Tardy S Corporation Election in New York

We’ve written before that a Tardy S Election Is No Reason To Freak Out. In that article, we discussed making a late federal S corporation election under a 2013 Revenue Procedure that permits corporations to obtain relief for a late S election that is made within 3 years and 75 days from the effective date of the election.[1] But what effect does a late S election have in New York, which requires an S corporation to make a separate election to be treated as a New York S corporation?

As it turns out, “[w]hen an S election is retroactively validated for federal purposes, pursuant to [Internal Revenue Code] section 1362(f), the [New York State Department of Taxation and Finance] may retroactively validate the New York State election” as well.[2] If validated by the Tax Department, the late New York S election will apply for any tax year within the period validated by the IRS.[3] Any retroactive validations require both the corporation and its shareholders to recognize the tax consequences of the New York S election for the retroactive period.[4]

To request a retroactively validated New York S corporation, a corporation must file Form CT-6 (Election by a Federal S Corporation to be Treated as a New York S Corporation) with the Tax Department, together with an attachment explaining the circumstances of the late filing and a copy of the federal approval letter.[5] Form CT-6 must include the effective date of the election, as well as the signatures of all of the corporation’s shareholders on the specified date.[6] In addition, all of the shareholders must have reported their income on all affected tax returns consistent with the S election for the year the election should have been made and all subsequent years.[7]

[1] Rev. Proc. 2013-30 § 4.02, 2013-36 I.R.B. 173.

[2] Instructions for Form CT-6, at 1. Revenue Procedure 2013-30 provides procedures for validating a late S election pursuant to section 1362(f) of the Internal Revenue Code, 26 U.S.C. § 1362(f), among other provisions. Rev. Proc. 2013-30 § 3.01, 2013-36 I.R.B. 173.

[3] Instructions for Form CT-6, at 1.

[4] Id.

[5] Id. at 2.

[6] Id.

[7] Id.