The IRS deadline for electing S Corporation status is within the first two and a half months of the current or previous tax year. However, if you miss that deadline, you still have the option to elect S Corp status retroactively for that year by applying for a Late Election. Similarly, if your S Corp election was unfortunately rejected, you can apply for late election relief.
What is Late Election Relief?
Late election relief for S Corporations allows businesses that missed the deadline to file an S corporation election (Form 2553) to request IRS approval to be treated as an S corp retroactively. The IRS provides relief for businesses that can show they were eligible to make the election on time but failed to do so due to reasonable cause.
What if my S Corp election was rejected?
Receiving notice that your S Corp election was not approved can be frustrating. It's important to read the notice carefully to understand the reason for the rejection. You can upload the notice to your Heard Documents and notify our team in Messages so we can help you understand the implications and explore potential solutions.
If the initial S Corp election was rejected due to a late filing, you may be eligible for late election relief under IRS procedures. However, this requires meeting specific criteria and filing additional paperwork.
Eligibility for Late Election Relief
Eligibility for Late Election Relief can depend on the circumstances of your business’s operations. Generally, a company must be able to prove the following:
- Eligibility: The business must have been eligible to elect S Corporation status on the intended effective date, including meeting IRS requirements for incorporation.
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Reasonable Cause: The business must provide a reasonable cause explanation for why the election was not made on time. For example:
- Lack of understanding of the filing requirements.
- Miscommunication between the business owner and tax professionals.
- Unforeseen circumstances like illness or other hardships.
- S Corporation Operations: The business must be able to prove it has or will be operating as an S Corporation, including paying a reasonable salary to the business owner.
Can Heard help with late election relief?
While Late Election Relief can be appropriate for some business owners, for others, it may be advisable to forgo this option. The consequences of Late Election approval or rejection can have lasting impacts on your business operations. To discuss your options, reach out to the Heard team in Messages.
Mid-year election
In order to qualify for S Corp election your private practice must be incorporated. We recommend reviewing the Preparing for S Corp election article for detailed guidance. If you did not incorporate your private practice by January 1st of the year, you still have the option to elect S Corp mid-year. With this option, you'll be taxed as a sole proprietor for part of the year and an S Corporation for the other part, which reduces the tax benefits. To discuss your options, please reach out to our team via Messages for a personalized review.