In my practice, I have seen various issues related to a taxpayer’s S election. Corporations potentially jeopardize their S election by unknowingly creating a second class of stock through convertible debt. Corporations, particularly in community property states, may jeopardize their S election for failing to obtain the consent of the shareholders’ spouses. Or, corporations may simply fail to make a timely S election by submitting Form 2553 to the Service. In a recent Private Letter Ruling, the Internal Revenue Service determined that the taxpayer established reasonable cause for failing to timely file its S election.

S Elections & Timing, Generally

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