LYCOS RETRIEVER 
S Corporation: Elections
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A late election to be an S corporation generally is effective for the tax year following the tax year beginning on the date entered on line E of Form 2553. However, relief for a late election may be available if the corporation can show that the failure to file on time was due to reasonable cause.
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The S corporation election must typically be made by the fifteenth day of the third month of the tax year for which the election is intended to be effective, or at any time during the year immediately preceding the tax year. Congress has directed the IRS to show leniency with regard to late S elections. Accordingly, often, the IRS will accept a late S election.
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Under the new provisions of the Act, a trust that constitutes either a traditional IRA or a Roth IRA is now an eligible shareholder in an S corporation that is a bank. Banks are no longer required to take steps to eliminate IRA shareholders before an S corporation election can be made. However, an IRA can be an eligible shareholder only to the extent of the bank stock held by the IRA as of October 22, 2004, the effective date of the Act.
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It is important to remember that there are restrictions on what corporations can file as “S” with the IRS. The designation is only available to small business corporations that are domestically formed. Further, the corporation can have no more than 100 shareholders and all must unanimously agree to the election. The shareholders cannot be other businesses, although there are some exceptions where business trusts are involved. A shareholder ... may not be a non-resident alien. Finally, the corporation may only have one class of stock, although voting rights may differ.
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The service center will notify the corporation if its election is accepted and when it will take effect. The corporation will ... be notified if its election is not accepted. The corporation should generally receive a determination on its election within 60 days after it has filed Form 2553. If box Q1 in Part II is checked, the corporation will receive a ruling letter from the IRS that either approves or denies the selected tax year. When box Q1 is checked, it will generally take an additional 90 days for the Form 2553 to be accepted.
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C Corporationsand Limited Liability Companies (LLC's) may elect to be treated as S Corporations for income tax purposes. Incorporating a sole proprietor, or having an LLC make an S election, maysave significant taxes for theone-person business.
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