Rev Proc 2015-32: Relief for Late S Corp Elections

An S corporation election allows a small business to pass its income, losses, deductions, and credits through to its shareholders for federal tax purposes. This avoids double taxation, where income is taxed first at the corporate level and again when distributed to shareholders. To receive this tax status, a business must file Form 2553, Election by a Small Business Corporation, with the IRS by the 15th day of the third month of the tax year the election is to take effect.

Failing to file on time can result in the business being taxed as a C corporation, negating the intended tax benefits. Recognizing that businesses may miss this deadline for legitimate reasons, the IRS established Revenue Procedure 2013-30. This procedure provides a simplified method for certain businesses to request relief for a late S corporation election, avoiding the more complex and costly process of requesting a formal private letter ruling from the IRS.

Eligibility for Relief

To qualify for relief under this revenue procedure, a business must meet several specific conditions. The primary requirement is that the company’s failure to qualify as an S corporation is solely because the election was not filed on time. If there are other disqualifying factors, such as having an ineligible shareholder or more than the maximum number of shareholders allowed, this simplified relief procedure cannot be used. The business must have intended to be an S corporation as of a specific date and simply failed to submit the paperwork correctly.

The procedure covers several types of late elections. This includes a late S corporation election on Form 2553 and a late corporate classification election. The latter applies to entities like LLCs that intended to be taxed as a corporation by filing Form 8832, Entity Classification Election, and then immediately elect S corporation status. Relief is also available for late Electing Small Business Trust (ESBT) and Qualified Subchapter S Trust (QSST) elections, which are required for certain trusts to be eligible S corporation shareholders.

A component of eligibility is demonstrating reasonable cause for the late filing and that the taxpayer acted with due diligence to correct the error upon discovery. Reasonable cause is more than simple oversight; it could involve reliance on a tax professional who failed to make the filing or the business owner being unaware of the requirement despite exercising normal business care. Due diligence means that upon discovering the mistake, the business moved promptly to file for relief.

A corporation must request relief within three years and 75 days of the intended effective date of the election. This window provides a substantial period to discover and rectify the error.

Required Statements and Documentation

A request for relief requires a package of documents, starting with a completed Form 2553, Election by a Small Business Corporation. This form must contain all the required information, including the corporation’s employer identification number (EIN), date of incorporation, and the intended effective date of the S election. It must be signed by an authorized officer of the corporation.

An attachment to the Form 2553 is a detailed relief statement from the corporation. This document must explicitly state that the corporation is seeking relief under Revenue Procedure 2013-30. It needs to provide a full narrative explaining the reasonable cause for the failure to file the election on time, detailing the events that led to the oversight. The statement must also describe the actions of due diligence taken to correct the error after it was discovered and be signed under penalties of perjury by a corporate officer.

In addition to the corporation’s statement, signed statements are required from every shareholder who owned stock in the corporation at any point from the intended S corporation effective date to the date of the relief filing. Each shareholder statement must affirm their consent to the corporation’s S election. Furthermore, each shareholder must attest, under penalties of perjury, that they have reported their share of the corporation’s income and losses on their individual tax returns for all relevant years in a manner consistent with the S corporation election being in effect.

This requirement of consistent income reporting is absolute. If any shareholder filed tax returns treating the corporation as a C corporation, or in any other inconsistent manner, the entity is ineligible for relief under this specific procedure. The purpose of these shareholder statements is to confirm to the IRS that all parties have acted as though the S election was valid from the beginning.

The Submission Process

To ensure the IRS processes the request correctly, the phrase “FILED PURSUANT TO REV. PROC. 2013-30” should be written at the top of the first page of the Form 2553.

This relief request is not filed with the corporation’s annual income tax return, such as Form 1120-S. Instead, the entire package must be mailed to the specific IRS service center designated for the state where the corporation’s principal business or main office is located. The correct mailing addresses are listed in the official instructions for Form 2553.

After the submission is mailed, the IRS will review the application. The agency will verify that all eligibility requirements have been met and that all required statements and signatures are present. If the request is approved, the IRS will send a letter to the corporation confirming that relief has been granted. This letter validates the S corporation election, treating it as if it were filed on time for the intended effective date. If the request is denied, the corporation will also be notified by letter and will retain its default tax status as a C corporation.