Asset protection planning often involves forming new corporations or LLCs taxed as Subchapter S entities for income tax purposes. The general rule is that the taxpayer has a limited amount of time to file an S election after forming the corporation or LLC and obtaining a tax identification number. If the taxpayer misses the deadline he cannot qualify for the intended status as an S corporation. I discussed this issue with a prominent Orlando CPA named John Papa recently located in a new office suite in Longwood, Florida. Mr. Papa told me of a relatively new Revenue Procedure which liberalizes the rules for qualification as an S corporation by allowing delinquent corporations to salvage an S election. This rule applies to corporations and to LLCs that elect corporate taxation.
Mr. Papa educated me about Rev. Proc. 2007-62 which allows eligible small business corporation to request relief from a late S corporation election by filing Form 2553 with the S corporation’s first income tax returns. The procedure is in lie of getting a letter ruling ordinarily used to obtain relief fro late elections. Accordingly, no user fee is required. Rev Proc. 2007-62 to correct late filed S election has certain requirements. The requirements include a reasonable cause for failure to make a timely election, no prior annual 1120S tax returns having been filed without the S election, and the request for late election must be filed no later than six months after the original due date of the Form 1120S for the year the election was first intended.