Late S corp election: How to file it after the deadline
Small business owners often choose an S corporation tax status due to its pass-through taxation advantages. To elect this tax classification, you must file the IRS Form 2553, Election by a Small Business Corporation, in a timely manner. However, if certain circumstances arise, you may need to file a late S corporation election.
This guide will detail the process for submitting a delayed S corp election to the IRS and the criteria you must fulfill.
Electing S corporation status
If your business is an LLC or a corporation and wants to file taxes as an S corporation, it can acquire an S corporation tax status with the IRS Form 2553. The process is complex and has limitations on shareholders, owners, and classes of stock.
If you have doubts about an S corp tax status, schedule a phone consultation with a TFX tax professional to ensure it’s the right choice for your business.
The deadline for submitting Form 2553 depends on whether you are a new or existing business:
- New business: Form 2553 must be filed within two months and fifteen days from the date you formed your company.
- Existing business: Form 2553 must be filed within two months and 15 days from the start of the tax year for the election to be effective for that year.
If you are applying for an S corp tax classification in a standard timeframe, read the guide Form 2553: How to elect an S corp tax status.
If you miss the deadline, you won't get an S corp tax status unless you qualify for late election tax relief.
What is a late S corp election relief?
S corp late election relief is a revenue procedure (Rev. Proc. 2013-30) under which you can file a late S corp election directly with the IRS Service Center.
To qualify for an S corporation status and receive retroactive tax treatment, your business must meet these requirements:
- Have a reasonable clause for filing late.
- Meet general requirements to be an S corporation.
- Operate in a way that aligns with your desire to be classified as an S corporation for taxes. This includes reporting income on all your business tax returns as if the election were in effect.
You’ll also need to meet the late filing timeframe. Your late S corp election must be filed within three years and 75 days after its proposed effective date.
Detailed requirements for different business entities are detailed in the IRS instructions for Form 2553.
If you do not meet eligibility requirements for relief for a late S corp election, you might have to request a private letter ruling and pay a user fee.
How to file late S corp election?
You can file a late S corporation election by completing the IRS Form 2553. The form has five pages and four parts.
If you file a late S corp election, you should pay special attention to section I of Part I of this form. There, the IRS requires you to explain "the reasons the election or elections were not made on time." They also ask you to write "a description of diligent actions to correct the mistake upon its discovery."
In addition, you should refer to representations from Part IV on the last page of Form 2553 and include them in the statement you make above in Part I.
When submitting Form 2553 for a delayed S corporation selection, you must inscribe "FILED PURSUANT TO REV. PROC. 2013-30" in the upper margin of the form's initial page. If you are filing your tax return on Form 1120-S and submitting Form 2553 at the same time, you must enter in the top margin of the first page of Form 1120-S "INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30."
You can fax this form or send it by mail to the designated IRS Service Center.
Accepting your S corporation tax status may take up to three months. After accepting the election, the IRS must send you an acceptance letter, which will include the effective date.
If you want to file a late S corporation election, it's best to consult with a tax advisor beforehand.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Always consult with a tax professional regarding your specific case.