On Wednesday, the IRS consolidated the provisions of a number of previous revenue procedures for requesting relief for late S elections under Sec. 1362, late qualified subchapter S trust (QSST) elections, late electing small business trust (ESBT) elections, late qualified subchapter S subsidiary (QSub) elections, and late corporate classification elections (Rev. Proc. 2013-30). The new procedure is now the exclusive simplified method for taxpayers to apply for relief for these late elections.
In general, the revenue procedure expands the time for requesting relief for these late elections to 3 years and 75 days after the date the election was intended to be effective. However, for a simple late S election request, if certain requirements are met, there is no deadline for requesting relief. Taxpayers that do not qualify for this simplified relief must submit a request for a letter ruling and pay a user fee.
The revenue procedure contains general requirements for all the different elections within its scope, as well as specific requirements for each type of election. Among the general requirements is that the requesting entity must file a reasonable cause/inadvertence statement that is signed under penalties of perjury describing its reasonable cause for failing to timely file the S election on Form 2553, Election by a Small Business Corporation, or QSub election on Form 8869, Qualified Subchapter S Subsidiary Election, or that the failure to file the QSST or ESBT election was inadvertent and describing its diligence in correcting the errors after they were discovered. These statements must be attached to the applicable election form, and the election form must contain the statement, “Filed pursuant to Rev. Proc. 2013-30” at the top.
Under the new procedure, S corporations that meet the following requirements are not subject to the three-year, 75-day deadline, but instead have no time limit on requesting relief:
- The corporation is not seeking a late corporate entity classification election;
- The corporation fails to qualify as an S corporation solely because Form 2553 was not timely filed;
- The corporation and all of its shareholders reported their income consistent with S corporation status for the year the election should have been made and all later years;
- At least six months have passed since the corporation filed its first S corporation year tax return;
- The IRS did not notify the corporation and the shareholders of any problem with the S corporation status within six months after the return was filed; and
- The completed election form includes statements from all shareholders from the date the election was to have been effective to the date of the filing stating that they have reported their income consistent with S corporation status.
The new rules are effective Sept. 3, the date they will be published in the Internal Revenue Bulletin, but they apply to requests pending on that date as well as requests received afterward.
Taxpayers that have ruling requests pending that they would like to withdraw to take advantage of the revenue procedure (and receive a refund of their user fees) have until the earlier of Oct. 18 or the date the ruling is issued to notify the national office that it will rely on the revenue procedure and withdraw the ruling request.