S Election in the Time of COVID-19

Small business corporations make their annual election to be treated as an S corporation under section 1362 of the Internal Revenue Code on Form 2553. The cover pages for both Form 2553 and the Instructions for Form 2553 include updated mailing addresses and fax numbers where the Form 2553 may be filed with the Internal Revenue Service after June 17, 2019.

Because it is quicker and easier, our practice has been to file Form 2553 with the IRS to make an S election on behalf of our clients via fax. At the moment, however, that is impossible, because the IRS has essentially shut off its fax machines.[1] That leaves the option of filing S elections by snail mail, but that is also far from ideal in the time of COVID-19, as most of our clients are working from home and having a hard time getting mail and signing and returning the Form 2553, and the IRS has indicated that its processing of forms submitted by mail is also being negatively impacted by COVID-19 in any event.[2]

Despite the current practical problems with filing an S election by fax or by mail, no significant legal issues are created. As we have previously noted, filing a late S election with the IRS is a relatively painless procedure. (See “Tardy S Election Is No Reason To Freak Out.”) Even so, small business corporations and their accountants should be aware that they may have to follow the IRS’s procedure for filing a tardy S election with the corporation’s Form 1120-S income tax return for an S corporation, as outlined in our prior article, as well as being prepared to file the Form 2553 with the Form 1120-S by mail, rather than via fax.

[1] In theory, the IRS has two operational fax numbers where it is receiving and processing only Forms 1139 and 1045 in order to implement certain provisions of the Coronavirus Aid, Relief, and Economic Security Act. See IRS, Temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19.

[2] See id.; IRS, IRS Operations During COVID-19: Mission-critical functions continue.