When is the deadline to elect S corporation status?

Start with the intended effective tax year

The ordinary deadline is measured from the beginning of the tax year for which the election will apply, not from the day you meet an accountant or receive an EIN. An existing calendar-year corporation generally has until March 15 for a January 1 election, subject to weekend and legal-holiday rules. It can also file during the preceding tax year. A filing extension for an income tax return does not automatically extend the Form 2553 election deadline.

A new company may have a short first year

For a newly formed corporation, the beginning of its first tax year generally depends on when it first has shareholders, acquires assets or begins business, whichever occurs first. Its first-year election deadline therefore may not be March 15. Review formation, ownership, capitalization and activity dates together, and use the Form 2553 instructions to calculate the actual period. Do not assume the election clock begins only when the business earns revenue or opens a bank account.

Eligibility is separate from timely filing

The entity must satisfy the S corporation requirements, including eligible shareholders, the shareholder limit and the one-class-of-stock rule. Direct nonresident alien shareholders are not eligible. Required shareholders must consent, and the election needs accurate identifying information, the intended effective date and an authorized signature. An eligible LLC can generally obtain corporate classification through a valid S election without a separate Form 8832 when the applicable rules are satisfied. That does not relax the underlying S eligibility restrictions.

A late election requires a relief analysis

IRS procedures may permit relief for certain late S elections, including some related late entity-classification elections, when all conditions are met. The common simplified procedure generally uses a three-years-and-75-days period from the intended effective date, but there are exceptions and additional requirements. Reasonable cause, diligent correction and consistent reporting can matter. A late-election request does not cure an ineligible shareholder or an economic arrangement that violates the stock rules. Some situations require a different IRS relief procedure.

Common mistakes

• Assuming every new company has a March 15 deadline.
• Believing Form 4868 or a corporate return extension also extends Form 2553.
• Using late-election relief to overlook a nonresident shareholder.

Filing requirements

• Complete Form 2553 with the required shareholder consents and submit it under its filing instructions.
• Retain proof of submission and review the IRS election determination; filing Form 1120-S alone is not a substitute for an election.

Potential penalties

• A failed election can change return requirements and produce additional tax, interest or filing penalties.

Related IRS forms

• Form 2553
• Form 1120-S

What to consider next

• Confirm every shareholder’s eligibility and the intended effective date.
• Calculate the filing window and review relief if it was missed.
• Ask Chirino USA to review election documents and the first S corporation return.