If you missed the deadline to elect S-Corporation status, you can usually fix it by filing a late S-Corp election on Form 2553 with a reasonable cause statement and signed consents from every shareholder, using the simplified relief in Revenue Procedure 2013-30.1Internal Revenue Service. Rev Proc 2013-30 You have three years and 75 days from the date you wanted the election to take effect. Miss that window, and the only remaining option is a private letter ruling, which starts at thousands of dollars in IRS user fees alone.
The Deadline You Missed
An S-Corp election is timely if filed either during the tax year before the year it takes effect, or no later than two months and 15 days into the tax year it covers.2Office of the Law Revision Counsel. 26 USC 1362 – Election, Revocation, Termination For a calendar-year business, that’s March 15. For a newly formed entity, the clock starts on the date of formation.3Internal Revenue Service. Instructions for Form 2553
If you file after the deadline but before the 15th day of the third month of the following tax year, the election automatically rolls forward to the next tax year. That isn’t technically a failed election, but you lose S-Corp treatment for the year in between. The late relief process below is for people who want the election applied retroactively to the year they originally intended.
Who Qualifies for Simplified Relief
Revenue Procedure 2013-30 is the IRS’s streamlined path. Your situation must meet all four of these conditions:1Internal Revenue Service. Rev Proc 2013-30
- The entity intended to be an S-Corporation as of the requested effective date.
- You file the late election within three years and 75 days of that intended effective date.
- The only reason you didn’t qualify is the missed Form 2553 filing. If your entity also failed a structural requirement, this process will not help.
- You had reasonable cause for missing the deadline and acted promptly once you discovered the mistake.
Reasonable cause asks whether you exercised ordinary business care but still couldn’t file on time. Strong explanations include an accountant or attorney who failed to file the form or didn’t advise you it was needed, a serious illness or death in the family, or a natural disaster that disrupted business filings. Simply not knowing about the deadline is weaker, though the IRS has accepted it when combined with other facts showing good faith.
The consistent-treatment requirement is where many late elections quietly fall apart. Every shareholder who held stock between the intended effective date and the filing date must have reported income on all affected returns as if the S-Corp election were already in place.1Internal Revenue Service. Rev Proc 2013-30 That means the entity filed (or should have filed) Form 1120-S returns, issued Schedule K-1s, and each shareholder reported pass-through income on their personal returns. A C-Corp return filed in the interim, or inconsistent shareholder reporting, undermines the whole request.
Newly formed entities that haven’t filed anything yet have the easiest path. You can’t be inconsistent if you haven’t filed. Just treat the entity as an S-Corp on every return from the start.
Confirm the Entity Still Qualifies
Simplified relief won’t rescue an entity that doesn’t meet the underlying S-Corp requirements, so verify eligibility before you prepare anything. The business must be a domestic corporation, or an LLC that has elected to be taxed as a corporation on Form 8832.4Internal Revenue Service. Frequently Asked Questions Regarding Limited Liability Company Classification It must satisfy every requirement in 26 U.S.C. § 1361: no more than 100 shareholders, no shareholders who are partnerships, corporations, or nonresident aliens, and only one class of stock.5Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined Allowable shareholders include individuals, certain trusts, and estates. Different voting rights among shares are fine, but any difference in rights to distributions or liquidation proceeds breaks the one-class-of-stock rule and disqualifies the election.
If a trust holds stock, that trust needs its own timely election. A missed Qualified Subchapter S Trust or Electing Small Business Trust election can be fixed under the same Rev. Proc. 2013-30, but if it’s left unaddressed it can invalidate the S-Corp election for everyone.1Internal Revenue Service. Rev Proc 2013-30
What Goes in the Submission Package
Your package needs four pieces. Missing any one of them can delay or sink the request.
Form 2553, Completed in Full
Fill out Form 2553 completely, including the intended effective date in Part I, Line E. That date is the starting point for your S-Corp status, so get it right. EIN, date of incorporation, and other details must match your prior filings exactly. An authorized corporate officer must sign.3Internal Revenue Service. Instructions for Form 2553
A Specific Reasonable Cause Statement
Attach a signed statement explaining why the form wasn’t filed on time. “We were unaware of the requirement” is far weaker than a concrete narrative: who was responsible for the filing, what prevented it, and when you discovered the error. If a tax professional dropped the ball, say so and name them. The statement should also affirm that the entity meets every S-Corp eligibility requirement, including the shareholder limits and the one-class-of-stock rule.
Shareholder Consent Statements
Every person who held stock at any point between the intended effective date and the filing date must sign a consent. Each one needs the shareholder’s name, address, taxpayer identification number, number of shares, and dates of ownership, plus confirmation that the shareholder reported income consistently with S-Corp treatment on all affected returns. One missing consent can defeat the entire request.
Form 8832 for LLCs
If your entity is an LLC electing S-Corp status, include a copy of the previously filed Form 8832 showing the entity elected to be taxed as a corporation.6Internal Revenue Service. About Form 8832, Entity Classification Election If Form 8832 hasn’t been filed yet, you can file it alongside Form 2553 and request late relief for both under Rev. Proc. 2013-30.
Where to Send It
You can mail or fax the package. The IRS also allows certain late elections to be filed as attachments to the entity’s Form 1120-S return.3Internal Revenue Service. Instructions for Form 2553
By mail, send the original signed form (not photocopies) to the IRS service center that corresponds to your principal business address, as listed in the Form 2553 instructions and on the IRS’s filing-location page.7Internal Revenue Service. Where to File Your Taxes for Form 2553 Use certified mail with return receipt requested. That postmark proves your filing date, which matters for the three-year-and-75-day window.
Faxing is faster and equally accepted. The IRS lists two numbers by location: 855-887-7734 for businesses in the eastern half of the country, and 855-214-7520 for businesses in the western and southern states.7Internal Revenue Service. Where to File Your Taxes for Form 2553 Keep the original form and the fax confirmation page in your permanent records.
After You File
The IRS reviews your reasonable cause statement, checks consistent treatment, and verifies the shareholder consents. Expect several weeks to a few months. You generally won’t hear anything during the review unless the IRS needs more information.
If accepted, you’ll receive a determination letter confirming your S-Corp status effective as of the date on Line E. Keep it permanently. It’s your proof of status if the IRS or a state tax authority ever questions your filing position.
If denied, the entity remains taxed under its default classification. The denial letter will explain why, usually a failed eligibility requirement, inconsistent reporting, or an inadequate reasonable cause explanation. From there, the only route left is a private letter ruling.
If You’re Past Three Years and 75 Days
Once the simplified window closes, the only remaining option is a private letter ruling under 26 U.S.C. § 1362(b)(5), which gives the IRS Secretary discretionary authority to treat a late election as timely when reasonable cause exists.2Office of the Law Revision Counsel. 26 USC 1362 – Election, Revocation, Termination
This is a different animal. The IRS user fee currently runs $3,450 for businesses with gross income under $400,000, $9,775 for those between $400,000 and $10 million, and $14,500 for larger entities. Most owners will need a tax attorney or CPA to prepare the request, adding several thousand more in professional fees. Processing can take six months or more. The legal standard is still reasonable cause, but you’re asking the IRS to exercise special authority, so the practical bar is higher.
What’s at Stake If the Election Fails
A corporation that doesn’t obtain S-Corp status defaults to C-Corporation treatment and double taxation: the entity pays corporate income tax at 21%, and shareholders pay again when profits come out as dividends.8Internal Revenue Service. Topic No 404, Dividends and Other Corporate Distributions Qualified dividends are taxed at 0%, 15%, or 20% depending on the shareholder’s income, and high earners pay an additional 3.8% net investment income tax, pushing the top effective dividend rate to 23.8%.9Internal Revenue Service. Net Investment Income Tax C-Corps also trap losses at the entity level, which can hurt startups and cyclical businesses as much as the double tax on profits.
An LLC that missed its S-Corp election (and never filed Form 8832) defaults to disregarded entity treatment if single-member, or partnership treatment if multi-member.6Internal Revenue Service. About Form 8832, Entity Classification Election Both are pass-through, so double taxation isn’t the issue — self-employment tax is. Under default classification, all net business income is subject to self-employment tax at 15.3%. With S-Corp status, only the salary you pay yourself is subject to payroll taxes; distributions above a reasonable salary are not. Over a few years that gap is often the whole reason the election was worth chasing.
Obligations That Kick In Once You’re an S-Corp
Pay Yourself a Reasonable Salary
Once the late election is approved, every shareholder who performs services for the business must receive wages that reflect what the market would pay for those services, before taking distributions. There’s no IRS formula. The determination turns on duties, hours, training, business complexity, and comparable pay in your industry and area. Setting salary artificially low to maximize distributions and shrink payroll tax is the single most common S-Corp audit trigger, and courts have repeatedly reclassified distributions as wages when shareholder-employee pay didn’t match the services performed.10Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
If the IRS reclassifies, you’ll owe back employment taxes on both the employer and employee portions, plus interest and accuracy-related penalties of 20% or more. The responsible person can face personal liability for the unpaid employee-share taxes. Keep comparable salary data, board minutes approving your pay, and a written description of your duties and hours. That paper trail is your best defense.
Watch for Built-in Gains If You Were Previously a C-Corp
If your business was a C-Corporation before the S-Corp election, the built-in gains tax under 26 U.S.C. § 1374 applies when the S-Corp sells or disposes of assets it held at the time of conversion that had appreciated during the C-Corp years. The tax is imposed at 21% on the net recognized built-in gain during a five-year recognition period starting on the first day the S-Corp election takes effect. Disposition is read broadly and includes routine events like collecting zero-basis accounts receivable.
Entities that were never C-Corps, including LLCs that elected S-Corp status from inception, are exempt. The tax also doesn’t apply if the fair market value of the entity’s assets at conversion didn’t exceed their combined tax basis.