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Relief for late filing of S-corporation elections

In order to properly qualify a newly created entity for S-corporation status, Form 2553 must be filed no more than two months and fifteen days after the beginning of the tax year the election is to take effect. Not surprisingly, this brief window of opportunity is frequently overlooked by taxpayers unfamiliar with the rule, and by the time their tax professional becomes aware of the new entity the window has closed. Not to worry – the IRS provides relief for just this type of situation under Revenue Procedure 2013-30.

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While the procedure for filing a late S-election is relatively straightforward, there are a few requirements taxpayers should be aware of:

  • The entity intended to be classified as an S-corporation as of the effective date of election
  • Failure to qualify for S-corporation status was due solely to the failure to file the election in a timely manner
  • There is reasonable cause for the failure to timely file the election
  • Less than 3 years and 75 days have passed since the effective date of S-election
  • The entity can provide statements from all shareholders that their income has been properly reported on all affected tax returns in a manner consistent with the S-election having been made on the effective date

In a scenario where more than 3 years and 75 days have passed, it is still possible for a valid late election to be made under Revenue Procedure 2013-30. In this case, the election may still be made if the entity meets all other standards, and the IRS did not notify the entity or any of its shareholders of a problem regarding their S-corporation status within 6 months of the first 1120S being filed. Should an entity not meet the above requirements, but still wishes to be considered for S-corporation status, a private letter ruling would be necessary.

For more information regarding late S-elections, check out Revenue Procedure 2013-30. Or just in case reading lengthy IRS documents isn’t your cup of tea, feel free to contact your Henry+Horne tax professional.