How to File an S-Election (Form 2553) Late
So, you want to change the tax status of your business to an S corporation — but you missed the filing deadline? Don’t worry. You may be able to file your S Election (Form 2553) late, and get all the benefits of the S corporation classification. Here’s how:
1. Determine when you want your S Corporation status to go into effect.
In the past, the IRS required Form 2553 (the Election by a Small Business Corporation to be taxed as an S corporation also known as the “S Election”), to be filed before a company filed their first tax return. This meant that, if you filed the S Election after you filed your tax return, the S Election would not take effect until the next year. However, revised tax code makes it possible to make your S Corp election retroactive. IRS Rev. Proc. 2013-30 allows companies to dial back the “effective date” of their S-Election (the date you wish your election to be effective) as far as 3 years and 75 days. Yes, that means that you can apply for tax relief now, and be approved not only for the current year, but for previous years as well. But wait, before you get excited, be sure to check the next few points on our to do list.
2. Determine if you qualify for Subchapter S Status in the first place.
Speaking generally, in order to file for S-Corp status, your entity must be a domestic corporation with no more than 100 shareholders and only one class of stock. Shareholders must report the company’s flow-through of income and losses on their personal tax returns. Also, the company may not be an ineligible corporation, such as an insurance company or international sales corporation.Detailed information about S-Corp qualification →
3. Determine if you qualify for late election relief.
For a full list of qualifications, restrictions and instructions, read the full text of IRS Rev. Proc. 2013-30. If you want to save some time, here are the high points: First of all, if you’ve already filed your tax returns, you and all other shareholders must have reported income consistent with your S-Corp election for the year of your effective date, and all years following. For example, some business owners fail to file Form 2553 because they don’t realize it is necessary, or they believe their attorneys have filed the form for them; yet they file their taxes as an S-Corp anyway. If the IRS determined your business is an eligible entity, and failed to qualify simply because the election was not timely, you would qualify for relief. You must also have reasonable cause for failing to make the election timely; and the time from your effective date to your filing must be less than 3 years and 75 dates, unless you meet exception rules.
4. Download and complete IRS Form 2553 from the IRS website.
Download Form 2553, “Election by a Small Business Corporation,” from the IRS website, along with instructions. You can fill out the PDF template on your computer or print and fill it out by hand. To request relief from a late filing for reasonable cause, complete the narrative section at the bottom of Page 1, explaining why you are filing late (you can use the text from page 4 of Form 2553).
5. Mail or fax the Signed Form 2553 to the IRS.
Next, wait for the IRS’s decision, and enjoy your new S-Corp status.