What are the IRS Criteria for accepting a late S Corporation Election?
Generally speaking, if a corporation that files Form 2553 before the 15th day of the third month of its tax year, the IRS considers the S-Corporation election to be valid for the current tax year.
If however, a corporation that files Form 2553 after the 15th day of the third month of its tax year, the IRS considers the S-Corporation election to be valid for the subsequent tax year.
There are some exceptions that the IRS will permit the Late S Corporation Elections to be valid in the current tax year, but the Corporation must meet all of those eligibility requirements as outlined below.
Eligibility Criteria for Late S-Corporation Elections
The IRS will allow the late filing of Form 2553, provided the corporation has fulfilled all the following criteria:
1. The corporation meets the S-Corporation eligibility criteria.
2. The corporation intended to be classified as an S-Corporation as of the intended effective date of the S-Corporation election.
3. The corporation failed to qualify as an S-Corporation solely because it did not file Form 2553 in a timely manner.
4. Less than 24 months have passed since the original due date of Form 2553.
5. The corporation either has reasonable cause or inadvertently failed to file Form 2553 in a timely manner.
6.The corporation has not yet filed tax returns for the first tax year for which it intended to file as an S-Corporation, or the corporation has filed its first tax return using Form 1120S and the shareholders properly reported their share of income in a manner consistent with the corporation's intention to be an S-Corporation.
7. Form 2553 is filed not later than 6 months after the due date (without regard to extensions) of the first tax return for which the corporation intended to file as an S-Corporation.
8.Shareholders and other taxpayers have not reported their income in a manner inconsistent with the corporation's intention to file as an S-Corporation.
If the corporation has met all of the above requirements, then corporation must file IRS Form 2553 by writing at the very top of the form the following words: "FILED PURSUANT TO REV. PROC. 2003-43" and attach a statement indicating that the corporation either had reasonable cause or inadvertently failed to file Form 2553 in a timely manner.
Furthermore, another requirement is that both Form 2553 and the attached statement must be signed by each individual shareholder.