To identify a back-up election the taxpayer should indicate a "Back-Up Section 444 Election" on the Form 1128, and "Back-Up Section 444 Election For Form 1128" , on the Form 8716.

Taxpayers requesting a FYM under Rev. Proc. 2003-39, (business purpose), may file a "Back-Up Section 444 Election." Process as follows:

A section 444 election is terminated when a partnership, S corporation, or personal service corporation—

If a personal service corporation that has a section 444 election in effect elects to be a S corporation, the S corporation may continue the section 444 election of the personal service corporation. Likewise, if a S corporation that has a section 444 election in effect terminates its S election and immediately becomes a personal service corporation, the personal service corporation may continue the section 444 election of the S corporation.

The effective date of the termination is—

TC 057—This transaction is computer generated and it represents a termination of the Section 444 election. It is computer generated from the reversal of TC 054 or TC 055. If correspondence is received terminating the section 444 election, input TC 052 to reverse the TC 055 unless a TC 057 has posted or is pending. Cycle input of TC 016 to change the FYM. See Figure 3.13.222-20.

TC 052—TC 052 correct or reverse TC 054/055. If TC 055 is reversed, the FYM will revert to the prior FYM. FRC 1120–19 will update to FRC 1120–01, and Form 8752 FRC from 1 to zero. If TC 054 is reversed by TC 052, the FYM must be changed with TC 016.

Form 1120/1120S or 1065 return posted with condition code "Y" and a tax period month of 12 is present and the entity contains an unreversed TC 054 or TC 055 is going to cause an UPC 307. Bypass on corrected Unpostable 307 RC 6.

Figure 3.13.222-20

Once an election is terminated, another election cannot be made under section 444.

Part I of Form 2553 contains elements required for completion of the election. Part II of Form 2553 is required when the entity is requesting a tax year other than a required tax year (usually December 31). Part III is required when a Qualified Subchapter S Trust (QSST) is electing to be a shareholder of the S corporation. See Figures 3.13.222-21, 3.13.222-22 and 3.13.222-23 for the three page Form 2553.

Figure 3.13.222-21

Figure 3.13.222-22

Figure 3.13.222-23

Name and Address The name and address of the entity electing to be treated as a Subchapter S corporation should be entered in these spaces.

When working Forms 2553, compare the address on Form 2553 with the address currently on Master File. Follow the procedures below:

Compare the name on Form 2553 with the name presently on Master File. If the name is different, follow the procedures below:

Employer Identification Number The EIN of the entity making the Subchapter S election should be in this area. Research IDRS carefully to verify the accuracy of the EIN. See chart:

Date Incorporated and State of Incorporation should be entered in these boxes. Do not return Form 2553 if this is the only information missing.

Name and Address Change Boxes The taxpayer will mark one or both of these boxes if requesting a name and/or address change on Form 2553.

Effective Date This should contain the date the taxpayer wants their Subchapter S election effective.

The following is an example of an EXCEPTION to the effective date of an existing corporation:

Selected Tax Year The Tax Reform Act of 1986 required all S corporations to change to the tax year of their owner. This rule applies to new S corporations also. If an FYM is requested under the automatic approval provisions of Rev. Proc. 2006–46, one of the following must be indicated and/or attached:

Who May Elect box. This box will be checked when family members are being considered as one shareholder.

Contact's name and phone number Name and number for a person that IRS can contact when processing Form 2553.

Statement of Reasonable CauseForm 2553 now contains an area where the taxpayer can write in his reason for failure to timely file Form 2553.

Name and Address of each shareholder The legal name and address of each shareholder should be in this area.

Shareholders' Consent Statement Each shareholder should sign in this area of Form 2553. The original signature of the shareholders is required. The signature of both husband and wife are required if the ownership of stock is joint for the election to be valid. Community property rules apply to shareholders and their spouses residing in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin (See Publication 555). If the shareholder is a minor, the signature must be that of the minor, his legal guardian or his natural guardian. If the shareholder is an estate, the signature must be that of the administrator or executor.

Stock Owned or Percentage of Ownership This area should contain either a number of shares or percentage owned and the date purchased. If "various" is indicated and the election is for a new corporation or a reelection (due to a previous termination or revocation), correspond for a specific date shares were first acquired. Otherwise, accept any format (YYYYMMDD or YYYY).

TIN of Shareholder The SSN/EIN of the shareholder should be in this area.

Shareholders' FYM The tax year ending of said shareholder should be entered in this area.

Extension of Time for Shareholders' ConsentIn the event, the corporation cannot obtain a shareholders consent, provisions have been made to enable the corporation to apply for an extension of time to obtain the consent. Application must be submitted for the Director's approval. However, the Form 2553 must still be filed within the prescribed filing period and will not be considered incomplete without said shareholder's consent. The consent, when received, will be associated with the Form 2553. The application for the extension of time is to provide additional time to obtain the consent in order to meet the completeness requirement, not to provide additional time to file the Form 2553 itself.

Take the following action:

If there are items missing on Form 2553, see chart below:

The chart below may help when the Effective Date is missing:

Selection of Fiscal Tax Year This area will be completed when the taxpayer has selected the use of a tax year other than the required year which is usually December 31.

Part III of Form 2553 may be used to make the QSSTelection if the stock of the corporation has been transferred to the trust on or before the date the corporation makes its election to be a S corporation

If you are unable to complete the election, return it to the taxpayer for completion. You may use the 312C or the 6800sce, whichever best suits your needs. Ensure there is a TC093 and a TC092 on the Entity module. If you are inputting both at the same sitting, use a Posting Delay Code (PDC) of at least 1 on the TC092. The TC092 is currently generating an 1120–01 filing requirement code. If you are dealing with a LLC, be sure to input a TC016, PDC2 or more to remove the 1120 FRC.

If the taxpayer responds within 60 days of the letter, approve the Form 2553. See IRM 3.13.222.124.8.

If the response is received before the end of the current tax period, approve Form 2553 for the requested effective date. Otherwise, approve Form 2553 for the next qualifying effective date.

To be eligible for S status, the corporation must:

Five types of trusts are permitted as shareholders under section 1361(c)(A):

Generally, a corporation which has previously revoked or terminated a S election may re-elect S corporation status effective for its fifth taxable year after the first taxable year for which the termination was effective without prior permission of the Commissioner. Short taxable years are included when counting taxable years. Certain reelections to be effective prior to the fifth taxable year after the first taxable year for which the termination was effective require the permission of the Commissioner.

Non-Stock Issuing Corporation- Corporations applying for S status as a non-stock issuing corporation must meet the same requirements as a stock issuing corporation except for the 'stock' questions. However, they must:

If any of the following types of Entities are listed as shareholders on Form 2553, the election must be denied:

Generally, an individual that has an SSN beginning with '9' is not eligible to be a shareholder of a Subchapter S corporation. SSN's beginning with '9' are either Individual Taxpayer Identification Numbers (ITIN's) or Internal Revenue Service Numbers (IRSN's). These types of TIN's are assigned to nonresident aliens.

A taxpayer is timely with their S election if we receive their Form 2553 before the 16th date of the third month of their tax year. If the 'due date' falls on a weekend or holiday, the 'due date' becomes the next business day. Important Note: A month means the period commencing on the same numerical day of any calendar month and ending with the close of the day preceding the numerically corresponding day of the succeeding calendar month. If there is no corresponding day, with the close of the last day of the succeeding calendar month. See the chart below in IRM 3.13.222.124.3(3) for examples.

≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Use the following table to assist in determining the timeliness of a S election:

There is no provision/form for an extension of time to file Form 2553. If a taxpayer is late filing Form 2553, an acceptable level of proof for a timely filed election is a CP 261 and/or a certified mail receipt from the United States Postal Service.

If the taxpayer has not entered an effective date on the Form 2553, use the chart below to assist in determining a valid effective date.

Under Rev. Proc. 2007-62 taxpayers will be able to file their Form 2553 with their initial Form 1120S. They may file electronically or paper. Code and Edit will edit Error Resolution System (ERS) Action Code 347 on paper document and Modernized e-File (MeF) will generate ERS Action Code 347 for electronically filed Forms 1120S. For MeF returns, Entity TE's must print Form 2553 from the Employee User Portal (EUP).

This Revenue Procedure supplements Rev. Proc. 2003-43and provides an additional simplified method for obtaining relief for a late filed Form 2553, provided that the requirements of this Revenue Procedure are satisfied.

This Revenue Procedure supplements Rev. Proc. 2004-48and provides an additional simplified method for obtaining relief for late filed Form 2553 and Form 8832, provided that the requirements of this Revenue Procedure are satisfied.

The following requirements of Rev. Proc. 2007-62 must be met for relief to be granted:

A signed statement containing the above facts must be attached to Form 2553 filed under Rev. Proc. 2007-62.

An entity may request relief for a late filed S corporation election by filing with the applicable campus a properly completed Form 2553 with a statement of reasonable cause with their initial Form 1120S.

Revenue Procedure 2003-43 replaces Rev. Proc. 98–55 and provides relief for:

To be eligible for relief under Rev. Proc. 2003-43, a complete Form 2553 must be filed and have the following: If the taxpayer has filed the corporate return for the first year they intend to be a S Corp All the following must be met:

To be eligible for relief under Rev. Proc. 2003-43, a complete Form 2553 must be filed and have the following: If the taxpayer has not filed the corporate return for the first year they intend to be a S Corp. All the following must be met:

Use the table below if approving Form 2553 for a date in a prior tax period:

The most common examples of reasonable cause or inadvertence

When a LLC is untimely with their S Election, they can apply for relief under Revenue Procedure 2004-48. In order to qualify for this relief, the taxpayer must file the Form 2553 within six months after the due date of Form 1120S, excluding extensions. When a taxpayer files for relief under Rev. Proc. 2004–48, Form 8832 is a 'deemed' election, therefore, the taxpayer does not need to submit a Form 8832. However, we will use Form 8832 as a source document if submitted by the taxpayer. The following items must be included in their request for relief:

Use chart below:

Use the table below if approving Form 2553 for a date in a prior tax period:

This Revenue Procedure provides procedures for taxpayers to obtain automatic relief for a late S corporation election.

A corporation filed consistent with a S status and was not notified by the campus in a timely manner that the corporation did not have a valid S election. A corporation is eligible for an automatic late S election relief if it meets all of the following requirements and it is within the statute of limitation.

If we approve a late Form 2553 for a tax period prior to the current tax period, you must research the account:

Procedural Requirements for Automatic Relief.

When working Forms 2553, it is necessary for the TE to determine if the entity has federal tax liability prior to becoming a S corporation. This is shown by entering "95" in the BLK-SERIES field of CC BNCHG. This will stop the 1120 FRC from updating to 1120-02 for 26 weeks or until the FYM becomes current. For example, FYM 12 will update on IDRS on Dec. 1st.

For a new corporation, if the effective date is more than 30 days later than the beginning of business (the earliest of the date corporation had shareholders, acquired assets, or began doing business), input Blocking Series 95.

The date of incorporation may be used in lieu of the Business Operation (BO) date to determine potential prior liability when any of the following conditions exist:

Once prior liability has been determined, the effective date must be the first day after the C corporation's tax year.

When prior liability has been determined, input the appropriate transaction code (TC 090 for approval, TC 091 for revocation, or TC 096 for termination) with blocking series 95. The FYM must be input with TC 090. The FRC and FYM will not update until the month of the FYM input with TC 090, or for 26 cycles for TC 091/096, to allow for delinquency checks on the prior period liability. It will also identify that the account is in S status if TC 090, or is a Form 1120 account if TC 091 or TC 096. This action will allow the proper return to post. When researching, the account information will show a posted 09X transaction without the corresponding filing requirement normally seen; however, the blocking series in the DLN will be a 95X to identify this type of case.

Research on IDRS is essential for all corporations that have been in existence over one year for prior liability. Research all Forms 2553 for EIN, FYM, and FRC.

Input the following required fields:

The following must be annotated on the Form 2553:

If the taxpayer is a limited liability company, make a copy of Form 2553 to use as a source document for the deemed election, input the required fields

TC 090 will generate Notice CP 261 to notify the entity of its approval as a S corporation. In the event the language of the CP notice is not appropriate for the circumstances of the case, or a notice should not be sent, the paragraph selection code "Z" (PSC'Z') should be input to suppress issuance of the notice.

When a completed Form 2553 is filed late, process the document by inputting the effective date and the FYM for the next qualified processing year.

If the FYM on Form 2553 was approved under Rev. Proc. 2006-46, or by a Chief Counsel Private Letter Ruling (PLR), a TC 054 must be input using CC BRCHG, Doc. Code 63. Input TC 054 with cycle delay 1 and suppress (PSC-Z) CP 284.

If the FYM was approved by Chief Counsel, prepare a 'dummy' Form 1128 to use as the source document for the TC 054 input. Attach the ruling letter to the dummy Form 1128. See Figure 3.13.222-24

Figure 3.13.222-24

If the requested FYM can be approved (Sept/Oct/Nov) and the taxpayer needs to submit Form 8716, process the Form 2553 using the paragraph selection code "B" (PSC). Remember to input the requested FYM, not the required FYM of 12.

When the taxpayer did not qualify for the section 444 FYM, but made a calendar year back-up, deny Form 8716. Leave the paragraph selection code "blank" on the TC090 and CP 261 will generate to notify the corporation of its approval as a S corporation with a calendar tax year.

All Forms 2553 received that will not meet processing time frame guidelines (30 day turnaround), require the input of either a TC 093 (Pending S election) or TC 097 (Referred to Chief Counsel). If there is not a pending S election, input TC 093. If you are referring the Form 2553 to Chief Counsel, input TC 097. TC 093 and TC 097 may be input on the same account. Remember to cycle delay, if necessary.

Transaction Code 093 will provide another IRS employee with the information that a Form 2553 was received in Entity, but a determination has not yet been made. Also the input of TC 093 will eliminate a duplicate count within our inventory.

Care should be taken to input TC 093 and/or TC 097 on the corporation EIN, not on a partnership or individual number.

If TC 093 and TC 090 are input in the same cycle, the TC 090 will post first and the TC 093 will become an UPC 339.

If during the course of working Form 2553 you discover an error on the account (invalid FYM, misapplied payments, etc.) make the necessary corrections.

When a Form SS-4 is attached, or an EIN is required to be assigned, the Form SS-4 should be processed expeditiously for the assignment of a new EIN. You should input TC 093 to indicate that we received the Form 2553. The input for these two document can be entered in the same cycle.

A Form 2553 secured by Examination and routed to the Entity should be processed expeditiously so that Exam can close their case.

If you must return a Form 2553 for a LLC to the taxpayer, input a TC 093, then a TC 092 with Posting Delay Code of 1. Since the TC 092 is currently generating an FRC of 1120–01, also input a TC 016 a Posting Delay Code of 2 to remove the 1120 FRC. DO NOT input a TC 078.

When Chief Counsel receives an amended Form 2553 or Form 1128 used to amend the Form 2553, (taxpayer is changing the FYM shown on the original Form 2553), they will review it for timeliness and forward it to the Campus for consideration and notify the taxpayer it was sent to the Campus.

The instructions to Form 2553 provide that the taxpayer follow-up with the campus in the event he has not received a determination within 3 months or 6 months (if Part II) of mailing Form 2553.

Inquiries meeting Taxpayer Advocate Service criteria should be forwarded to TAS on Form 911 if the issue cannot be resolved the same day . See IRM 13.1.7

If an inquiry is received after the due date and we have no record of receiving Form 2553, ask the taxpayer to resubmit their Form 2553 accompanied with a copy of our letter. Request a response within 30 days from the date of our letter. If a response is not received within 30 days, advise the taxpayer that he no longer qualifies for a timely filed Form 2553 for the current tax year and he may be approved for the following tax year if he submits another Form 2553.

If the taxpayer submits a late reply to the above request, approve the Form 2553 for the current year. Caution should be taken to ensure the use of the appropriate PSC for the notice.

If a separately filed shareholder consent is received from a new shareholder, associate it with the TC 090 DLN.

If the taxpayer submits a Form 2553 with the same effective date as what's on BMF and the election on BMF was approved within the last 45 days, destroy Form 2553. If the taxpayer submits a Form 2553 with the same effective date, and the existing election on BMF was processed more than 45 days ago, send 385C to taxpayer and prepare duplicate Form 2553 for destruction per local procedures.

See chart below for processing duplicate Forms 2553:

The Internal Revenue Code requires the corporation to show if it will make a section 444 election to have an FYM on Form 2553, and to elect a calendar year back-up if the corporation does not qualify for a section 444 election.

If Form 8716 was not filed with Form 2553 process as follows.

A Personal Service Corporation (PSC) that has a section 444 election in effect when it elects to be a S corporation, may continue the section 444 election of the PSC. However, the electing S corporation may not make another section 444 election to have a different tax year. It will be necessary in this situation to input TC 052 to reverse TC 054. Create Dummy 8716 to input TC 055 w/original effective date of TC 054, suppress the CP notice using PSC "Z" and cycle appropriately.

Using CC ENREQ, CC BNCHG, Doc. Code 53, process the denied election as follows. See Figure 3.13.222-25.

Input the following fields:

The following must be annotated on the Form 2553:

Send Form 2553 to files as source document. The input of TC 094 will generate a CP 264, Notification to taxpayer of denial of taxpayer petition to become a S-corporation. See the paragraph selection codes to send the appropriate notice.

If the taxpayer has checked any of the boxes under Part II, Item Q — Business Purpose, prepare a duplicate and transmittal (Form 3210) and route the Form 2553 (copy) to Chief Counsel.

When you prepare Form 3210, you must put your name and phone number on the 3210 as a contact point for chief counsel. Both sides of the form and all attachments must be copied for chief counsel Original documents should be housed in Chief Counsel File in Entity's clerical team..

Input TC 097 (unless an unreversed TC 090 is on the account). A CP 266 will generate with the posting of TC 097. If TC 097 cannot be input, advise the taxpayer of the referral via Letter 86C.

In some instances taxpayers who request a business purpose FYM under Rev. Proc. 2002–38 will contact Chief Counsel withdrawing their request. Chief Counsel will send a copy of their letter to the campus. When these letters are received, Form 2553 should be processed.

If the shareholder's year end is other than a calendar year, research using the TIN shown in Item M. If it does not agree, edit the FYM on Form 2553, Part I, Item F.

The Chief Counsel will send the processing site a copy of the ruling letter.

If a reply is not received from the Chief Counsel, follow-up with Chief Counsel after 120 days. DO NOT SEND COPIES OF Form 2553. Send a memo requesting the status and listing the taxpayer's name, EIN, date sent to Chief Counsel, and the IRS received date. Route to address shown above. Or, follow up telephone contact should be made by lead TE or manager.

If the requested tax year is approved, follow processing procedures in IRM 3.13.222.123. If a back-up section 444 election was made, place a large blue X on Form 8716 and attach it to the back of Form 2553.

If the requested tax year is denied and:

Effective with Forms 2553 postmarked on or after 2–1–88, the IRS will charge a user fee when a ruling is required from Chief Counsel. Rev. Proc. 88-13 advises the taxpayer not to send the payment for the user fee to the campus. In the event the taxpayer sends the payment to the campus, Receipt and Control will return the check or money order to the taxpayer with a letter of explanation (Letter 2340C). When Form 2553 is sent to Entity, it will be notated "UFR" (User Fee Returned).

If the taxpayer's check also included a tax payment, the full amount will be applied to his tax account because Receipt and Control will be unable to return the check or money order. The taxpayer will be notified using Letter 2340C.

The Service may grant relief for inadvertent terminations, and inadvertent invalid elections.

IRC Section 1362(b)(5) allows the service to treat a Form 2553 as timely filed where the election was made after the date prescribed or no such election was made, provided the service determines that there was reasonable cause for the failure (when automatic relief is not available) to timely file the S election.

Section 1362(f) was changed to apply the inadvertent termination relief rules when an election by a corporation to be treated as a small business corporation was invalid due to a failure to meet the requirements of a S corporation or to obtain all of the shareholder consents.

If the taxpayer requests relief for an inadvertent termination or an inadvertent invalid election (when relief under any revenue procedure is not available), under Section 1362(f), advise the taxpayer that a private letter ruling request must be submitted to Chief Counsel.

A private letter ruling for late election relief also will be necessary if the taxpayer cannot obtain relief under Rev. Proc. 2003-43 or Rev. Proc. 97–48. When a private letter ruling is given to allow relief for a late Sub S elections (Form 2553), Area Counsel will forward a copy of the private letter ruling to the entity departments at the campuses. Process the Form 2553 using the instructions for approving Form 2553 elections.

The ruling request must be submitted to the address(es) below:

Input TC 097 (unless there is an unreversed TC 090 on the account). If TC 097 cannot be input, notify the taxpayer of the referral using Letter 86C.

When an approved Private Letter Ruling (PLR) is received by the processing site, prepare a 'dummy' Form 2553 (with the PLR attached) as your source document.

Generally, a re-election can not occur within five years of the termination or revocation of a prior election without requesting the Commissioner's consent. Examine the election for a letter attached by the corporation explaining why their request for re-election should be honored. If none is attached, return Form 2553 and ask for the letter of explanation.

A corporation may, without requesting the Commissioner's consent, make a new election before the five years period expires if the termination occurred, because the corporation

Re-elections requiring the consent of the Commissioner (ie., (2)a or (2)b above do not apply). If the taxpayer is requesting a private letter ruling:

If correspondence questions the effective date, research IDRS and request Form 2553 to determine if a discrepancy exists. Since Entity does not suspend documents, it is imperative that the TE monitor their ESTAB requests to avoid over aged batches.

If effective date was transcribed incorrectly—

Taxpayer inquiries to appeal late replies to Letter 312C should be advised that reasonable cause must be established to appeal. Approve the taxpayer's request if one of the following conditions is met:

If correspondence is received requesting reconsideration of our denial of "reasonable cause" or the taxpayer states Form 2553 was filed timely without the proper documentation, or replied to Letter 312C timely, research the case. If follow-up research indicates the election should be approved, then do so following normal procedures. If research supports the denial of the taxpayers election notify the taxpayer that we have reconsidered their request and are denying their election. Be sure to include the reason(s) we are denying their election.

If the Chief, Examination Division or appropriate office from the area office or the campus submits a memorandum to the Chief, Document Perfection Operation instructing Entity to allow the S election, approve it.

To revoke an election, the corporation files a statement that the corporation revokes the election made under section 1362(a). The revocation statement must include the number of shares of stock (including non-voting stock) issued and outstanding at the time the revocation is made. A revocation may be made only with the consent of shareholders who, at the time the revocation is made, hold more than one-half of the number of issued and outstanding shares of stock (including non-voting stock) of the corporation. Each shareholder who consents to the revocation must consent in the manner required. In addition, each consent should indicate the number of issued and outstanding shares of stock (including non-voting stock) held by each shareholder at the time of the revocation. In addition to the information required above, each shareholder must provide the following:

Prospective Date - Revocations specifying a prospective revocation date. If a corporation specifies a date for revocation and the date is expressed in terms of a stated day, month, and year that is on or after the date the revocation is filed, the revocation is effective on and after the date so specified.

A revocation can occur when an authorized person files a statement of revocation and has written consent of the shareholder(s) who own more than 50% of the number of issued and outstanding shares of the corporation (including non-voting stock).

All revocations received require input of TC 095, pending transaction, on the 15th day if the revocation has not been processed. This transaction code will provide a researcher with information that a revocation (or termination) has not received a determination. Care should be taken to input TC 095 on the correct EIN.

The statement of revocation should be examined for timeliness and completeness.

Timeliness—Research for the FYM. Compare the FYM to the postmark date of the statement of revocation. The revocation must be filed by the 15th day of the third month of the tax year for which it is requested to be effective. See table below.

Completeness—Examine the revocation for the following items:

Research for EIN, FYM, FRC, TC 090 posting, and latest TC150–MFT 02. If the revocation is timely and complete, accept it. If there is an unreversed TC 090 present, and the "Final" Form 1120S is posted:

If the "Final" Form 1120S has not posted:

If a TC 090 is not posted (Form 1120 FRC is present), notify the taxpayer they don't have a S Election.

If the request for reversal (rescission) of a revocation is made before the effective date of the revocation, grant the taxpayer's request. Request a copy of the Form 2553, or ESTAB for original document, and re-input original effective date of Form 2553 (090). Associate rescission with TC 090 DLN. (See completeness procedures).

A S election is terminated when the corporation ceases to meet the requirements of eligibility or excess passive investment income according to IRC Section 1362 (d)(3). The termination is effective on the day the corporation ceases to be eligible for S status. All terminations require the input of TC 095, pending transaction, on the 15th day if the termination has not been processed. This transaction code will provide a researcher with information that a termination is in house, but has not yet been processed.

The following conditions automatically terminate a Subchapter S election:

To be COMPLETE the termination should contain the following:

If the termination is INCOMPLETE, return it to the taxpayer for missing information. Input TC 095.

If you accidently terminate the Subchapter S election by the input of TC 096, re-input a TC 090 (which will go UPC 339. Close the UPC 339 with URC 0.

Process the complete termination as follows:

If a TC 090 is not posted and no previous TC 016, and Form 2553 cannot be located in the Alpha File, prepare a dummy Form 2553 and continue processing.

If the termination was made during the first 6 months of the taxable year, and a TC 096 with BK 95 if prior liability is the required input, TC 096 must be cycled until after the first 26 weeks of the tax year.

Send FTDs using CC FTDRQI whenever applicable.

Remember to use a Paragraph Selection Code "Z" (PSC) whenever a CP Notice should not be sent to the taxpayer. Notify the taxpayer by 326C Letter.

Figure 3.13.222-26

The following are the transaction codes and computer paragraph (CP) notices that will be used in processing Form 2553. The computer paragraph notices are generated from the posting of TC 09X transactions. They are to advise taxpayers of the action being taken. Transaction Codes For Form 2553–CC BNCHG, Doc. Code 53.

CP Notices - Listed in the table below are the generated notices for accepting, revoking, denying, terminating and suspending the Form 2553.

Listed below are the paragraph selection codes for determining which paragraph should be printed in the notice CP 261.

Listed below are the paragraph selection codes for determining what paragraph should be sent out with Notice CP 264:

The following are transaction codes approved for FYM—CC BRCHG:

CP Notices - Listed in the table below are the generated notices for accepting, revoking, denying the fiscal year for Form 2553.

Form 8832 filers must be one of the following:

An investment trust is eligible to file Form 8832. They are classified as single owners.

Certain entities are not entitled to make a classification election on Form 8832. These entities receive what is known as a 'default classification.'

The entities which receive default classifications are:

Form 8832 is due within 75 days of the beginning of the tax period for which the election is being requested. If Form 8832 is not timely filed, the entity may be eligible for relief under a Revenue Procedure (Rev. Proc.), see IRM 3.13.222.126.7 or a Private Letter Ruling (PLR), see IRM 3.13.222.126.7 (2).

The following types of entities are eligible to file Form 8832:

In order for Form 8832 to be considered complete, the following items must be present:

IDRS CC BNCHG and Document Code 53 are used to input the transactions related to Form 8832: TC 076 through TC 078. Use the up/down arrows on your keyboard to get into the field DOC-CD>. Overlay the generated '63' with '53'.

Complete the following fields of IDRS for a TC 076, Accepted Form 8832:

If needed, input a TC 016 via CC BNCHG completing the following fields:

Paragraph Selection Codes (PSC's) are used to determine the language that will be printed in the CP 277. Choose the PSC based on the box marked by the taxpayer in Line 6 of Form 8832: if box 'a' is marked use PSC 'A', if box 'b' is marked use PSC 'B', etc. Below are the paragraphs for each PSC:

Type of Election (TOE):

Form of Election (FOE):

If the Form 8832 is timely, complete and the taxpayer is eligible, process the Form 8832. After the form is processed, ensure both pages of stand alone Forms 8832 and all attachments are photocopied for Ogden SOI. Currently, Ogden SOI retrieves Forms 8832 from Ogden Files and Cincinnati Entity clerks photocopy Forms 8832 and mail to Ogden SOI.

Revenue Procedure 2002–59 extends the time for filing a late initial Form 8832 to the due date of the federal tax return (excluding extensions) of the entity's desired classification for the year of its formation. The entity qualifies for relief if the following conditions are met:

Revenue Procedure 2004–48 provides relief for LLC's that want to become Subchapter S corporations by allowing them to file Form 2553 within six months after the due date of the Form 1120S for the tax period the entity wants to become a S corporation/their first year of existence. Rev. Proc. 2004–48 deems the Form 8832 as filed. It is not necessary for the taxpayer to submit a Form 8832 as we will use a copy of the Form 2553 as the TC 076 source document. The request for relief must contain:

The following entities are not eligible to file Form 8832:

If the entity filing Form 8832 is not eligible, deny Form 8832 and return it to the taxpayer in an appropriate letter. Complete the following fields in CC BNCHG:

It may be necessary to input a TC 016 to update the entity's FYM and Filing Requirement Code (FRC) for the next return due.

Use the following IF, AND, THEN chart to process Form 8832 with a missing or invalid EIN:

If Line 8 (effective date) is blank, edit the earliest IRS received date as the effective date.

If Form 8832 is not complete and the information cannot be obtained through IDRS research, deny Form 8832 and return it to the taxpayer in an appropriate letter. Be sure to inform the taxpayer that their Form 8832 must be timely filed in order to be accepted. Complete the following fields in CC BNCHG:

It may be necessary to input a TC 016 to update the entity's FYM and Filing Requirement Code (FRC) for the next return due.

Correspondence may be received indicating Form 8832 was filed in error and the taxpayer wants to automatically default to the classification of partnership or disregarded entity. This request must be received by the due date of the original classification election.

If the request is received by due date of the original Form 8832, input TC 077 via CC BNCHG with the following fields completed:

If the request to withdraw was not received before the due date of the election and the initial election is effective for the first day of the LLC's existence, notify the taxpayer they must file a timely Form 8832 electing to change their classification for the next tax year.

If the request to withdraw was not received before the due date of the election and the effective date is not for the first day of the LLC's existence, notify the taxpayer they cannot change their classification for 60 months without a waiver from Chief Counsel.

If the entity has made a Subchapter S election and they now want to revert to a default classification, the Subchapter S election automatically terminates and the following action should be taken:

When a LLC files Form 2553, it is not necessary for them to also submit a Form 8832. If you receive a Form 8832 with a timely filed Form 2553, use the Form 8832 as the 'source document' for the TC 076.

The majority of foreign entities that file Form 8832 are owned by an American entity. The documents filed on behalf of the foreign entities are listed below and are filed with the American owner's annual return.

Undelivered correspondence initiated by Entity Unpostables will be returned to Entity Unpostables for research and correction of entity data. CC INOLE can be used to try to locate a different address. Use the following procedures:

Undeliverable Federal Deposit Books (FTD's) returned by the US Post Office as undeliverable mail will be sent to Entity Unpostables. Entity Unpostables will check for a new address. Process as follows: