Rev Proc 2013-30 clarification

Hello folks,

Taxpayer forms LLC in 2008; Partnership between husband and wife (I did not file the original returns; otherwise I would've opted for Disregarded Entity or something else). Husband passed away in 2016 leaving the wife to operate the business, the default tax structure reverted to a Sole Prop (disregarded entity).

Her wish is to Elect S Status for 2019. Reading over Rev Proc 2013-30, I just want to make sure I am not making an incorrect assumption.

Section 4.03(3) mentions "Additional materials for a late corporate classification election intended to be effective on the same date that the S corporation election was intended to be effective." Do I have it right that my client will qualify for relief due to what is mentioned in 4.03(3)(5)(ii)?
"(ii) The Requesting Entity has not filed a federal tax or information return for the first year in which the election was intended to be effective because the due date has not passed for that year’s federal tax or information return."

If we elect S Status for 01/01/2019, does the Rev Proc grant relief, as the due date has not yet passed? I know reasonable cause must exist. My client is an idiot!! Just kidding, she truly had no idea an election existed, she would rather file her nails in my office!

TIA!!!

You can review the instructions on Form 2553, they have a section called "Relief for Late Elections." It sounds like the client potentially qualifies. Just be careful with reasonable cause, as the circumstances that qualify are somewhat limited. Do some research on it.

EADave, I myself have never had a late S Corp election denied. If you are requesting for 1/1/2019 you should be ok. Just make sure the owner is aware of the reasonable compensation requirement.

Thank you both!

Just out of curiosity, DSO, what excuse(s) did you use on your late filed 2553s that were not rejected?

I only ask because I tried to make a retro-active election back in August of 2017, for January 1, 2017 for a different client, and was denied, even though I think my reasonable cause was believable.

Why in the world would the IRS accept an election that is 3 years old as long as the 1120S is timely filed, K1s issued, the whole works, and not accept an election that is merely 5 months late and the 1120S won't be due for another 8 months???

It makes no sense at all to me.

EADave I will look back at my. Notes. I believe I actually got. The recommended wording from a seminar.

And you are correct why wouldn’t they accept one that was requested in the same year for that year? Very strange. Anyway I promise I will get back to you shortly

Why thank you very much! If I had to describe IRS’s consistency, I’d use one word, “nah”.

This is a brief summary of what is required on the 2553 for late election for entities which are currently an LLC (though disregarded). The first 2 steps refer to some mechanics for completion of the form and are pretty straightforward:

Use the most current form 2553
Write across the top "Filed Pursuant to Rev. Proc. 2013-30" if applicable

On p.1 in the designated space example explanation for reasonable cause - (revise wording as applicable)
Taxpayer's husband passed in 2016 leaving her to run the business. Prior to this event she had little business knowledge
The taxpayer took steps to educate herself on business matters. She took steps to educate herself.
Taxpayer relied upon guidance from professional advisers which she/he sometimes misunderstood even though she asked questions. During this time she was taking over the business, hiring staff, managing finances and payroll....
During the year the taxpayer operated her business as though an S Corp (i.e.,paid reasonable salary)
Taxpayer conferred with her attorney (or accountant, etc.) regarding S Corp filing but misunderstood their legal direction causing her to miss the deadline to file timely
Taxpayer is a 100% shareholder and has paid herself a reasonable salary
Upon discovery the appropriate paperwork was not filed the taxpayer took immediate steps to rectify the situation by consulting with her accountant to have the form 2553 with the late election filed immediately.

Not all wording maybe applicable but you get the idea. It is important that she pay herself a reasonable salary if she has not done so already. If she hasn't 2019 isn't over. Begin payroll asap.

Hope this helps. Good Luck!!

A very thoughtful, and complete response, thank you for your time and work on this!

Have a great, safe, weekend!