Automatic relief for certain late S elections.

• Author: Lasch, Eric S.
• Position: IRC Subchapter S corporations

In Rev. Proc. 97-48, the Service offers two situations in which late S elections will be treated as timely made.

Situation 1

A corporation falls to qualify as an S corporation solely because its Form 2553, Election by a Small Business Corporation (Under section 1362 of the Internal Revenue Code), was not filed timely; the corporation intended to be an S corporation; the corporation and its shareholders reported their income consistent with S status for the tax year the election should have been made and for every subsequent year; at least six months had elapsed since the date on which the corporation filed its tax return oil Form 1120-S, U.S. Income Tax Return for an S Corporation, for the first year the corporation intended to be all S corporation; and the Service has not notified the corporation or any of its shareholders of any problem with its S status.

Procedural Requirements for Automatic Relief

The corporation must file with the applicable service center (or district director if under examination) a completed Form 2553, signed by an officer of the corporation authorized to sign and all persons who were shareholders at any time during the period that the corporation intended to be an S corporation. The Form 2553 must state at the top of the document "FILED PURSUANT TO REV PROC. 97-48." Attached to the Form 2553 must be a dated declaration signed by a corporate officer and all persons who were shareholders at any time during the period that the corporation intended to be an S corporation, attesting that:

1. The corporation and the shareholders reported their income (on all affected returns) consistent with S status for the year the S election should have been made, and for every subsequent tax year; and

2. "Under penalties of perjury, to the best of my knowledge and belief, the facts presented in support of this election are true, correct, and complete."

   Situation 2

   For periods prior to Jan. 1, 1997, the corporation intended to be an S corporation. Because of a late S election, the corporation was notified by the IRS that it was not permitted to be an S corporation for the first tax year specified in the election (i.e., late S election relief was not available during this period); the corporation failed to qualify as an S corporation solely because the Form 2553 was not filed timely for a tax year that began prior to Jan. 1, 1997.

   The corporation received notification from the Service that the Form 2553 was late and therefore the...