Missing the S election deadline is usually fixable
The statutory deadline is tight and widely missed. The administrative relief is broad and widely unknown, which is the wrong way round.
Section 1362(b)(1) gives a corporation two months and fifteen days from the start of the tax year to file Form 2553 for that year. For a calendar-year company that is March 15. Miss it, and the election takes effect the following year instead.
That deadline is missed constantly, usually by companies that formed mid-year, started operating immediately, and got to the paperwork in the spring. The good news is that the administrative relief is considerably more generous than the statute.
Rev. Proc. 2013-30
This revenue procedure consolidated a scattered set of earlier relief provisions into one path. In broad terms, relief is available where:
- The entity intended to be an S corporation as of the intended effective date
- It failed to qualify solely because the election was not timely filed
- There is reasonable cause for the failure, and the entity acted with diligence to correct it
- The request is generally made within three years and seventy-five days of the intended effective date
- Everyone has reported consistently with S status for all affected years
That last condition does the most work. Relief is designed for a company that behaved like an S corporation and simply failed to file the form. It is not designed to let a company look back at a profitable year and decide retroactively that it would rather have been an S corporation.
What consistent reporting means in practice
The shareholders must have filed returns consistent with S status, or not yet have filed at all. If the corporation filed an 1120 as a C corporation and the shareholders reported nothing, that is inconsistent reporting and this path closes.
Where a company genuinely intended S treatment, the paper trail usually exists without anyone having thought of it as evidence: shareholder draws recorded as distributions, payroll run for the owner, an accountant’s engagement letter that names an 1120-S. Collect it before you write the reasonable cause statement, because it is what the statement should describe.
Mechanics
Relief is requested on Form 2553 itself, filed with the reasonable cause explanation attached and FILED PURSUANT TO REV. PROC. 2013-30 written across the top. Depending on the situation it goes in standalone or attached to the late 1120-S.
Reasonable cause is a written statement, signed under penalties of perjury, explaining what happened. “We did not know” is weaker than “our formation documents were prepared in June, the election was on the checklist, and it was not filed when the preparer changed in August.” Specific, verifiable, and unembarrassed reads better than vague.
Past the three-year window
Relief does not simply end. A private letter ruling is available, which is a real option and a considerably more expensive one, involving a user fee and a wait measured in months. That cost is the reason to handle a known-missed election in the year you notice rather than the year it becomes inconvenient.
The avoidable version
File the election when the entity is formed, and keep the acceptance letter (CP261) somewhere you will find it in five years. The single most common reason a late-election question turns into a research project is that nobody can establish whether an election was ever filed at all.
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