Retro 1120S election

[ILLMAS]

New client created a corporation back in 2014, he is finally ready to start filing and I was wondering if I can make an S-Corp election starting back in 2015?  2015 will be the first year I will be preparing.

Thanks

[Lee B]

"Rev Proc 2013-30 facilitates the grant of relief to late-filing entities by consolidating numerous other revenue procedures into one revenue procedure and extending relief in certain circumstances. This procedure provides guidance for relief for late:

S corporation elections,

Electing Small Business Trust (ESBT) elections,

Qualified Subchapter S Trust (QSST) elections,

Qualified Subchapter S Subsidiary (QSub) elections, and

Corporate classification elections which the entity intended to take effect on the same date that the S corporation election would take effect.

Generally, the relief under the revenue procedure can be granted when the entity fails to qualify solely because it failed to file the appropriate election under Subchapter S timely with the applicable IRS Campus and all returns reported income consistently as if the election was in effect. For purposes of this guidance, the “effective date” is the date the election is intended to be effective and cannot be more than 3 years and 75 days from the date relief is requested.

To assist in determining if an entity qualifies for late election relief, Rev. Proc. 2013-30 includes flow charts, as well as specific guidance for each of the five categories listed above.

If an entity does not qualify for relief under Rev. Proc. 2013-30, the entity may request relief by requesting a private letter ruling. The procedural requirements for requesting a letter ruling and the associated fees are described in Rev. Proc. 2021-1 PDF) (or its successor).

Again, it is important to know that Rev. Proc. 2013-30 relief is only for late elections that would otherwise be valid. For example, the S election must still contain signatures from all the shareholders. Also, if there was an invalid shareholder or the corporation was not qualified during any part of the tax year, the S election is not valid for that year."

[Max W]

These are the main operative rules for late S-corp election. (from IRS website)

The entity has reasonable cause for its failure to make the election timely;  

The entity and all shareholders reported their income consistent with an S corporation election in effect for the year the election should have been made and all subsequent years; and

Less than 3 years and 75 days have passed since the effective date of the election 

The entity timely filed all required federal tax returns consistent with its requested classification as an S corporation.

I wonder if the IRS will even process  2014 and 2015 returns as the IRS only looks back 6 years.

We had a client 10 years ago that wanted to file 4 late s-corps.  We went ahead and the IRS allowed the last 2 years.  The two older years were not allowed and the IRS reassessed those years as C-corps.