Late S Corp Election: Filing Process, Requirements, and Relief Options

Enter the name and address of each shareholder or former shareholder required to consent to the election. If stock of the corporation is held by a nominee, guardian, custodian, or an agent, enter the name and address of the person for whom the stock is held. If a single member limited liability company owns stock in the corporation, and the LLC is treated as a disregarded entity for federal income tax purposes, enter the owner’s name and address. This information can be provided on line I of Form 2553 or on an attached statement. For owners of LLCs, sole proprietorships, or partnerships who pay self-employment tax on all of their business profits, S Corp tax treatment may minimize their tax burden.

• Maggard accused the individuals of embezzling more than $1 million from 2012 to 2015.
• In addition, the court held that the $400,000 advance to Shor was a constructive dividend to him.
• Conduct business in a manner consistent with your intent to be an S corp from the proposed effective date until the time you file for late relief.
• Assuming the IRS approves the S corporation election, you’ll need to file a tax return (Form 1120-S) for the business entity.
• If a business misses the deadline, it may still apply for S corporation classification through the late filing of the form.

How to File a Late S-Corp Election

You could elect to draw a salary as an LLC and plead with the IRS on the grounds of good faith, but this is risky. Profitability and distribution amounts are critical factors that business owners must consider, as well. 4)      Less than 3 years and 75 days have passed since the effective date of the election. Companies that need assistance navigating a late S-Corp election can reach out to our team to schedule a consultation. Implementing and documenting your compliance with the Late S Corporation Election is a straightforward process, but it requires attention to detail and meticulous record-keeping. Here’s a roadmap to guide you through this process, ensuring that you can confidently utilize this tax benefit while adhering to all the requirements.

Late S Corp Election Guide (with Reasonable Cause Statement)

Be sure to fill out all requested information on the form to prevent a delay in its processing. The most important details include the date of incorporation and the corporation’s fiscal year. For the latest information about developments related to Form 2553 and its instructions, such as legislation enacted after they what is a reasonable cause of late s corp filing were published, go to IRS.gov/Form2553.

Deadlines and Penalties

You might want to enlist the help of a tax professional when completing this form so you’re sure you get it right. Supporting documents, such as correspondence with accountants or legal advisors, can strengthen the case. If the company has already filed tax returns treating itself as an S Corporation, copies of these filings should be included to demonstrate consistency in tax treatment.

With S corp status, you could instead pay yourself a reasonable salary—say $70,000—subject to payroll taxes. You can then take the remaining $50,000 as a distribution, which isn’t subject to self-employment tax. Once the Late S Corporation Election is approved, ensure that the corporation continues to meet the S corporation requirements in subsequent tax years.

• As outlined in previous update articles,6 Sec. 1362(b)(5) instructs the IRS to accept late S elections if the delinquency is due to reasonable cause.
• If you haven’t received confirmation from the IRS that your S corporation election was approved or rejected, the IRS might still be processing your Form 2553.
• Corporations must wait to receive approval from the IRS before they can begin acting as an S-Corp.
• The topics are arranged by Code section (starting with those in Subchapter S and then other sections).

We do not claim that they are typical results that consumers will generally achieve. Nothing included herein should be taken as a guarantee, warranty, prediction or representation about the results of your situation. The act mandated beneficial ownership information (BOI) reporting by many U.S. businesses.

Impact of ‘beginning of construction’ on Inflation Reduction Act credits

In March 2025 FinCEN announced that it had removed the reporting requirement for all domestic entities and U.S. persons.40 Therefore, for now, S corporations41 and their shareholders42 are exempt from filing these reports. A recent Tax Court decision in Jones36 provides a detailed analysis of microcaptive insurance arrangements with respect to an S corporation. In that context, it also illustrates how an S corporation shareholder can realize a constructive dividend in the form of a purported loan from a microcaptive. The case concerns Sani–Tech West Inc. (STW), a California–based S corporation, the executive officers of which established Clear Sky Insurance Co. Inc. (CSI), a C corporation, as a captive insurance company in Montana.

Another acceptable cause is that your corporation or its shareholders either did not know of the need to file an election or didn’t know they needed to file the election in advance.Each shareholder consents as explained in the instructions for column K. Its only shareholders are individuals, estates, exempt organizations described in section 401 or 501, or certain trusts described in section 1361. You should also change the effective date to January 1st of the tax year in which the S corporation election will become effective. For example, if it’s June 15th and you want the entity to be taxed as an S corporation for the current year, you’d include January 1st of the current year in the reasonable cause statement. Assuming the IRS approves the S corporation election, you’ll need to file a tax return (Form 1120-S) for the business entity.

Want to file a late S corp election? We can help.

Determining eligibility for the Late S Corporation Election is crucial to ensure compliance with the IRS requirements and maximize potential tax savings. This section outlines the key criteria that define eligibility for this tax position. Calculate estimated tax payments for all deadlines in all jurisdictions. An S-Corp also must have a board of directors, which represents shareholders.

The primary objective of the Late S Corporation Election is to provide relief to businesses that intended to elect S corporation status but failed to file Form 2553 within the required timeframe. By allowing retroactive election, this provision aims to alleviate the tax burden on small businesses and promote economic growth. If you’re already incorporated, there are several reasons why you might want to file for an S-Corp election to obtain S-Corporation status. The biggest advantage to having S-Corp status is that your business will no longer pay corporate taxes on all of the income it generates.

S corps add complexity, require payroll processing, and come with strict shareholder and stock restrictions. For new, low-profit, or reinvesting businesses, the administrative burden and costs can outweigh the tax benefits. Common mistakes include underpaying yourself, failing to maintain payroll records, missing IRS filing deadlines, co-mingling personal and business funds, and neglecting state-level compliance requirements. Avoiding these errors helps protect tax savings and liability protections. Instead, profits and losses are reported on your personal tax return through Schedule K-1, and you pay income tax at your individual rate.

Learn how to file a late S Corp election, understand eligibility requirements, and explore relief options to minimize tax implications and compliance issues. The IRS estimates that Form 2553 will take between 2-5 months to process. If this amount of time has passed, you can call the IRS to confirm whether the S corp election was accepted. The IRS doesn’t always mail the confirmation letters so it might take a follow-up call to receive confirmation. If the IRS approves the S corporation election, you’ll receive Notice CP261 confirming the S corporation election effective date. Save this notice because there’s a good chance you’ll need it down the road, whether from your accountant or from the IRS.