eMinutes Blog

Tardy S Election Is Still No Reason to Freak Out

August 29, 2020

In a prior article,[1] we covered the nuts and bolts of filing a late election for S corporation status. What we said there still goes, though the form on which the late election is made has been revised in the interim.

To recap, 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.[2]

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.[3] 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.”[4] 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.[5] 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.[6] 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.[7]

There are additional representations that must be made on a separate attachment if the entity is also requesting a late corporation classification[8] to be effective on the same date that the S corporation election was intended to be effective.[9] 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.

[1] See eMinutes Blog, Tardy S Election Is No Reason to Freak Out (Feb. 3, 2016).

[2] See I.R.S. Rev. Proc. 2013-30, § 4.02, 2013-36 I.R.B. 173; Instructions for Form 2553, at 2. If a corporation meets the first three requirements but not the fourth, the corporation can still request relief for a late election on Form 2553 if three other requirements are met. See Instructions for Form 2553, at 2. If the additional three requirements are not met, then the corporation can still request relief for a late election but only by requesting a private letter ruling and paying a user fee. Id.

[3] See I.R.S. Rev. Proc. 2013-30, §§ 4.01(4), 4.03(2), 5.01; Instructions for Form 2553, at 2.

[4] I.R.S. Rev. Proc. 2013-30, § 4.03(1); Instructions for Form 2553, at 2. If the late S corporation election is attached to a Form 1120S, then the Form 1120S must also state in the top margin of the first page that it “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30.” I.R.S. Rev. Proc. 2013-30, § 4.03(2)(a); Instructions for Form 2553, at 2.

[5] I.R.S. Rev. Proc. 2013-30, § 4.03(1), (3).

[6] See id. § 5.02; Instructions for Form 2553, at 2.

[7] Instructions for Form 2553, at 2.

[8] An eligible entity uses Form 8832 (Entity Classification Election) to elect how it will be classified for federal tax purposes: as a corporation, a partnership, or an entity disregarded as separate from its owner. Form 8832 General Instructions, at 4. An “eligible entity” is “a business entity that is not classified as a corporation.” I.R.S. Rev. Proc. 2013-30, § 2.04(1); 26 CFR § 301.7701-3(a). Eligible entities include limited liability companies and partnerships. Form 8832 General Instructions, at 4. Unless an election is made on Form 8832, the default rule is that a domestic eligible entity is (1) a partnership if it has two or more members, or (2) disregarded as an entity separate from its owner if it has a single owner. Form 8832 General Instructions, at 4; I.R.S. Rev. Proc. 2013-30, § 2.04(1); 26 CFR § 301.7701-3(b)(1). With some exceptions, an eligible entity may elect to be classified other than as provided by the default rule (as an S corporation, for example) by filing Form 8832. I.R.S. Rev. Proc. 2013-30, § 2.04(1); 26 CFR § 301.7701-3(c)(1)(i).

[9] See I.R.S. Rev. Proc. 2013-30, § 5.03; Form 2553, Part IV; Instructions for Form 2553, at 2-3, 6. In particular, an entity requesting a late corporate classification election must attach the representations listed in Part IV of Form 2553 to the late corporate classification election. See Form 2553, Part IV; Instructions for Form 2553, at 2-3, 6.

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