If a taxpayer misses the deadline to file a subchapter S election all is not lost. The Internal Revenue Service (IRS) has struggled with the procedures for obtaining relief from missing such a filing. Rev. Proc. 2013-30 is the method for obtaining relief for late S elections. It modifies and supersedes Rev. Proc. 2007-62, Rev. Proc. 2003-43 and Rev. Proc. 97-48. No user fee is required when requesting relief under Rev. Proc. 2013-30.
Section 1362 of the Internal Revenue Code (the “Code”) and its corresponding regulations provide that a corporation meeting all the requirements to be a small business corporation may elect to be treated as a subchapter S corporation for federal income tax purposes. The election must be timely and properly made. Under Rev. Proc. 2013-30, a corporation that failed to properly elect S corporation status must meet the following requirements to be granted relief:
- The corporation must have intended to be classified as an S corporation as of the requested effective date of the S election.
- The corporation must request relief within three years and 75 days after the intended effective date of the S election (with one exception, discussed a few paragraphs down.)
- The corporation’s failure to qualify as an S corporation must be solely because the S election was not filed by the due date of that S election.
- The corporation has reasonable cause for its failure to make a timely S election and has acted diligently to correct the mistake upon discovering it.
- All shareholders, must have reported their income on all affected returns consistent with the S election for the year of the election and all subsequent years (and a statement to such effect must be attached to Form 2553).
A corporation that meets the requirements listed above must take the following actions to obtain relief under the revenue procedure:
- Complete Form 2553 and attach supporting documents as described in Proc. 2013-30.
- Type “FILED PURSUANT TO REV. PROC. 2013-30” across the top of Form 2553
- Form 2553 must be signed by an officer of the corporation and all shareholders who were shareholders at any time during the period that began on the first day of the taxable year for which the election is to be effective and ends on the day that Form 2553 is filed.
- Attach a reasonable cause statement to Form 2553 that describes the corporation’s (i) reasonable cause for failure to timely file the S election and (ii) actions to correct the mistake upon its discovery.
- File Form 2553 with the corporation’s appropriate IRS Service Center by either (i) attaching it to the corporation’s current year Form 1120S as long as the 1120S is filed within three years and 75 days after the intended effective date of the S election, (ii) attaching it to a late filed prior year Form 1120S as long as the 1120S is filed within three years and 75 days after the intended effective date of the S election and all other delinquent Forms 1120S are filed simultaneously, or (iii) submitting it directly to the appropriate IRS Service Center within three years and 75 days after the intended effective date of the S election.
Rev. Proc. 2013-30 generally provides that relief for a late S election must be requested within three years and 75 days after the intended effective date of the S election. However, there is one exception to this rule. As described in Rev. Proc. 2013-30, the three-year, 75-day rule does not apply to a corporation when:
- the corporation fails to qualify as an S corporation solely because Form 2553 was not timely filed
- the corporation is not seeking relief for a late entity classification election,
- the corporation always reported income consistent with S corporation status,
- at least six months have elapsed since the date on which the corporation filed its tax return for the first year that it intended to be an S corporation,
- neither the corporation nor any of its shareholders was notified by the IRS of a problem regarding the S corporation status within six months of the date on which the Forms 1120S for the first year was timely filed, and
- the corporation otherwise complies with Rev. Proc. 2013-30.
If a corporation does not meet the requirements set forth in Rev. Proc. 2013-30 for relief from a late S election, the corporation may still apply for relief by requesting a private letter ruling from the IRS.
In addition to relief for late S elections, Rev. Proc. 2013-30 also provides the exclusive methods for relief for late ESBT elections, QSST elections, QSUB elections and late corporate classification elections that the taxpayer intended to take effect on the same date as the intended S election. Rev. Proc. 2013-30 provides details on the proper steps for requesting relief for these late elections. In general, all such relief must be requested within three years and 75 days after the intended effective date of the underlying election. Rev. Proc. 2013-30 includes various flow charts that summarize the rules for obtaining late filing relief.
The information contained herein is general in nature. It is not, and should not be construed as legal or tax advice or an opinion provided by Beggs & Lane, RLLP. Contact Beggs & Lane, RLLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein. Beggs & Lane, RLLP assumes no obligation to inform the reader of any such changes. To the extent this document may be considered to contain written tax advice, any written advice contained herein is not intended by Beggs & Lane, RLLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.