Election Is No Reason To Freak Out, we discussed making a late federal S corporation election under a 2013 Revenue Procedure that permits corporations to obtain relief for a late S election that is made within 3 years and 75 days from the effective date of the election. But what effect does a late S election have in New Jersey, which requires an S corporation to make a separate election to be treated as a New Jersey S corporation?
Because it is a prerequisite to being treated as a New Jersey S corporation that the corporation have made a federal S election, IRS approval of a federal S election is required before a corporation can apply for retroactive New Jersey S corporation status, although New Jersey law does not actually say that in so many words. Instead, the relevant regulations provide that a corporation may file a retroactive election to be recognized as a New Jersey S corporation if the corporation (1) is authorized to business in New Jersey, (2) is registered with the Division of Taxation, (3) has filed Form CBT-100S tax returns with New Jersey, but (4) has failed to file a timely New Jersey S corporation election. In addition, a retroactive New Jersey S corporation will not be granted if: (1) all appropriate corporation business tax returns have not been timely filed and taxes timely paid as if the New Jersey S corporation election request had been previously approved; (2) a New Jersey S corporation request is not received before an assessment becomes final; (3) the Division of Taxation has issued a notice denying a previous late-filed New Jersey S election request, and the taxpayer has not protested the denial within 90 days; or (4) all shareholders have not filed appropriate tax returns and paid tax in full when due as if the New Jersey S corporation election request had been previously approved, and the taxpayers have not reported the appropriate S corporation income on their returns.
An application for retroactive New Jersey S corporation status is made by filing Form CBT-2533-R (Retroactive S Election Application) with the Division of Revenue, together with Form CBT-2553 (New Jersey S Corporation or New Jersey QSSS Election). In addition, the corporation must pay an administrative user fee of $100 for each tax year that will be affected by the late filing.
 N.J. Admin. Code § 18:7-20.3(a); Xylem Dewatering Sols., Inc. v. Dir., Div. of Taxation, 30 N.J. Tax 41, 55 (2017). Before the adoption of section 18:7-20.3 in 2008, New Jersey did not have a retroactive New Jersey S corporation election procedure. See Shree Ram Invs., Inc. v. Dir., Div. of Taxation, No. A-0600-11T4, 2013 WL 4033629 (N.J. Super. Ct. App. Div. Aug. 9, 2013). The regulation was adopted to assist “honest taxpayers” who had inadvertently failed to make a New Jersey S election “with a procedure that is less draconian in its consequences than requiring the corporate taxpayer to pay tax, penalty and interest on the difference between the S corporation rates and the C corporation rates, requiring the difference between the S corporation rates and the C corporation rates, requiring the shareholders to file amended NJ-1040 returns to get refunds, and deal with the potential disparity in the statute of limitations between corporation business tax and gross income tax.” Xylem, 30 N.J. Tax at 55.
 N.J. Admin. Code § 18:7-20.3(c).
 See id. § 18:7-20.3(b).