Relief for late-filed S elections.

• Author: Blake, Salamon
• Position: Tax elections

Sec. 1362(b)(5) gives the IRS authority to treat as timely filed a corporation's late-filed S election, if the election is fried after the fifteenth day of the third month of the tax year (March 15 for calendar-year corporations) and the Service determines that there was reasonable cause for the failure to timely file the election. If that failure is discovered early enough and the taxpayer's factual situation meets the specific requirements of Rev. Proc. 98-55 or 97-48, the expedited relief procedures described in these two revenue procedures offer a relatively simple and inexpensive (user fees do not apply) way to correct an untimely filing. If neither revenue procedure is applicable, the only other alternative for relief is to request a letter ruling. Although not a simple endeavor, this alternative is much more practical, given the recent reduction of the user fee from $3,650 to $500.

Relief is available under Rev. Proc. 98-55 if (1) a corporation fails to qualify as an S corporation on the first day that S status was desired solely because the S election was not timely filed, (2) the due date (excluding extensions) for the first year the corporation intended to be an S corporation has not passed and (3) the corporation has reasonable cause for the failure to timely file the S election. To obtain relief, the corporation must file a completed Form 2553, Election by a Small Business Corporation, with the applicable service center within 12 months of the original due date for the S election, but in no event later than the tax return's due date (excluding extensions) for the first year the corporation intended to be an S corporation. The statement "FILED PURSUANT TO REV. PROC. 98-55" must appear at the top of Form 2553. Also, a statement explaining the failure to timely file the S election must be attached. If the statement shows reasonable cause for the failure to timely file the S election, the IRS will accept the late-filed Form 2553 and consider it timely. Rev. Proc. 98-55 supersedes Rev. Proc. 97-40.

Relief is available under Rev. Proc. 97-48 if (1) a corporation fails to qualify as an S corporation solely because the election was not timely filed, (2) the corporation and all of its shareholders reported their income consistent with S status for the year the S election should have been made and all subsequent years (if any), (3) at least six months have passed since the date on which the corporation filed its tax return for the first...