Key Takeaways:

  • A late S-Corp election allows corporations to still elect S-Corp status after the deadline, but specific procedures must be followed.
  • To qualify, Form 2553 must be submitted within three years and 75 days of the intended election date.
  • The IRS allows late S-Corp elections if a reasonable cause is provided, such as lack of awareness or accountant oversight.
  • Filing Form 2553 accurately and including "FILED PURSUANT TO REV. PROC. 2013-30" is crucial for approval.
  • Certain tax and financial advantages, such as pass-through taxation, make S-Corp status appealing for small businesses.
  • If the IRS denies late election relief, businesses may need to reapply or consider alternative tax structures.

A late S-Corp election is not unusual. Many corporations miss the deadline to file this election, which provides certain tax benefits, with the IRS. If you are wondering how to file a late S-Corp election, there is no need to panic. Everything you need to know is included in this mini guide. 

What Is an S-Corp?

If your business is currently incorporated but has not yet filed an S-Corp election, it is what's considered a C-Corp. In comparison, an S-Corporation offers some unique benefits. Eligible corporations can file for this status, which will benefit corporate tax returns. If you are considering S-Corp election, be mindful that in an S-Corp:

  • Only individuals, specific trusts, and estates can own shares.
  • The corporation must be domestic with only one class of stock. It may also have no more than 100 shareholders. 

Once a business becomes an S-Corp, it will be referred to as a "pass-through" taxation entity. Income, deductions, credits, and losses can then be passed on to the owners, instead of being taxed at the corporate level. This applies for federal and most state-level tax requirements.

S-Corp Election 

When filing for S-Corp election, this means that you make a tax election with the IRS. By placing the business under new tax provisions, as outlined in Subchapter S, it will be taxed differently than a C-Corp. As long as a corporation meets all the requirements and the election is filed on time, it will be treated as an S-Corp. So, how do you address a late S-Corp election if you missed the deadline?

How to File a Late S-Corp Election

If you have missed the deadline, you will need to download Form 2553. It can either be filled out on your computer or printed and completed by hand. On this form, all of the relevant information is requested. This helps the IRS determine whether or not your corporation is eligible. Even if you file a late S-Corp election, the most important information will be the date of incorporation and your corporation's fiscal year.

This form will need to be signed by an officer, as well as all associated shareholders. 

Next, file Form 2553 with your corporation's IRS Service Center. To do so:

  • Attach Form 2553 to your current year Form 1120S, as long as the form is filed within three years and 75 days after the intended date of S-Corp election.
  • Attach to a late-filed Form 1120S, which will be under the same time restrictions (three years and 75 days of intended S-Corp election date).
  • Submit directly to the IRS Service Center. 

If you would like to file for election in a timely manner, allowing your corporation to file taxes as an S-Corp for its current tax year, you must:

  • File Form 2553 within two months and 15 days of the beginning of your fiscal year.
  • File within 2 months and 15 days of incorporation, if it is newly formed.
  • Request relief when filing a late S-Corp election. Failure to qualify will be solely based on an S-election that is filed past the due date. To do so, fill out the narrative section of Form 2553, found on the bottom of Page 1.

When you request relief from the IRS, you must state on the late-election form: "FILED PURSUANT TO REV. PROC. 2013-30." Write this on the top of the form. To better understand what is required, refer to this IRS document.

Until you receive approval from the IRS, your corporation will not be eligible to file an S-Corp tax return. 

Common Mistakes to Avoid When Filing Late S-Corp Election

Filing a late S-Corp election is possible, but common mistakes can lead to delays or rejections. Avoid the following errors:

  • Incomplete or Incorrect Form 2553: Ensure all required fields, including the fiscal year and shareholder details, are correctly completed.
  • Missing Signatures: Every shareholder must sign the form, or it may be rejected.
  • Failing to Attach Form 2553 to Form 1120S: If a late election is being filed, it should be attached to the corporate tax return for the current year.
  • Lack of Reasonable Cause Explanation: Without a valid explanation for the late filing, the IRS may deny the request.
  • Not Following Up with the IRS: If a response is delayed, following up with the IRS can help clarify any issues and ensure processing.

By avoiding these mistakes, corporations can improve their chances of having their late election approved.

Benefits of S-Corp Status for Small Businesses

Electing S-Corp status provides significant tax advantages, making it a preferred choice for many small business owners. Key benefits include:

  • Pass-Through Taxation: Unlike C-Corporations, S-Corps do not pay corporate income tax. Instead, profits and losses pass through to shareholders' personal tax returns, avoiding double taxation.
  • Self-Employment Tax Savings: Shareholders who actively work for the company can classify part of their income as salary and the rest as distributions, reducing self-employment taxes.
  • Limited Liability Protection: As with a C-Corp, an S-Corp structure protects owners’ personal assets from business debts and liabilities.
  • Easier Ownership Transfer: Unlike sole proprietorships or partnerships, an S-Corp allows ownership transfer without triggering tax consequences.

These benefits make filing an S-Corp election crucial, even if the deadline has been missed.

What Is a Reasonable Cause of Late S-Corp Filing?

You will be happy to know that when granting relief, the IRS can be fairly lenient. Upon reviewing court documents and tax journals, certain reasonable causes are nearly always approved. These causes vary, but two of the most common include:

  • The company's president, executive officer, or someone in a similar position, neglected to file on time. In some cases, this may also be the corporation's accountant who failed to file an S-Corp election.
  • The corporation or the shareholders did not know that advanced filing was required — or that they needed to file at all. 

How to Ensure IRS Approval for Late S-Corp Election

To increase the likelihood of a successful late S-Corp election approval, businesses should take the following steps:

  1. Provide a Valid Reason: Clearly explain why the election was not filed on time. Examples include:
    • Administrative errors by an accountant or officer.
    • Misunderstanding of IRS filing requirements.
    • Delays due to unforeseen circumstances (e.g., illness, natural disasters).
  2. Ensure Eligibility: The IRS will only approve a late election if:
    • The business qualifies as an S-Corp.
    • All shareholders reported income consistent with S-Corp status for prior years.
    • The election is made within three years and 75 days of the intended effective date.
  3. File Correctly: Complete and submit Form 2553 with:
    • The phrase "FILED PURSUANT TO REV. PROC. 2013-30" at the top.
    • Signatures of all shareholders.
    • An explanation of the late filing.
  4. Attach Supporting Documents: If applicable, include correspondence with an accountant or other evidence that supports the reasonable cause claim.
  5. Follow Up: The IRS may take several weeks to review the request. Businesses should track the application status and be prepared to provide additional information if requested.

Frequently Asked Questions:

  1. What happens if my late S-Corp election is denied?
    You may need to reapply, provide additional documentation, or consider an alternative tax structure like an LLC taxed as an S-Corp.
  2. Can I file a late S-Corp election electronically?
    Currently, Form 2553 must be filed by mail or fax; electronic submission is not an option.
  3. How long does the IRS take to process a late S-Corp election?
    Processing times vary but typically range from 6 to 12 weeks. Following up can help expedite approval.
  4. Is there a penalty for filing a late S-Corp election?
    There is no penalty if the IRS grants relief. However, if denied, businesses may face taxation as a C-Corp for the period in question.
  5. Can an LLC file a late S-Corp election?
    Yes, an LLC can elect S-Corp status, and the same late filing rules apply as long as it meets eligibility requirements.

If you need help filing a late S-Corp election, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.