Rev. Proc. 2004-35

26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of correct tax liability.
(Also Part I, §§ 1362; 1.1362–6.)

Rev. Proc. 2004–35
SECTION 1. PURPOSE
This revenue procedure provides automatic relief for certain taxpayers requesting relief for late shareholder consents
for S corporation elections in community
property states.
SECTION 2. BACKGROUND
Section 1361(a)(1) of the Internal Revenue Code defines an “S corporation,”
with respect to any taxable year, as a small
business corporation for which an S corporation election under section 1362(a) is
in effect for that year.
Section 1362(a)(2) provides that an
election to be an S corporation shall be
valid only if all persons who are shareholders in the corporation on the day on
which the election is made consent to the
election.
Section 1.1362–6(b)(2)(i) of the Income Tax Regulations provides that when
stock of the corporation is owned by husband and wife as community property
(or the income from the stock is community property), each person having a
community interest in the stock or income
therefrom must consent to the election.
Section 1.1362–6(b)(3)(iii) provides
that an election that is timely filed for any
taxable year and that would be valid except
for the failure of any shareholder to file a
timely consent is not invalid if consents
are filed and it is shown to the satisfaction of the service center with which the
corporation files its income tax return that
(1) there was reasonable cause for the failure to file the consent, (2) the request for
the extension of time to file a consent is
made within a reasonable time under the
circumstances, and (3) the interests of the
Government will not be jeopardized by
treating the election as valid.
SECTION 3. SCOPE
This revenue procedure provides automatic relief for late filing of share-

June 7, 2004

holder consents for spouses of S corporation shareholders in community property
states.
A corporation that does not meet the requirements for relief or is denied relief under this revenue procedure may request relief under § 1.1362–6(b)(3)(iii). The corporation may also request inadvertent invalid election relief by requesting a letter
ruling. The procedural requirements for
requesting a letter ruling are described in
Rev. Proc. 2004–1, 2004–1 I.R.B. 1 (or its
successor).
SECTION 4. AUTOMATIC RELIEF
FOR LATE SHAREHOLDER
CONSENTS UNDER THIS REVENUE
PROCEDURE
.01 Eligibility for Automatic Relief. Automatic relief is available if all of the following conditions are met:
(1) The S corporation election is invalid
solely because the Form 2553, Election by
a Small Business Corporation, failed to include the signature of a community property spouse who was a shareholder solely
pursuant to state community property law;
and
(2) Both spouses have reported all items
of income, gain, loss, deduction or credit
consistent with the S corporation election
on all affected federal income tax returns.
.02 Procedural Requirements for Automatic Relief. The corporation must file
with the service center with which the corporation files its income tax return a dated
statement that includes the following information:
(1) A representation that reads, “This
statement is being furnished pursuant to
Rev. Proc. 2004–35 for a late filing of
shareholder consents for community property spouses of S corporation shareholders
in community property states.”
(2) The name of the corporation, its employer identification number, its address,
date of incorporation, state of incorporation, and the intended effective date of its
initially filed Form 2553;
(3) Each spouse’s name, social security
number or employee identification number, tax year end and the total number of
shares owned at the date of the intended
election;
(4) A statement that the community
property spouses reported all items of

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income, gain, loss, deduction or credit
consistent with the S corporation election
on all affected returns;
(5) A signed statement from each of the
community property spouses that reads,
“Under penalties of perjury, I, [name of
community property spouse], declare that
I consent to the election to treat [name of
S corporation] to be an S corporation under section 1362(a) of the Internal Revenue Code as of [the date that the S corporation intended to be an S corporation]
and to the best of my knowledge and belief, the facts presented in support of this
election are true, correct, and complete.”
.03 Relief for Failure to File Timely
Shareholder Consent to S Corporation
Elections. A shareholder that satisfies
the requirements of section 4.01 of this
revenue procedure will be deemed (1) to
have reasonable cause for the failure to
consent to the S corporation elections, (2)
to have made the request for the extension
of time to file a consent within a reasonable time under the circumstances, and
(3) to have satisfied the requirement that
the interests of the Government will not
be jeopardized by treating the election as
valid. Accordingly, the shareholder will
automatically be granted relief to file the
late shareholder consent. The Service will
notify the shareholder of the acceptance
of the shareholder’s request to file the late
shareholder consent or of the denial of
a request that fails to satisfy the requirements of this revenue procedure.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
all applications for relief satisfying the
requirements of section 4 of this revenue
procedure, including those applications
now being considered by the Service.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1886.
An agency may not conduct or sponsor,
and a person is not required to respond

2004-23 I.R.B.

to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
revenue procedure are in section 4.02.
This information is required to be submitted to the applicable service center in
order to obtain relief for late elections
under subchapter S. This information will
be used to determine whether the eligibility requirements for obtaining relief have
been met. The collection of information is
required to obtain a benefit. The likely respondents are business or other for-profit
institutions.

2004-23 I.R.B.

The estimated total annual reporting
burden is 500 hours.
The estimated annual burden per respondent varies from .5 hours to 7 hours,
depending on individual circumstances,
with an estimated average burden of 1
hour to complete the statement. The estimated number of respondents is 200.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return

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information are confidential, as required
by 26 U.S.C. 6103.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Jason T. Smyczek of the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries.) For
further information regarding this revenue
procedure, contact Mr. Smyczek at (202)
622–3050 (not a toll-free call).

June 7, 2004