How can we help?

Filing for S-Corporation (S-Corp) status can provide major tax advantages, but not all elections are approved. If your Form 2553 (Election by a Small Business Corporation) is denied, it’s important to understand why, what your options are, and how to fix the issue quickly.

Common Reasons for S-Corp Election Denial

• Missed Filing Deadline: Form 2553 must be filed within 75 days of forming your business or within 75 days of the start of the tax year you want the election to take effect. Late filings are one of the most common reasons for denial.

• Incomplete or Incorrect Form 2553: Missing signatures from all shareholders, incorrect EIN or business information, or failure to specify tax classification properly can all lead to rejection.

• Ineligible Entity or Shareholders: S-Corps cannot have more than 100 shareholders. All shareholders must generally be U.S. citizens or residents, and certain business types (like banks or insurance companies) are not eligible.

What the IRS Will Do

If your election is denied, the IRS will mail you a notice of denial explaining the reason. This gives you the opportunity to review the issues and take corrective action.

How to Fix a Denied S-Corp Election

• Correct Errors and Resubmit: If the problem is due to missing or incorrect information, you may be able to update Form 2553 and resubmit it.

• Request Late Election Relief: If you missed the deadline, you may qualify for late election relief under Revenue Procedure 2013-30. To do this, you must show “reasonable cause” for the delay and that you always intended to operate as an S-Corp.

• Consult a Tax Professional: A CPA or Enrolled Agent can help ensure your corrected filing meets IRS requirements and improve your chances of approval.

Why Prompt Action Matters

Delays in resolving a denial can mean:

• Missing out on S-Corp tax benefits for the current year.

• Having your business taxed as a default LLC or C-Corp, which could result in higher tax liability.

Conclusion

If your S-Corp election is denied, don’t panic. The IRS will explain the reason, and in many cases, you can correct the errors or apply for late election relief. Act quickly, work with a tax professional if needed, and make sure future filings are accurate and timely to secure the benefits of S-Corp status.