Late and Defective S Elections

← Back to the Footnotes

The S election is one page, Form 2553, due by the fifteenth day of the third month of the year it is to take effect. It is filed late constantly: the attorney formed the LLC and thought the accountant would file it; the accountant thought the attorney had; the owner mailed it without certified mail and the IRS never received it. The returns get filed as 1120-S anyway, the IRS processes them for years, and then a notice arrives, or a sale is being negotiated and the buyer’s counsel asks for the acceptance letter.

The fix is Rev. Proc. 2013-30, which consolidates the late-election relief and is generous within its window. Outside the window, or for elections that were valid and then broke, the procedure is different. This page is the decision tree.

Step 1: The Deadline and the Eligibility Tests

• Deadline: Form 2553 filed no later than 2 months and 15 days after the beginning of the tax year the election is to take effect (§1362(b)(1)); for a calendar-year corporation, March 15. For a new corporation, the tax year begins on the earliest of: the date it has shareholders, acquires assets, or begins doing business (Reg. §1.1362-6(a)(2)(ii)(C)). A corporation formed January 10 has until March 25 of that year, not March 15.
• Filed in the prior year: effective for the following year, any time during the prior year.
• Eligibility on the effective date and every day after (§1361(b)): a domestic corporation; no more than 100 shareholders (family members count as one under §1361(c)(1)); shareholders only individuals, estates, certain trusts (grantor, QSST, ESBT, testamentary for two years, voting trusts), and §501(c)(3) organizations; no nonresident alien shareholders (a nonresident alien spouse with a community-property interest is a shareholder); one class of stock; not an ineligible corporation (bank using the reserve method, insurance company).
• Consents: every shareholder on the date of the election signs, and every person who was a shareholder at any time during the portion of the year before the election. A spouse with a community-property interest signs. A missing consent is a defective election, curable under Reg. §1.1362-6(b)(3)(iii) with reasonable cause.
• Proof of filing: certified mail receipt or fax confirmation; the IRS acceptance letter (CP261) arrives in about 60 days. No letter after 90 days means call. The client’s copy of the form proves nothing about receipt.

↑ Back to top

Step 2: The LLC That Needs Two Elections

An LLC is not a corporation. For it to be an S corporation, it must first be classified as an association taxable as a corporation (Form 8832) and then elect S status (Form 2553). Reg. §301.7701-3(c)(1)(v)(C) provides the shortcut: an eligible entity that timely files Form 2553 is deemed to have elected corporate classification; no separate 8832 is needed. The shortcut applies to a timely 2553. For a late 2553, Rev. Proc. 2013-30 section 4.04 extends the deemed-8832 treatment to the late election if the entity meets the late-election requirements and the 2553 states that it is filed under the revenue procedure and the entity intended to be classified as a corporation from the effective date. The 2553 then does both jobs.

Watch the LLC’s operating agreement. Partnership-style provisions (capital accounts maintained under §704(b), liquidation according to capital accounts, special allocations) create a second class of stock and an invalid election; Rev. Proc. 2022-19 section 3.06 provides relief for “non-identical governing provisions” if no disproportionate distributions were actually made, but the agreement should be amended to a corporate-style one before the election.

↑ Back to top

Step 3: Late Election Relief Under Rev. Proc. 2013-30

Section 4 of the revenue procedure. All of the following must be true.

• The entity intended to be an S corporation as of the intended effective date, and fails to qualify solely because Form 2553 was not timely filed.
• The entity has reasonable cause for the failure and acted diligently to correct it once discovered. Reliance on an adviser who didn’t file, a misunderstanding of the deadline, or an unexplained non-receipt by the IRS has been accepted; “we didn’t get around to it” is weaker but, in practice, the statement is rarely challenged when everything else is in order.
• The request is filed within 3 years and 75 days after the intended effective date (section 4.02(1)), or under the exception in section 5.04 if more than 3 years and 75 days have passed but the entity and all shareholders reported consistently as an S corporation for every year, at least 6 months have passed since the first 1120-S was filed, and no shareholder or the corporation was notified of a problem within 6 months of that filing (verify the current text of section 5.04; it has been read narrowly).
• All shareholders during the relevant period reported their income consistently with S status on timely filed (including extended) returns for all years, and the entity did too.
• Statements from all shareholders, under penalties of perjury, that they reported consistently.

Two ways to file:

1. Attach the 2553 to the current-year Form 1120-S (timely filed, or the first late 1120-S if none has been filed): write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of the 2553, complete the reasonable-cause statement in Part I, line I, and attach the shareholder statements. The 1120-S is processed and the election is granted together. This is the usual route.
2. File the 2553 alone with the service center, with the same legend and statements, when no 1120-S is due yet or the prior-year returns were already filed.

Relief is automatic if the requirements are met; the IRS issues the acceptance letter with the retroactive effective date. There is no user fee. Keep copies of everything with proof of mailing; the acceptance letter is the document a buyer’s counsel will ask for in five years.

↑ Back to top

Step 4: Returns Filed as an S Corporation With No Election

This is the six-year case. The returns have been filed; the IRS has processed them (its systems don’t reject an 1120-S for a missing election); then a notice CP, or a Letter 3853C telling the corporation it is not an S corporation and the 1120-S returns are being converted to 1120, or nothing at all until due diligence on a sale.

• Confirm the facts: order the corporation’s transcripts and call the Business & Specialty line with a Form 2848 to ask whether an election is on file and its effective date. Sometimes it is, misfiled under a prior EIN or name.
• If no election exists and all years were reported consistently: Rev. Proc. 2013-30 relief under section 5.04 (beyond 3 years and 75 days). File the 2553 with the legend, the reasonable-cause statement explaining the history, and consistency statements from every shareholder for every year.
• If the IRS has already converted the returns to 1120 and assessed corporate tax: the 2013-30 request still works if the requirements are met; respond to the notice with it and ask that the assessments be reversed. If any year was reported inconsistently, relief under 2013-30 is unavailable and the route is a private letter ruling (below).
• Do not file the missing 2553 “quietly” with a current effective date; that concedes the prior years were C years.

↑ Back to top

Step 5: Outside the Window

If the entity cannot meet Rev. Proc. 2013-30 (an inconsistent year, a missing shareholder consent that can’t be obtained, an ineligible shareholder during the period), the remaining route is a private letter ruling under §1362(b)(5) (late elections) or §1362(f) (inadvertent terminations and invalid elections), filed under the annual procedures revenue procedure (Rev. Proc. 2026-1 series). The user fee for most taxpayers is $43,700 (verify the current Appendix A fee; reduced fees of $3,500 or $11,500 apply at gross income below $250,000 / $1,000,000), plus professional fees, and the ruling takes six to twelve months. The IRS grants these routinely when the facts are clean; the cost is the deterrent. For a small corporation it is often cheaper to accept C status for the bad years, file the 1120s, and make a fresh election going forward, with the built-in gains consequences that follow. That is a conversation with the client and, usually, with one of the tax attorneys.

↑ Back to top

Step 6: Inadvertent Terminations

A valid election terminates automatically on the day the corporation stops being eligible (§1362(d)(2)). The common causes:

• Stock transferred to an ineligible shareholder: an LLC or partnership (even single-member, if the regulations’ look-through doesn’t apply), a C corporation, an IRA (Taproot Administrative Services, 9th Cir. 2012), a nonresident alien, a trust that doesn’t qualify (a revocable trust is fine while the grantor lives; after death it has two years, or must elect QSST or ESBT status).
• A second class of stock created by an operating agreement amendment, a shareholder agreement with non-pro-rata distribution rights, or debt that is really equity.
• More than 100 shareholders after a gift program to grandchildren (the family aggregation rule usually saves this).
• Three consecutive years of excess passive investment income with accumulated E&P (§1362(d)(3)).
• A missed QSST or ESBT election after stock passes to a trust.

Relief: §1362(f) allows the IRS to treat the termination as not having occurred if it was inadvertent, steps are taken within a reasonable time to restore eligibility, and the corporation and shareholders agree to the adjustments the IRS requires. Historically this required a letter ruling. Rev. Proc. 2022-19 now provides no-ruling relief for the most frequent problems: missing shareholder consents, missing QSST/ESBT elections (via Rev. Proc. 2013-30 section 5), non-identical governing provisions where no disproportionate distributions were made, certain errors on the 2553 or 8869, and missing acceptance letters (the IRS will provide a copy or process a copy of the originally filed form). Anything outside those categories, including an actual transfer to an ineligible shareholder, still requires the ruling and the fee. The cure for the ineligible-shareholder case is to transfer the stock back to an eligible holder immediately and document that the transfer was inadvertent; the ruling request follows.

↑ Back to top

A Worked Example

↑ Back to top

Colorado

Colorado has no separate S election; an entity that is an S corporation for federal purposes files the Colorado DR 0106 as an S corporation, and a late federal election accepted with a retroactive date is retroactive for Colorado too. If the IRS has converted years to C status, Colorado will expect DR 0112 corporate returns for those years, and the Colorado statute follows the federal adjustment. A granted 2013-30 request should be sent to the Department with any Colorado notice that resulted.

↑ Back to top

Questions at the desk

↑ Back to top ← Back to the Footnotes

Written for the Tax Shop desk; figures are for the 2026 tax year as currently published. Items marked (verify) are to be confirmed against primary sources before the figures freeze in December. Last updated October 16, 2026.