Late S-corp election relief

What the relief is, and what it isn't

Congress gave the IRS the power to treat a late S-corp election as timely where there was reasonable cause for missing the date (26 U.S.C. § 1362(b)(5)). For years the way to ask was a private letter ruling — a formal request to the IRS national office with a user fee attached. Revenue Procedure 2013-30, effective September 3, 2013, replaced that with a simplified route for the ordinary case: it lets you make the request on Form 2553 itself, in lieu of the letter ruling process, and the revenue procedure says in terms that user fees don't apply.

The thing to be clear-eyed about is what it's for. Every requirement in it assumes the company meant to be an S corporation from the effective date and behaved like one — the failure is that the form didn't get filed. It's a cure for paperwork. It isn't a way to look back at a good year, decide S-corp treatment would have saved tax, and elect it retroactively, and a request built on that footing fails the conditions below on its face.

We say this up front because it's the framing that decides whether the relief fits you. If your accountant told you in January to elect and the form sat in a drawer, you're the case it was written for. If you filed a Schedule C for that year and have just heard S-corps pay less tax, you're not, and the honest move is an on-time election for next year.

The four conditions

Section 4.02 of the revenue procedure sets out the general requirements, and each one has to be true:

• The company intended to be an S corporation as of the effective date it's asking for.
• The request is made within 3 years and 75 days after that effective date.
• The company failed to be an S corporation on that date solely because Form 2553 wasn't filed on time — nothing else was wrong.
• The company has reasonable cause for the late filing and acted diligently to correct the mistake once it was discovered.

The fifth piece, which is the one people fail

For a late S-corp election specifically, section 5 adds a further requirement: statements from everyone who owned a share of the company between the intended effective date and the day the form is filed, confirming they reported their income on all affected returns consistently with the S election for that year and every year since. If the company was supposed to file Form 1120-S and the owners were supposed to get K-1s, that has to have actually happened — or, if the first return isn't due yet, be about to.

An LLC electing S-corp treatment carries one more wrinkle. The LLC is also treated as having elected to be a corporation on the same date, and the revenue procedure covers that deemed classification election in the same request, with a short list of extra representations the form has to include. It's still one Form 2553; nobody needs to file Form 8832 first.

What counts as reasonable cause for a late S-corp election

The revenue procedure doesn't publish a list, and the IRS decides each request on what's in the statement. What the statement has to do is describe, in plain terms, why the form wasn't filed by the due date and what you did to fix it once you found out. The second half matters as much as the first — "acted diligently to correct the mistake upon its discovery" is the IRS's phrase, and a company that noticed in March and filed in December has a harder statement to write than one that filed the week it noticed.

The reasons that come across our desk are unglamorous. The accountant or formation service was supposed to file it and didn't. The owner filed it and the fax never landed. The owner believed the S-corp bundle at formation had included it. Nobody told a first-time owner that a form was needed at all, and payroll and the 1120-S were run as if it were in place. Those are reasons, stated as facts with dates. They aren't arguments about tax savings, and the statement shouldn't contain any.

The statement is signed under penalties of perjury, using the exact declaration the revenue procedure prescribes, by an officer authorised to sign — for an LLC, a member or manager. So it has to be true, and it has to be yours. We'll shape it and put the dates in order; we won't invent it, and anyone offering to is offering you a problem.

The 3 years and 75 days, counted from the intended date

The window runs from the effective date you're asking for, not from the original filing deadline and not from the day you noticed. The IRS's own example: an election meant to take effect June 1, 2014 had to be requested before August 15, 2017. For a January 1 effective date, the window closes in mid-March three years on.

It's a hard edge. An extension of time to file the current-year Form 1120-S doesn't stretch it — the revenue procedure says so specifically — and if you're planning to attach the late election to a return, the return has to be filed inside the window, extension or not.

There's one narrow exception. A corporation — not an LLC — that filed every return as an S corporation, whose owners all reported consistently, that filed its first S-corp return at least six months ago and never heard a word of objection from the IRS, can ask beyond the three years and 75 days. It's narrow because the IRS usually does object: an 1120-S from a company with no election on file tends to be bounced, not quietly accepted. If you think you're in it, that's a CPA conversation.

How to actually file it

It's Form 2553, filled in completely, with the effective date you intended in item E and every shareholder's consent signed. Across the top of the form you write "FILED PURSUANT TO REV. PROC. 2013-30". Attached to it go the reasonable-cause statement and the shareholder statements, each with its penalties-of-perjury declaration and a signature and a date.

It can go to the IRS three ways. Attached to the current year's Form 1120-S, with "INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30" at the top of the return. Attached to a late-filed Form 1120-S for the year the election was meant to start, with any other missing S-corp returns filed at the same time. Or on its own, sent to the same IRS service centre that takes ordinary Form 2553 filings, by fax or by mail — the addresses are on the IRS's Where to File page for the form.

Then you wait for the notice. An accepted late election comes back as a CP261, and it will say plainly that the IRS accepted the effective date you asked for or that it moved it. A refusal is a CP264 with the reason. Nothing arrives quickly; keep the fax report and a full copy of what you sent.

When it doesn't fit: the private letter ruling

A company that fails one of the conditions — the window has closed, an owner reported inconsistently, the intent wasn't there from the start — can still ask for relief by requesting a private letter ruling from the IRS national office, under the procedures in Rev. Proc. 2026-1 or its successor. That's a formal, lawyered submission with a user fee that starts in the low thousands of dollars for the smallest companies and climbs steeply from there, and it takes months. For most small LLCs the arithmetic doesn't work, and the practical answer is to file an on-time election for the coming year and let the past year stay as it was filed.

That's also the honest boundary of what we sell. The election, including a Rev. Proc. 2013-30 relief request where the facts support one, is $50 flat with no government fee. Whether the facts support one is a question of what actually happened, and whether the past-year returns should be amended to line up is a question for a CPA, not for us.

Common questions