Missed The S Corp Deadline? How To Obtain Late Election Relief Under IRS Revenue Procedure 2013-30

If you operate an expanding Limited Liability Company (LLC) or small corporation, you likely know that electing S Corporation tax status can save you thousands of dollars each year in self employment taxes.

However, many business owners only realize they should have made the election late in the year, well after the standard IRS filing deadline has passed. For an existing calendar year business, Form 2553 must ordinarily be filed within two months and fifteen days of the start of the tax year, which falls on March 15.

If you missed that window, do not panic. The IRS provides a generous, permanent administrative relief pathway under Revenue Procedure 2013-30 that allows qualifying small businesses to backdate their S Corporation election retroactively.

How Much Self Employment Tax Does An S Corp Actually Save?

By default, single member LLCs are taxed as sole proprietorships, while multi member LLCs are taxed as partnerships. Under these structures, 100% of your net business profit is subject to the 15.3% federal self employment tax (Medicare and Social Security) up to statutory thresholds.

When your business generates strong profits (typically $60,000 or more above operating costs), electing S Corporation status allows you to split net earnings into two categories:

• 1. Reasonable W-2 Salary: Subject to standard payroll withholding and FICA taxes.
• 2. Shareholder Distributions: Paid out of remaining profits free from the 15.3% self employment tax.

On $120,000 of net business profit, paying a reasonable salary of $65,000 and taking $55,000 as distributions can save your business over $8,000 annually in federal payroll taxes.

Qualifying For Retroactive Relief Under Revenue Procedure 2013-30

Prior to 2013, requesting late S Corporation relief required filing a formal Private Letter Ruling request, which cost thousands of dollars in IRS user fees. Revenue Procedure 2013-30 created a streamlined, fee free process allowing eligible businesses to request relief up to three years and seventy five days from the intended effective date.

To qualify for relief under this procedure, your entity must satisfy four core conditions:

• The company was legally formed as an eligible entity (such as an LLC or state corporation) prior to the requested effective date.
• The company had genuine intent to be classified as an S Corporation from the target date onward.
• The failure to timely file Form 2553 was solely due to reasonable cause.
• All shareholders and members reported their personal tax returns consistently with S Corporation treatment for all open tax years.

What Qualifies As Reasonable Cause In The Eyes Of The IRS?

To grant retroactive S Corporation status, the IRS requires a sworn statement demonstrating reasonable cause for the late submission.

Acceptable reasons recognized by the IRS include:

• You or your key officers were unaware of the specific filing deadline.
• You relied on the advice of an attorney, bookkeeper, or previous tax preparer who failed to submit Form 2553 on time.
• Key corporate records or filings were delayed due to illness, administrative restructuring, or operational disruptions.

The explanation must be drafted precisely, signed under penalties of perjury by an authorized corporate officer, and accompanied by written consent from all individuals who held shares during the affected period.

Avoid Common Pitfalls That Invalidate Late Elections

Submitting a late Form 2553 is not merely a formality. If the paperwork is executed incorrectly, the IRS will reject the election, leaving your business exposed to unexpected partnership penalties or full self employment tax assessments.

Critical mistakes to avoid include:

• Missing Shareholder Consents: Every single owner who held an interest during the retroactive period must sign the consent statement.
• Inadequate Reasonable Compensation: If you take shareholder distributions without paying reasonable W-2 wages, the IRS can reclassify your entire distribution as wages and assess back payroll taxes with interest.
• State Level Inconsistencies: States like New York and New Jersey have separate state S Corporation filing rules (such as Form CT-6 in New York or Form CBT-2553 in New Jersey). Failing to coordinate federal and state filings can result in corporate level double taxation.

Secure Your Entity Tax Savings With Professional Execution

Selecting the right corporate tax classification and filing for retroactive relief requires experienced tax representation.

Our team of Enrolled Agents assists small businesses throughout New York, New Jersey, and nationwide. We analyze your corporate profit numbers, draft defensible reasonable cause statements, prepare all federal and state S Corporation election documents, and set up compliant payroll to maximize your annual tax savings.