Rev Proc 2023-11: Relief for Late S Corporation Elections

Revenue Procedure 2013-30 is guidance from the Internal Revenue Service (IRS) that offers a simplified method for certain businesses to get relief for late S corporation elections. This procedure provides a straightforward path for taxpayers who have a legitimate reason for failing to file their election forms on time. It allows entities that intended to be taxed as S corporations, but missed the deadline, to correct the error without undergoing a more formal and costly process. This guidance is designed to reduce the burden on both taxpayers and the IRS for common filing oversights.

Eligibility for Simplified Relief

To qualify for the simplified relief method under Revenue Procedure 2013-30, an entity must meet several criteria. The procedure covers the primary S corporation election on Form 2553, as well as late Qualified Subchapter S Trust (QSST), Electing Small Business Trust (ESBT), and Qualified Subchapter S Subsidiary (QSub) elections. The entity must have intended to be an S corporation from a specific date and met all other eligibility requirements, such as shareholder limitations. The failure to qualify must be solely because the election was not filed on time.

An entity must demonstrate “reasonable cause” for the failure to file the election in a timely manner. Reasonable cause is determined by the facts and circumstances of each case, with examples including being unaware of the filing requirement despite exercising ordinary business care or receiving incorrect advice from a tax professional. The entity must also show that it acted diligently to correct the mistake once it was discovered.

There is a specific time limit for requesting this simplified relief. The request must be filed within three years and 75 days of the date the election was originally intended to be effective. For instance, if a business formed on January 1, 2024, intended to be an S corporation from its inception but failed to file, it would have until March 16, 2027, to seek relief.

All subsequent federal tax returns must have been filed consistently with the intended S corporation status. This means the corporation must have filed Form 1120-S, and all shareholders must have reported their share of the corporation’s income, losses, deductions, and credits on their personal income tax returns as if the S election had been in effect.

Required Statements and Documentation

The core of the submission is the applicable election form. For a late S corporation election, Form 2553, “Election by a Small Business Corporation,” must be completed with all required information. This includes the intended effective date and the signatures of a corporate officer and all shareholders who owned stock between the intended effective date and the filing date. For a late QSub election, Form 8869, “Qualified Subchapter S Subsidiary Election,” is used.

An attachment to the election form is a detailed “Reasonable Cause Statement.” This is a written explanation detailing the reasons for the late filing. The statement should articulate the events that led to the failure to file on time and establish that the entity exercised ordinary business care but was unable to file. It should also describe the diligence exercised to correct the error upon its discovery.

The submission must include specific consent statements from all shareholders. Every individual who was a shareholder from the intended effective date of the S election must sign a statement. This statement confirms they have reported their income on all affected personal tax returns consistent with the corporation’s S election for all relevant years.

The package must contain a set of specific representations signed by a corporate officer under penalties of perjury, as outlined in Revenue Procedure 2013-30. The officer must attest that the entity and its shareholders meet all requirements for relief, that all required shareholder consents are included, and that the information submitted is true and complete.

The Filing Process for Relief

The entire relief request package, including the completed election form and all required attachments, must be filed with the appropriate IRS service center. The correct service center depends on the corporation’s principal business location.

For a late S corporation election, the package should be attached to the corporation’s Form 1120-S for the first year the corporation intended to be an S corporation. For example, if relief is sought for an election intended to be effective for the 2024 tax year, the package would be attached to the 2024 Form 1120-S. If that year’s return has already been filed, the relief request should be attached to the current year’s Form 1120-S.

The IRS will not send a private letter ruling or formal notification confirming the approval of the relief request. The process operates on the principle that the request is accepted unless the taxpayer is contacted by the IRS. The service center will only notify the corporation if the relief request is denied or if additional information is needed.

Relief Outside the Simplified Procedure

Entities that do not meet the eligibility criteria for the simplified method may use a more formal process to seek relief. This path involves requesting a private letter ruling (PLR) from the IRS Office of Chief Counsel. This process is available for situations outside the scope of the simplified procedure, such as when a request is made after the three-year and 75-day deadline has passed.

A PLR is a formal written determination issued by the IRS that interprets and applies tax laws to a taxpayer’s specific set of facts. Obtaining a PLR is a more involved and lengthy process than the simplified relief procedure. It requires a detailed written submission that lays out the facts, applicable law, and a legal argument for why relief should be granted.

The complexity and time commitment for a PLR request are substantial, as the process can take several months to a year or more to complete. Furthermore, requesting a PLR requires the payment of a significant user fee to the IRS. These fees are updated periodically and can amount to several thousand dollars, making this a costly alternative.