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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10433
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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A calendar year small business corporation(S corp) was set

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A calendar year small business corporation(S corp) was set up on July 1, 2013. But due to store construction, we had to start to operate business on November 1, 2013. We would like to be an S corporation beginning with 2013. Can we elect S Corp effective 2013?
(We are aware of that no more than two months and 15 days after the beginning of the tax year the election is to take effect)

Lane :

Hi,

Lane :

So you're asking about the late S-Corp election criteria?

Lane :

I think you still have to be no more than 6 mo's past due date

Lane :

Let me look this up for you

Lane :

Nope that was no more than 6 months past the due date of the fitst tax return SO

Lane :

  • The corporation meets the S-Corporation eligibility criteria,

  • The corporation intended to be classified as an S-Corporation as of the intended effective date of the S-Corporation election,

  • The corporation failed to qualify as an S-Corporation solely because it did not file Form 2553 in a timely manner,

  • Less than 24 months have passed since the original due date of Form 2553,

  • The corporation either has reasonable cause or inadvertently failed to file Form 2553 in a timely manner,

  • 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,

  • 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, and

  • Shareholders and other taxpayers have not reported their income in a manner inconsistent with the corporation's intention to file as an S-Corporation.

Lane :

And finally,

Lane :

If the company meets these requirements, then company should 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 (and spell out the circumstances) or inadvertently failed to file Form 2553 in a timely manner. Both Form 2553 and the attached statement must be signed by each and every single shareholder

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)

Lane :

Let me know if you need anything else at all on this.


Lane


Hi Sunny,

… just checking back in here, as I never saw you come into the chat.

Let me know if you need anything else at all on this.

Lane
Lane and 4 other Tax Specialists are ready to help you


Hi Sunny,

As a quick follow-up (even thought it doesn't apply here because of the dates you provided).... thought you might want this for your files:

The 24 month par of the rule was superseded by a revenue procedure published on Sept 1st of this year, that changes the 24 month element of the rule.

See this:

This revenue procedure provides the exclusive simplified methods for taxpayers to request relief for late S corporation elections

Rev. Proc. 2013-30, 2013-36 I.R.B. 173 (2013)

See this:

(1) In general. The Requesting Entity may request relief for a late Election Under Sub chapter S by properly completing the Election Form(s) and attaching the supporting documents as described in Sections 5, 6, and 7, as applicable. In addition to any supporting documents described in Sections 5, 6, and 7, as applicable, a properly completed Election Form must include a statement (the “Reasonable Cause/Inadvertence Statement”) from the Requesting Entity that complies with Section 4.03(3) of this revenue procedure and that describes (i) its reasonable cause for failure to timely file the Election Under Subchapter S (in the case of late S corporation or QSub elections) or that the failure to timely file the Election Under Subchapter S was inadvertent (in the case of late QSST or ESBT elections), and (ii) its diligent actions to correct the mistake upon its discovery.

The applicable Election Form must state at the top of the document “FILED PURSUANT TO REV. PROC. 2013-30.”

(2) Filing the Election Form with the IRS Service Center. The Requesting Entity must file the applicable Election Form with the applicable IRS Service Center by either:(a) Attaching the Election Form to the S corporation's current year Form 1120S. In the case of an S corporation that has filed all Forms 1120S for tax years between the Effective Date and the current year, the Election Form(s) can be attached to the current year Form U20S as long as the current year Form 1120S is filed within 3 years and 75 days after the Effective Date. An extension of time to file the current year Form 1120S will not extend the due date for relief under this revenue procedure beyond 3 years and 75 days following the Effective Date.

For example, if the extended due date of tax year 2016 Form 1120S is September 15, 2017, an Election Form for a late QSST Election with an Effective Date of June 1, 2014 can be attached to the 2016 Form 1120S only if the 2016 Form 1120S is filed before August 15, 2017 (which is 3 years and 75 days following the June 1, 2014 Effective Date). The Form 1120S must state at the top “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30” or comply with specific instructions included with the Form 1120S instructions;(b) Attaching the Election Form to one of the S corporation's late filed prior year Forms 1120S.

In the case of an S corporation that has not filed Form 1120S (or any other income tax return or information return (within the meaning of Subpart A of Part III of Subchapter A of Chapter 61)) for the tax year including the Effective Date or any year following the Effective Date, an Election Form may be attached to the Form 1120S for the year including the Effective Date as long as (i) the Form 1120S for the year including the Effective Date is filed within 3 years and 75 days after the Effective Date, and (ii) all other delinquent Forms 1120S are filed simultaneously and consistently with the requested relief.

For example, if an S corporation intended to make a QSub Election with an Effective Date of June 1, 2012, but it failed to file any income tax returns, it can attach an Election Form to a late filed 2012 Form 1120S only if the late filed 2012 Form 1120S is filed before August 15, 2015 (which is 3 years and 75 days following the June 1, 2012 Effective Date) and all other delinquent Forms 1120S are filed simultaneously and consistently with the requested relief. The Form 1120S must state at the top “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30” or comply with specific instructions included with the Form 1120S instructions;

or(c) Filing Election Form independent of Form 1120S. The Requesting Entity can submit the Election Form directly to the applicable IRS Service Center within 3 years and 75 days after the Effective Date.

Rev. Proc. 2013-30, 2013-36 I.R.B. 173 (2013)

 

 

 

And here's an excellent flow chart that shows where that 3 year and 75 day limit comes into play. As you can see here, if everything has stay in line relative to all shareholders filing and acting as if the election had been made, that time limit is not relevant.

 

https://app.box.com/s/i20xf8bb10dcvydvfc4i