Published by AE Tax Advisors Team • 2026-04-20

Missed S-Corp Election Backdated -- $45,000 Recovered

The Client

Alicia Fernandez, a freelance marketing strategist in Miami, Florida, formed an LLC in 2021 intending to elect S-Corp status. However, her accountant at the time never filed Form 2553, and Alicia continued paying self-employment tax on her entire $280,000 of annual net income for three years -- unaware the election had not been made.

The Problem

Without the S-Corp election, Alicia paid full self-employment tax on $280,000 per year -- approximately $31,400 annually, or $94,200 over three years. Had the S-Corp election been in place with a reasonable salary of $120,000, the self-employment tax savings would have been approximately $15,000 per year.

Our Strategy

We filed Form 2553 with a reasonable cause statement requesting late election relief under Revenue Procedure 2013-30. The IRS grants relief when the taxpayer intended to make the election and failed to do so solely through inadvertence. We documented Alicia's original intent, her accountant's oversight, and the fact that she had been operating as if the election were in place. We then amended the three prior-year returns to reflect S-Corp treatment.

The Results

The IRS granted late election relief, and the three amended returns recovered $45,000 in overpaid self-employment taxes. Alicia also received interest on the overpayments. Going forward, the S-Corp structure saves her $15,000 per year in SE taxes.

Key Takeaway

If your accountant intended to file an S-Corp election but never did, the IRS provides a path to backdate it with reasonable cause. The recovery potential can be significant -- three years of overpaid SE taxes can add up to tens of thousands of dollars.