Using Rev Proc 2007 16 for Late S Corp Elections

For small businesses, the choice of entity classification has significant tax implications. An S corporation status can offer notable advantages by allowing income, losses, deductions, and credits to pass through to shareholders for tax purposes, avoiding the double taxation inherent in C corporations. Missing the deadline to file for this status can be a costly mistake. The Internal Revenue Service (IRS) provides a remedy through Revenue Procedure 2013-30.

This procedure offers a simplified method for certain small businesses to request relief for a late S corporation election. It serves as an alternative to the more formal and expensive process of requesting a private letter ruling from the IRS for businesses that can show their failure to file was unintentional.

Eligibility for Relief Under the Revenue Procedure

To use the simplified relief procedure, a business must meet several specific criteria. The primary requirement is that the entity must have intended to be classified as an S corporation from a specific date but failed to qualify solely because the election was not filed on time. The entity must be an otherwise eligible corporation that meets all other requirements to qualify as a small business corporation under the Internal Revenue Code.

A timing element dictates eligibility. The request for relief must be filed within 3 years and 75 days of the date the election was originally intended to be effective. This window is a strict deadline for accessing the simplified procedure. If a business discovers its error beyond this period, it may need to pursue the more complex private letter ruling process.

The concept of “reasonable cause” is central to the eligibility determination. The taxpayer must provide a statement explaining why the election was not filed on time. This explanation needs to be credible and demonstrate that the failure was not due to willful neglect.

Furthermore, the entity and all of its shareholders must have consistently reported their income as if an S corporation election had been in effect for the year the election should have been made and for all subsequent years.

Required Statements and Documentation

The submission requires the late election form itself, Form 2553, “Election by a Small Business Corporation.” At the top of this form, the taxpayer must write “FILED PURSUANT TO REV. PROC. 2013-30”. This notation signals to the IRS the specific relief being sought. The form must be properly completed with all required corporate information and signatures.

A detailed “Representation Statement” must be attached to the election form. This statement is a formal declaration, signed under penalties of perjury, that explains the reasonable cause for the failure to file the election on time. It should clearly articulate the facts and circumstances surrounding the oversight and affirm that the entity is requesting relief under the specific revenue procedure.

In addition to the corporation’s statement, consents from all shareholders are required. Each person who was a shareholder at any point from the intended effective date must sign a consent statement. These statements affirm that the shareholder has reported their income on all affected personal tax returns consistent with the corporation being an S corporation.

The reasonable cause statement itself requires a narrative explaining the specific events that led to the late filing. This could involve reliance on a tax professional who failed to make the filing or an oversight by corporate officers. The explanation should be factual and demonstrate that the taxpayer exercised due diligence.

The Filing Procedure

Once all the necessary documents have been prepared and signed, they must be assembled into a single package for submission. The relief request, which includes the representation and shareholder statements, should be securely attached to the front of the completed election form. The entire package must be filed with the specific IRS service center where the corporation files its income tax return. Taxpayers can find the correct service center address in the instructions for Form 1120-S, “U.S. Income Tax Return for an S Corporation.”

There are a couple of methods for submitting the package. It can be filed independently or attached to the corporation’s current year Form 1120-S. If attaching to the current return, it’s important that all prior year returns have been filed consistently with the S election being in effect.

After submission, the IRS will review the request. If the request is complete and meets all the requirements of the revenue procedure, the IRS will notify the corporation that the late election relief has been granted.