What Does S Election Effective Date Mean?
The S election effective date dictates when your new tax status begins. Learn the IRS timing rules to ensure your filing aligns with your intended start date.
An S corporation election allows a small business to alter its federal tax status, changing how it reports income, deductions, and losses to the Internal Revenue Service (IRS). The S election effective date marks the day the new tax status begins. This date dictates when the corporation ceases to be taxed under its prior structure, such as a C corporation, and starts adhering to S corporation tax rules.
Determining Your S Election Effective Date
The timing of your S corporation election is governed by specific IRS regulations. To have the election apply to the current tax year, a business must file its request within the first two months and 15 days of that tax year. For a company operating on a standard calendar year that begins January 1, this deadline is March 15.
If a business misses this two-month and 15-day window, the S election will not be valid for the current tax year. Instead, the election automatically becomes effective on the first day of the following tax year. This means a corporation filing after the deadline will operate under its previous tax structure for the remainder of the current year.
A newly formed corporation has the flexibility to choose its S election effective date to align with its date of incorporation. The distinction between the filing date—the day the paperwork is submitted—and the effective date—the day the tax status officially changes—is an important concept for tax planning.
Information and Documentation for Filing the Election
To file for an S corporation election, a business must gather specific information for IRS Form 2553, Election by a Small Business Corporation. The form requires the corporation’s legal name, mailing address, and Employer Identification Number (EIN). You will also need to provide the date of incorporation and the state where it occurred.
A complete list of every shareholder is also necessary. This includes each shareholder’s name, address, and the percentage of stock they own. In Part I of Form 2553, you must clearly state the specific tax year and effective date for which the S election is being made. This date must be formatted correctly as month, day, and year to avoid processing delays.
A component of the form is the shareholder consent statement. Every individual with ownership in the corporation must personally sign and date the form to affirm their consent. Without the signature of every shareholder, the IRS will reject the filing. Electronic signatures are not permitted; all signatures must be original.
The Filing Process for Form 2553
Once Form 2553 is completed and signed by all shareholders, it must be submitted to the IRS. The form can be filed by mail or by fax. The specific mailing address or fax number depends on the location of the corporation’s principal business or office. The IRS provides a list of addresses on its website, organized by state.
After submitting the form, the corporation should anticipate a response from the IRS. If the election is approved, the IRS will mail a confirmation notice, typically a CP261 Notice, which indicates the effective date. The waiting period to receive this confirmation is approximately 60 days after the IRS receives the form. It is advisable to retain a copy of the filed Form 2553 and proof of mailing or fax transmission for the company’s records.
Addressing a Late S Election Filing
Missing the standard filing deadline does not necessarily prevent a business from obtaining S corporation status for the desired year. The IRS provides a late election relief process for businesses that can demonstrate a valid reason for the delay.
To qualify for this relief, the corporation must show it had “reasonable cause” for its failure to file on time. The IRS does not provide an exhaustive list of acceptable reasons, but common examples include receiving incorrect advice from a tax professional or other unforeseen circumstances that prevented a timely submission.
The procedure for requesting late relief is outlined in IRS Revenue Procedure 2013-30. To apply, the corporation must write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of Form 2553. The form includes a section to explain the reasonable cause for the delay, though a separate statement can also be attached. This explanation must also affirm that all shareholders have reported their income consistent with an S corporation for the requested effective date. Approval of late relief is not guaranteed and is at the discretion of the IRS.