How to File a Late S Corporation ElectionSmall Business Taxes
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One of my S corporation clients recently sent me a notice in panic.
Here are the first words:
We received your Form(s) 1120S for each of the tax period(s) listed above, but we can’t process your form(s) as filed. Our records don’t show that we accepted a Form 2553, Election by a Small Business Corporation, electing to be treated as an S corporation for income tax purposes.
And then it went on to say that if my client doesn’t respond in 30 days, the IRS will conveniently “convert” his S corporation’s Form 1120S to a Form 1120, his “account may reflect incomplete or incorrect information.”
Now, I don’t know what happened to the Form 2553 I gave him to file two years ago.
Maybe he never sent it.
Maybe it got lost in the mail.
Maybe I should have verified at some point that he received an S corporation acceptance letter from the IRS.
Whatever happened, it happened, and now I have to fix it.
So how do you fix something like this? You file a late S corporation election under Rev. Proc. 2013-30. Here’s how.
How to Qualify for Late S Corporation Election Relief
However, there are certain requirements necessary in order to qualify for this relief. Here they are.
1. Timeline Requirement
You must be requesting relief within three years and 75 days after the date you intend to be treated as an S corporation.
2. Failure Requirement
The only reason you fail to qualify as an S corporation is because the Form 2553 was not timely filed by its due date.
3. Reasonable Cause Requirement
You must have reasonable cause for your failure to timely file the Form 2553 by its due date.
How to File a Late S Corporation Election
Step 1: Call the IRS if you received a notice.
In general, when you receive a notice from a taxing authority, the first thing you want to do is call them up.
Sometimes, certain matters can be cleared up over the phone, and at the very least you may receive more helpful information than what was provided in the notice.
In my client’s matter, I wasn’t sure whether:
- the IRS had simply never received the Form 2553, or
- the IRS had received the Form 2553, but it was incomplete, improper, or missing a signature.
So I called the IRS about this notice, and they told me that, sure enough, they had never received the Form 2553.
Step 2: Retrieve (or Prepare) the Form 2553.
The next step is to dig up the previously-prepared or, if you hadn’t prepared it before, prepare the Form 2553 as you normally would.
Step 3: Stamp “Filed Pursuant to Rev. Proc. 2013-30” Across the Top.
After you’ve prepared the Form 2553, stamp, write, or PDF edit, “Filed Pursuant to Rev. Proc. 2013-30” across the top.
Step 4: Prepare Your Reasonable Cause Statement.
In order to qualify for late election relief under Rev. Proc. 2013-30, you must provide a statement explaining your reasonable cause for failing to file the Form 2553 by the original due date of the election.
Looking for a Rev. Proc. 2013-30 sample letter? Well, I have you covered. Here is a sample Rev. Proc. 2013-30 Reasonable Cause Statement:
Sample Company, Inc.
FYE: December 31, 20XX
The corporation meets all the qualifications for demonstrating reasonable cause for late filing of Form 2553 in accordance with regulations section 301.7701-3.
- Sample Company, Inc. is an eligible entity as defined in Treas. Reg. 301.7701-3(a).
- This corporation intended to be classified as an S corporation as of the date entered on Line E of Form 2553. The Officer (Mr. Sample Taxpayer) of Sample Company, Inc. intended to become an S corporation. Mr. Taxpayer did not know of the need to file an election until he met with an accountant in [Month] 20XX. There was an inadvertent error that resulted in the Form 2553 not being filed. However, this error was not known until Mr. Taxpayer received the attached notice in [Month] 20XX.
- The corporation fails to qualify as an S corporation on the effective date entered on Line E, XX/XX/20XX, of Form 2553 solely because the Form 2553 was not filed by the due date pursuant to section 1362(b).
- This entity and the shareholders have timely filed all required federal tax returns and information returns consistent with its requested classification as an S corporation for the year the entity intended to be an S corporation and no inconsistent tax or information returns have been filed by or with respect to the entity for the tax year.
- The corporation has reasonable cause for its failure to timely file Form 2553 and has acted diligently to correct the mistake upon discovery of its failure to timely file Form 2553. Mr. Taxpayer is now submitting the attached Form 2553 in response to the notice received.
- This Form 2553 is being filed within 3 years and 75 days of the date entered on Line E, XX/XX/20XX, of Form 2553. Statements from all shareholders who were shareholders during the period between the dated entered on Line E, XX/XX/20XX, of Form 2553 and the date the completed Form 2553 is filed stating that they have reported their income on all affected returns consistent with the S corporation election for the year the election should have been made and all subsequent years. Part 1, Column K, Shareholder’s Consent Statement of Form 2553 has been completed and signed by all of the shareholders and is attached.
Step 5: Prepare and Sign Your Shareholders’ Statement.
Additionally, you must prepare a statement from all shareholders that during the period between the date the S corporation election was to have become effective and the date you filed the completed election, they reported their incomes on all affected returns, consistent with the S corporation election for the year the election should have been made and for all subsequent years.
Again if you need an example Rev. Proc. 2013-30 letter, here is a sample Rev. Proc. 2013-30 Shareholders’ Statement (be sure to sign and date it):
Sample Company, Inc.
FYE: December 31, 20XX
Supplemental Statement Filed in Accordance with Rev. Proc. 2013-30
The above named taxpayer submits this statement in support of a late election to be treated for tax purposes as an S corporation.
Date the Election by a Small Business Corporation intended to be effective: XX/XX/20XX
As the officer of the S corporation, I declare the S corporation has reasonable cause for its failure to timely file the Election Under Subchapter S and has acted diligently to correct the mistake upon its discovery.
Please see Form 2553 for an explanation of the reason the election was not made on time.
Under penalties of perjury, I declare that I have examined this election, including accompanying documents, and, to the best of my knowledge and belief, the election contains all the relevant facts relating to the election, and such facts are true, correct, and complete.
Sample Taxpayer, Officer of the S Corporation
Step 6: Mail Your Package.
Finally, you need to mail your package to the IRS.
Here is what should be in your package:
- Your Form 2553 with “Filed Pursuant to Rev. Proc. 2013-30” stamped across the top.
- Your reasonable cause statement.
- Your shareholders’ statement.
After You File Your Late S Corporation Election
After you file your late S corporation election, all you can do is wait.
Within a few months, the IRS should send you a determination letter stating the effective date of your S corporation election.
Alternatively, if your request for late election relief is rejected, the IRS may send you a notice notifying you why.
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Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.