2553 S-Corp Late Election: Everything You Need to Know

What is a Late Election?

A late election is when a business entity files Form 2553 after the deadline has passed. The deadline for filing Form 2553 is typically within 75 days of forming the business entity or March 15 of the following year. If a business misses the deadline, it may still apply for S corporation classification through the late filing of the form.

How Does a Late Election Work?

A late election to be an S corporation generally is effective for the tax year following the tax year beginning on the date entered on line E of Form 2553. The IRS provides relief for the late filing of Form 2553, and a qualifying entity may request late election relief when the election wasn’t filed in a timely manner or there was a mistake on the form. To qualify and receive retroactive tax treatment, the business entity must file for a late S corporation election up to 3 years and 75 days after its proposed effective date.

What are the Common Reason for a Late S-Corp Election?

Businesses may encounter various challenges that result in missing the deadline for filing Form 2553. Here are the most common reasons and their potential impact:

1. Unawareness of the 75-Day Filing Requirement: Many business owners are unaware that Form 2553 must be filed within 75 days of the beginning of the tax year or the date the business becomes eligible for S-Corp status. This lack of awareness often stems from limited exposure to tax regulations during the startup phase, resulting in unintended delays.
2. Administrative Oversight or Delays: Filing Form 2553 requires careful coordination, including obtaining consent from all shareholders. Paperwork delays, missed communications, or filing errors can easily derail the process. For businesses juggling multiple priorities, this oversight can become a costly mistake.
3. Misunderstanding of Eligibility Criteria: Many business owners believe their entity automatically qualifies for S-Corp status, only to later discover they do not meet specific requirements. Common areas of confusion include shareholder eligibility, stock class limitations, and other restrictions, which can lead to hesitation or incorrect assumptions about filing deadlines.

What are the Requirements for a Form 2553 Late Filing S-Corporation Election?

To qualify and receive retroactive tax treatment, the business entity must meet the following eligibility requirements:

• The business entity intended to be classified as an S corporation as of the intended effective date of the election.
• The business entity failed to qualify as an S corporation solely because it failed to file Form 2553 in a timely manner.
• The business entity has reasonable cause for its failure to file Form 2553 in a timely manner.
• The business entity has not filed a tax return for the tax year that would have been affected by the S corporation election.

How to File a Late S-Corp Election?

1. File Form 2553 as soon as you realize the oversight.
2. Attach a statement explaining the reason for the failure to file on time.
3. Ensure that all shareholders from the intended effective date till the current date have signed Form 2553.
4. Write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of Form 2553.

Consequences of Not Filing

If a business fails to file Form 2553 and does not qualify for relief, it will be treated by default, such as a single-member LLC (SMLLC) or C-corporation for tax purposes.

This can result in overpaid self-employment tax for SMLLC or double taxation for C-Corp – once at the corporate level and again when distributed to shareholders.

Contact Us Today

Making an S-Corp election is a crucial decision that can have significant tax implications for a business. While the IRS relieves late elections, it’s essential to be proactive and ensure timely filing. If you’ve missed the deadline, take corrective action immediately. Feel free to contact us below if you need help with late S-Corp election. We are happy to assist.