Late S-Corp Election Relief for an Existing C Corp

How it works

Rev. Proc. 2013-30 is the IRS's administrative fix for a corporation that meant to be an S corporation from a specific date, ran itself as one from that date forward, and simply never got Form 2553 filed on time. Meet the requirements below and the correction is automatic: no private letter ruling, and no user fee.

This page covers the corporation path, an existing C corporation asking for the relief, not a limited liability company that never filed anything at all. An LLC seeking the same retroactive S status has to be treated as a corporation for tax purposes, but it does not need a separate Form 8832 to get there: Treas. Reg. 301.7701-3(c)(1)(v)(C) deems an eligible entity that makes a valid S election to have elected association status at the same time, so Form 2553 alone carries it. A corporation is already a corporation: it never files Form 8832, and it makes no representations in Part IV, which exist only for an entity that is not already one. For an existing C corp, the whole request rides on Form 2553 alone. What a C corporation is actually useful for as an ongoing structure is a separate question, covered in my C-corp uses and traps.

Why the LLC template does not transfer

The generic late-election template, the one that opens with language like "taxpayer began operations on" a certain date, is written for a new LLC and must not be copied verbatim for a converting C corp. That phrase describes how the effective date gets set for an entity electing S status for its first tax year in existence: the earliest of when it first had assets, first had shareholders, or first began doing business. The dividing line is first-year-in-existence against a later year, not LLC against corporation, so a newly formed corporation uses that rule too. A converting C corp does not, because it is not electing for its first year. Line E for a converting C corp is simply the first day of the first tax year the corporation wants S status to apply to. Carrying the LLC framing into a C corp filing gets the premise wrong from the first sentence of the attached statement.

Who this applies to

This relief is for a corporation that already decided to be an S corporation, believed that decision was in effect, and fell short only on paperwork. It is not a route for a corporation only now deciding S status might be a good idea, and not a way around an eligibility problem it has actually had all along.

• The corporation intended S status. As of the date entered on line E, the corporation believed, and generally acted as though, it was an S corporation. That intent is the premise everything else in the request depends on.
• The only defect is the missed filing. As of line E, the corporation has to have been an eligible small business corporation under section 1361(b): one class of stock, no nonresident-alien shareholder, no shareholder that is otherwise an ineligible entity such as a partnership, and no more than 100 shareholders. An actual problem on any of those means the late filing is not what stands between the corporation and S status, and this relief does not reach it.
• Every shareholder in the window reported the same way. Everyone who held stock at any time from line E through the date Form 2553 is filed, including someone who has since sold out or been bought out, has to have reported on their own return consistent with S status for the first intended year and every year after it.

A brand-new entity that has not started operating yet is a different question with an easier answer: file Form 2553 by its ordinary deadline and this relief never comes up. Deciding what structure fits a business that does not exist yet is a separate analysis, covered in my entity choice decision tree, and worth doing before incorporation, not after a missed deadline.

What it requires

Rev. Proc. 2013-30 sets out four requirements for the requesting corporation, on top of the shareholder-consistency point above. All of them have to be true, not most of them.

• Intended status. The corporation intended to be classified as an S corporation under section 1362(a) as of the line E date.
• Sole defect. The late Form 2553 is the only reason the corporation is not already an S corporation on that date.
• Reasonable cause and diligence. There has to be an actual, honest reason the filing was late, and the corporation has to have moved to correct it without unreasonable delay once the miss was discovered. A long, undocumented gap between finding the problem and filing the correction undercuts this element even where the original cause was genuine.
• Timing. Form 2553 has to be filed within three years and 75 days, measured forward from the line E date. A corporation outside that window needs the narrower exception below, or a different form of late-election relief entirely.

The consistency trap unique to a converting C corp

An LLC that never filed anything as a corporation has no prior return under a different regime to explain away. An existing C corp usually does, which is where this version of the late election gets harder than the generic one. A corporation that filed a Form 1120 and paid corporate-level tax for a year it now wants to claim as an S year has already reported inconsistently with the election it is asking to make retroactive, and signing the declaration that all reporting has been consistent, under penalties of perjury, would not be accurate.

The fix has to happen before anyone signs anything: check every intended-S year for a filed Form 1120, and where one turns up, amend it to a Form 1120-S so the shareholders can amend their own returns to pick up the resulting flow-through. The one year correctly left as a Form 1120 is the last full year before line E, the corporation's final year as a genuine C corp.

What happens if the ordinary window has already closed

A narrower, corporation-only exception covers a request made after the standard three-year, 75-day window. It does not stand alone: the first three requirements above (intended status, sole defect, and reasonable cause) still have to hold, and on top of them the exception adds consistent reporting by the corporation and every shareholder for the first year and all later years, at least six months since the corporation filed its first Form 1120-S, and no IRS notice questioning its S status during that period. Where even that is unavailable, the only route left is a discretionary private letter ruling under section 1362(f), slower and carrying its own IRS user fee, tiered by gross income and republished periodically by revenue procedure.

What you need to document

Everything here has to exist as a record, not a recollection produced after the IRS asks a question. The file is what turns four legal requirements into something a reviewer can actually check.

Evidence the S decision was real, and made when claimed

Board minutes, an organizational resolution, or engagement correspondence with an advisor showing the corporation intended and believed it was operating as an S corporation from line E forward, not an assertion made now because it would be convenient.

A year-by-year filing history for the intended-S period

Which return was actually filed, Form 1120 or Form 1120-S, for the line E year and every year after it. This is what exposes a consistency problem early enough to cure it, or confirms there is not one.

A dated discovery-to-correction timeline

When the missed election was discovered, by whom, and what happened between that date and the Form 2553 filing date. A reviewer checks this gap first, and a stale one is hard to explain away.

A complete shareholder list for the whole window

Everyone who held stock from line E through the filing date, including anyone who has since left, with contact information current enough to obtain a signed consent from each.

The sole-defect checklist as of line E

Confirmation of one class of stock, shareholder eligibility, and a shareholder count at or under 100, dated to line E rather than to today.

Where it goes wrong

Rev. Proc. 2013-30 is a sanctioned relief procedure, not a listed or reportable position, so the exposure is not a penalty for asking. It is having the request denied, and for a converting C corp, denial tends to trace back to a short list of causes.

• The consistency gate, again. A filed Form 1120 for an intended-S year that never got amended is the single most common reason a converting C corp's request fails, because the perjury declaration and the actual filing history contradict each other.
• Reasonable cause that reads as boilerplate. A generic explanation with no dated diligence narrative invites rejection. It holds up better tied to something concrete, such as a preparer instructed to file who did not, rather than an assumption that the filing must have happened somehow.
• A real eligibility problem mistaken for a filing problem. An ineligible shareholder or a second class of stock is not cured by this relief, because the sole-defect requirement fails the moment there is a second reason the corporation was not eligible.
• An administrative dissolution during the window. A corporation that lapsed into inactive status with the state during an intended-S year raises a separate question: whether it was even a validly existing eligible corporation under section 1361(b) at that time. I confirm the corporation's active status on Sunbiz and reinstate before or alongside the Form 2553 filing if there is a gap.
• Expecting old losses to help. A C corp with accumulated losses often has negative accumulated earnings and profits by conversion, and it is tempting to assume those losses will offset S-year income. They do not. Under section 1371(b)(1), a C-year net operating loss is frozen and cannot be used in an S year, apart from a narrow exception offsetting the built-in-gains tax described below, and it stays frozen unless the S election later terminates with carryforward years still available.

Whether the corporate-level traps apply depends on the balance sheet

A shell corporation with no appreciated assets and a deficit in accumulated earnings and profits, sometimes abbreviated E&P, mostly avoids the corporate-level traps a normal C-to-S conversion carries. A corporation with real assets or real retained profit does not get the same pass, and the two cases are worth telling apart before assuming either one.

Which column a given corporation falls into is a balance-sheet and E&P question, not a filing question. A shell holding even a modest built-in item is not automatically in the easy column just because it looks like one; the one item left to double-check is cash-basis accounts receivable or unbilled work at conversion, which is technically a built-in-gain item.

A situation where this comes up

The version I see most often is a small, closely held Florida corporation where the owner or an earlier advisor always treated it as an S corporation, filed a Form 1120-S every year, and simply never confirmed that Form 2553 had actually gone in years earlier when the corporation was formed or first restructured. Because nothing about the day-to-day filing history changed, there is no consistency problem to cure, and the request is close to a pure paperwork fix once the sole-defect and reasonable-cause elements are documented. Whether S status was even the right call for that business in the first place is worth revisiting at the same time, a question I cover generally in my Florida S-corp guide.

The harder version is the corporation that actually filed Form 1120 and paid entity-level tax for one or more of the years it now wants back. There, the real work is the amendment sequence, cleaning up the corporate return and every affected shareholder return, before Form 2553 is even the point. Rushing that step to file faster just moves the problem into the perjury declaration.

What I try to catch early is the gap between discovering the missed election and doing something about it. A corporation that has known about the problem for a year or two before bringing it to me has already made the diligence element harder to support, no matter how good the original reason was. The sooner that conversation happens, the more the file looks like what Rev. Proc. 2013-30 was actually built to fix.