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Making a Late Election for S-Corporation Status

Filing IRS Form 2553 Late

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Normally, if a corporation that files Form 2553 after the 15th day of the third month of its tax year but before the 15th day of the third month of the following tax year, then the IRS considers the S-Corporation election to be valid for the following tax year and not valid for the preceding tax year.

However, a corporation can file Form 2553 late and still receive IRS approval to make the election retroactive to the beginning of the corporation's tax year. Here's the rules you need to follow.

Eligibility Criteria for Late S-Corporation Elections

To qualify for relief from the late filing of Form 2553, the corporation must meet all the following criteria:
  • The corporation meets the S-Corporation eligibility criteria,
  • The corporation intended to be classified as an S-Corporation as of the intended effective date of the S-Corporation election,
  • The corporation failed to qualify as an S-Corporation solely because it did not file Form 2553 in a timely manner,
  • Less than 24 months have passed since the original due date of Form 2553,
  • The corporation either has reasonable cause or inadvertently failed to file Form 2553 in a timely manner,
  • The corporation has not yet filed tax returns for the first tax year for which it intended to file as an S-Corporation, or the corporation has filed its first tax return using Form 1120S and the shareholders properly reported their share of income in a manner consistent with the corporation's intention to be an S-Corporation,
  • Form 2553 is filed not later than 6 months after the due date (without regard to extensions) of the first tax return for which the corporation intended to file as an S-Corporation, and
  • Shareholders and other taxpayers have not reported their income in a manner inconsistent with the corporation's intention to file as an S-Corporation.

If the company meets these requirements, then company should file IRS Form 2553 by writing at the very top of the form the following words: "FILED PURSUANT TO REV. PROC. 2003-43" and attach a statement indicating that the corporation either had reasonable cause (and spell out the circumstances) or inadvertently failed to file Form 2553 in a timely manner. Both Form 2553 and the attached statement must be signed by each and every single shareholder. (More information: IRS Revenue Procedure 2003-43.)

Filing Late S-Corporation Elections When the Business Entity was Required to File IRS Form 8832

IRS Form 8832 is used by business entities other than a corporation that are choosing to be classified as a corporation for federal tax purposes. Such entities may include associations formed as partnerships, single-member limited liability companies normally regarded as sole proprietorships, and any business entity not normally classified as a corporation for federal tax purposes. A complete list is spelled on in the Instructions for Form 8832.

Such business entities must request both retroactive classification as a corporation and retroactive election as an S-corporation. Because of this two-step process, the business entity should have solid reasons for why it failed to file both Form 8832 and Form 2553 in a timely manner.

To qualify for relief from the late filing of Form 2553, the corporation must meet the following criteria:

  • The corporation meets the S-Corporation eligibility criteria,
  • The corporation intended to be classified as an S-Corporation as of the intended effective date of the S-Corporation election,
  • A domestic business entity other than a corporation would have qualified as a corporation, but failed to file IRS Form 8832,
  • The corporation failed to qualify as an S-Corporation solely because it did not file Form 2553 in a timely manner, and
  • The corporation had reasonable cause for its failure to file Form 2553 in a timely manner.

"Reasonable Cause" is the reason why the corporation failed to file Form 2553 on time. The IRS has not specified what it will consider as a reasonable cause.

To request retroactive relief for these defects in forming an S-Corporation, the company should file IRS Form 2553 and type the following at the very top of the form: "FILED PURSUANT TO REV. PROC. 2004-48" and attach a statement explaining the reason why the corporation failed to file Form 2553 in a timely manner. (More information: IRS Revenue Procedure 2004-48 & IRS Form 8832 (PDF).)

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