Late S Corp Election: How to File and Get Relief After Missing the Deadline

Electing S Corporation (S Corp) status offers tax advantages, but strict filing deadlines apply. If a business misses the deadline, it may still have options for retroactive election. Understanding the process can help avoid unnecessary tax consequences.

Criteria for Election

To qualify for S Corporation status, a business must meet IRS requirements. It must be a domestic corporation and can have only certain types of shareholders, including individuals, estates, and specific trusts. Partnerships, corporations, and non-resident aliens cannot be shareholders.

The number of shareholders is capped at 100, though family members can often be treated as a single shareholder under IRS aggregation rules. The corporation can issue only one class of stock, meaning all shares must have equal rights to distributions and liquidation proceeds. Differences in voting rights are allowed, but financial rights must be identical.

The business must also adopt an eligible tax year, typically a calendar year ending December 31, unless it qualifies for a different fiscal year under IRS rules. To elect S Corp status, the business must file Form 2553, signed by all shareholders, with the IRS no later than two months and 15 days after the start of the tax year in which the election is to take effect.

Common Late Submission Scenarios

Many businesses realize they missed the deadline only when they see their tax classification default to a C Corporation or a partnership. This often happens when business owners assume forming a corporation or LLC automatically grants S Corp status. Others believe their accountant has filed Form 2553, only to later discover it was never submitted or was filed incorrectly.

Some businesses intend to elect S Corp status but face administrative delays, such as missing shareholder signatures or filing errors. Since unanimous shareholder consent is required, delays in gathering signatures can push the submission past the deadline. If the IRS rejects a filing due to errors, businesses may not realize the mistake until receiving a notice.

Businesses transitioning from sole proprietorships or partnerships sometimes assume they can file at any time, only to discover the deadline when their tax preparer identifies the issue during tax season.

Consequences of Missing the Deadline

Failing to file for S Corporation status on time means the business defaults to its original tax classification. A corporation without an S Corp election is taxed as a C Corporation, where profits are subject to corporate income tax before being distributed to shareholders, who then pay taxes on dividends. This double taxation increases the overall tax burden.

For LLCs, missing the election deadline means taxation as a sole proprietorship (for single-member LLCs) or a partnership (for multi-member LLCs). While these structures offer pass-through taxation, they lack the payroll tax advantages of an S Corp. LLC owners must pay self-employment taxes on all net earnings, whereas S Corp owners can pay themselves a salary, subject to payroll taxes, while distributing remaining profits as dividends, potentially reducing self-employment tax liability.

Missing the deadline can also disrupt financial planning. If a business has structured payroll, distributions, and estimated tax payments under the assumption of S Corp status, discovering too late that the election was not in effect can lead to unexpected tax liabilities, penalties, and the need to amend prior filings.

Relief Procedures

The IRS allows businesses that missed the S Corp election deadline to request retroactive relief. Revenue Procedure 2013-30 provides automatic relief if the failure to file on time was due to reasonable cause. The business must demonstrate good faith and confirm that neither the corporation nor its shareholders have filed tax returns inconsistent with S Corp status.

To qualify, the business must meet four conditions:
1. It must have intended to be classified as an S Corporation as of the intended election date.
2. It must have a reasonable cause for the late filing.
3. It must not have been notified by the IRS that the election was rejected.
4. It must have consistently filed tax returns as if the election had been in place.

If these conditions are met, the business can submit Form 2553 with an explanation of the delay, often avoiding the need for a costly private letter ruling.

If automatic relief does not apply, businesses may need to request a private letter ruling (PLR) under Treasury Regulation 301.9100-3. This requires a detailed justification for the late election and a substantial user fee, which can exceed $10,000. The IRS reviews these requests on a case-by-case basis, often requiring assistance from a tax professional.

Required Documentation

Businesses requesting late election relief must provide specific documentation. The most important form is Form 2553, completed as if it had been filed on time. This includes the corporation’s name, Employer Identification Number (EIN), election date, and shareholder information. All shareholders must sign the form, confirming their consent. Missing signatures can result in rejection.

A written statement explaining the reasonable cause for the late filing is also required. This should outline the circumstances that caused the delay, such as administrative oversight, miscommunication with a tax professional, or reliance on incorrect advice. The IRS expects a clear and credible explanation, so vague reasons may not be sufficient.

Supporting documents, such as correspondence with accountants or legal advisors, can strengthen the case. If the company has already filed tax returns treating itself as an S Corporation, copies of these filings should be included to demonstrate consistency in tax treatment.

Steps to File After Deadline

Once all required documentation is gathered, businesses must follow a structured process to submit their late election request.

1. Complete Form 2553 – Ensure accuracy and obtain all shareholder signatures. The election date should reflect the intended start of S Corporation status. In the section for late election relief, check the appropriate box and attach the reasonable cause statement.
2. Submit the form – Mail or fax Form 2553 to the appropriate IRS service center based on the corporation’s principal business location.
3. Monitor the status – The IRS typically processes late election requests within 60 days. If no confirmation is received, businesses should follow up with the IRS.
4. Receive determination – If approved, the IRS will issue a determination letter confirming retroactive S Corporation status. If denied, businesses may need to explore alternative tax strategies or consider filing a private letter ruling for further relief.