Rev Proc 2023-24: Simplified Method for Late Elections

The Internal Revenue Service provides an avenue for taxpayers who have failed to make certain tax elections on time. Revenue Procedure 2013-30 offers a simplified method for obtaining an extension, provided specific criteria are met. This guidance is designed to help those who had a reasonable basis for their failure to file and were not seeking an advantage from hindsight. This procedure supersedes earlier guidance, consolidating the rules for various late elections into a single framework for taxpayers who missed a deadline in good faith.

Eligibility Requirements for Relief

To qualify for relief under the simplified method, a taxpayer must demonstrate they had “reasonable cause” for not making the election on time. The IRS evaluates the specific reasons for the failure. A common example is reliance on a tax professional who was expected to file the election but failed to do so, provided the taxpayer supplied all necessary information to the professional.

Another instance of reasonable cause could be a simple oversight or administrative error by the taxpayer. A taxpayer who was unaware of the requirement to make an election may also be able to establish reasonable cause, depending on their level of sophistication and the complexity of the tax issue.

The taxpayer must also show they acted reasonably and in good faith, which prevents using the benefit of hindsight to gain an advantage. For example, a taxpayer cannot wait to see if a particular tax strategy is beneficial before deciding to make a late election. The request for relief must be made before the IRS discovers the failure during an audit.

A requirement is that the taxpayer’s tax liability is not lower with the late election than it would have been if the election had been made on time. This is known as not prejudicing the interests of the government. The taxpayer must also have filed all associated tax returns consistent with the election being in effect for the year it should have been made.

The request for relief must be filed within three years and 75 days of the election’s original intended effective date. Failure to meet this window will render a taxpayer ineligible for this simplified method, forcing them to pursue a more formal and expensive route for seeking relief.

Elections Covered by the Simplified Method

The relief provided under this revenue procedure applies to a specific set of elections. These include:

• The S corporation election, where an eligible business failed to timely file Form 2553, Election by a Small Business Corporation.
• Elections related to S corporations, such as the Qualified Subchapter S Trust (QSST) and the Electing Small Business Trust (ESBT) elections.
• The Qualified Subchapter S Subsidiary (QSub) election, where an S corporation fails to timely file Form 8869, Qualified Subchapter S Subsidiary Election.
• Late corporate classification elections filed in conjunction with a late S corporation election, such as when an LLC must first file Form 8832 to be treated as a corporation.

However, certain elections are excluded from this simplified method. Relief cannot be obtained under this procedure for elections that are required by statute to be made by the due date of the tax return excluding extensions, and many international tax elections are also not covered.

Procedural Requirements for Filing

To request relief under the simplified method, the request is attached to a completed election form, such as Form 2553 for a late S corporation election. This form, along with all required supporting documents, must be filed with the applicable IRS service center.

A required statement must be attached to the election form, stating at the top that it is “FILED PURSUANT TO REV. PROC. 2013-30.” This statement must provide a detailed explanation of the reasonable cause for the failure to file the election on time, describing the events that led to the error.

The statement must also include declarations made under penalties of perjury, signed by the taxpayer and in many cases the tax professional involved. This declaration affirms that the taxpayer acted reasonably and in good faith. The request can then be attached to the current year’s tax return, an amended return for a prior year, or filed separately.

Alternative Relief for Ineligible Taxpayers

When a taxpayer does not meet the requirements of the simplified method, another path for relief is a formal request for a Private Letter Ruling (PLR) from the IRS National Office. A PLR is a written determination that applies tax laws to a specific set of facts. A PLR is necessary if the taxpayer missed the three-year and 75-day deadline, if the IRS discovered the failure before relief was sought, or for elections excluded from the simplified procedure.

The process for requesting a PLR is more burdensome and involves preparing a detailed written request with legal analysis and relevant documents. The taxpayer must also pay a user fee to the IRS, which can range from a few thousand to tens of thousands of dollars depending on the request.

In contrast to the simplified method, which has no user fee, the PLR process is both expensive and time-consuming. It can take many months for the IRS to issue a ruling, making it a less desirable option.