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PostHeaderIcon New Late S-Corporation Election Rules

S-Corporations are fairly popular and they can be a powerful tool in your tax strategy.  In order to qualify as an S-Corporation there are some requirements you have to meet and then you have to make the election.  The requirements include

1)  Being a domestic corporation
2)  Having shareholders that are only individuals, estates or trusts (or a disregarded entity like a single member LLC)
3) Having only citizens or US residents as shareholders?
4)  Having only one class of stock
5)  You can’t have more than 100 shareholders

From there, you have to make an S-Corporation election.  This must be made on or before the 15th day of the third month of its tax year in order to be timely.  So if you form a corporation and want it to immediately be treated as an S-Corporation, you have two and a half months after it’s formed for a timely election.  If you have an existing C-Corporation and you want it to now be treated as an S-Corporation, then you have two and a half months after its year end to get the election filed timely.

If you don’t make the election in time, you can “try” to make a late election.  I’ve done this before and I’ve never had a late election turned down, which makes the whole deadline thing seem moot but it requires a few attachments to your return and there would always be the chance that you’d get turned down.

Last week, the IRS issued Revenue Procedure 13-30 which now simplifies this late election process somewhat.  What you have to do doesn’t change but it includes the rules for late S-Corporation elections as well as late QSub elections and entity change classifications.  The revenue procedure is long but at the end of the procedure are some really handy flowcharts to help you navigate the waters.  The Revenue Procedure also combines a few different revenue procedures so it’s one stop shopping from here on out.  As always, I’d suggest you talk to a professional and preferably one who’s done a late S-Corporation election in the past.  If you’re interested in seeing how an S-Corporation might benefit you, I recommend this blog post I wrote earlier in the year on the subject.