To enjoy the tax advantages that come with being an S corporation, a business must first inform the Internal Revenue Service it is claiming S corp status. It does this by filing Form 2553. The form is typically due by March 15 of the tax year for which it applies, but the IRS will accept it late if a company has "reasonable cause" for the delay.
Late Filings Are Common
Under the Internal Revenue Code, the IRS can accept a late Form 2553 if the failure to file was "inadvertent." In fact, Form 2553 is filed late so often that the first page of the form itself has a section specifically set aside for companies to explain why they're late. A company uses this section to describe why the deadline was missed and the steps the company has taken to correct the error. This form is filled out under penalty of perjury, so truthfulness is paramount.
Reasonable Cause Undefined
The law does not specify what counts as "reasonable cause" for a late filing. It's up to the IRS to decide. However, the IRS sets the bar fairly low. Tax attorneys Larry Brant and Jonathan Cavanagh of the national law firm Garvey Schubert Barer write that the IRS has accepted as reasonable a company's explanation that it didn't know it was supposed to file the form at all or the simple statement that the person responsible for the filing had dropped the ball. In his handbook "S Corporation Taxation," Robert W. Jamison notes that the IRS is "extremely lenient" and finds reasonable cause almost all the time.
- Internal Revenue Service: Instructions for Form 2553
- Legal Information Institute: U.S. Code Section 1362 - Election; Revocation; Termination
- S Corporation Taxation; Robert W. Jamison