The question of whether the federal government requires a “wet signature” when submitting an Election by a Small Business Corporation (S election) or a Qualified Subchapter S Subsidiary Election (QSub election) has confused taxpayers and tax practitioners alike—with good reason.
The question comes up frequently—for example, when forming a new S corporation, forming a new QSub, or structuring an F reorganization pursuant to Rev. Rul. 2008-18. But there is little to no guidance that clarifies the signature requirements for such forms. Historically, the IRS has required hand-written, or original, signatures to make such tax elections, but it’s been unclear whether original signatures were required to be wet.
When looking to answer any tax question, we must first look to the Internal Revenue Code and Treasury Regulations. Treas. Reg. 1.1362-6(a)(1) and 1.1361-3(a)(2) simply require that a S election or QSub election must be signed by whomever is authorized to sign the S corporation’s tax return. An authorized person generally means a company’s president, vice president, treasurer, assistant treasurer, or the chief accounting officer, under Treas. Reg. 1.6062-1(a)(1).
But is a wet signature required, or would a faxed signature, photocopied signature, or an electronic signature be sufficient? If a taxpayer signed a QSub election, faxed it to its tax lawyer, and the tax lawyer printed and mailed the election to the IRS, would the signature meet the requirements of Treas. Reg. 1.1362-6(a)(1)? The tax code and regulations are silent on this issue.
The IRS has implied that Section 6061 and Section 6065 require wet signatures on all documents unless otherwise indicated, pursuant to Rev. Proc. 78-29, SCA 200137053, and SCA 200117036. However, they do give the IRS broad discretion to prescribe the signature requirements for any return, election, or other document.
This allows the IRS to prescribe faxed signatures on returns, elections, or other documents, such as an S election or a QSub election, pursuant to SCA 200117036 and CCA 200518079. This policy aims to reduce the administrative burden for the IRS and the taxpayer, as well as the time it takes to resolve taxpayer cases and inquiries, pursuant to CCA 201125022 and generally Rev. Proc. 2005-39.
While the IRS has, for lack of a better term, hidden the ball with respect to S election and QSub election signature requirements, a few nontraditional sources of guidance can shed some light on the rules. The IRS manual’s Section 126.96.36.199 (01-01-2023) states that “a faxed signature is acceptable on Form 2553 [and] Form 8869.” While the manual generally dictates the conduct of the IRS, the manual itself isn’t legally binding under United States v. Horne. But the manual’s position is reiterated in multiple non-precedential—but insightful—pieces of guidance.
In agreement with the IRS manual, CCA 200912026 states that “a facsimile signature is an exception to the general rule of requiring a manual signature.” And in CCA 201125022, the IRS concluded that “faxed signatures are legally sufficient” and therefore equivalent to an original signature for purposes of filing Form 2553. In SCA 200117036, the IRS came to the same conclusion, holding that a faxed signature is simply a copy of the original signature, and therefore qualifies as an original signature under Sections 6061 and 6065.
SCA 200117036 also suggests that a photocopy of an original signature should be treated the same as a faxed signature because a photocopy, like a fax, is simply a copy of an original signature. This position is supported by PLR 201917004, Rev. Proc. 2015-13, and PLR 201314016, where the IRS similarly concluded that it would accept an “original signature or a photocopy of the original signature.” This is not a new position—in the 1970s, in PLR 7723032, the IRS treated a fax and a photocopy as the same when analyzing original signatures.
Now that we have established the IRS’ position on faxed signatures, one may think an electronic signature should be sufficient as well. But as illustrated above, there is a lack of clear guidance in this area, so taxpayers and practitioners must read through the lines to properly comply with the rules.
In August 2020, the IRS issued a notice holding that certain documents may be submitted with electronic or digital signatures due to the Covid-19 pandemic. While the notice included about 40 different returns, elections, and other documents that now could be signed electronically (that historically could not), notably absent from the list were Forms 2553 and 8869—the S election and QSub election forms. This indicates that e-signatures for S elections and QSub elections haven’t been blessed by the IRS just yet, and taxpayers and tax practitioners should continue to only use wet signatures, faxed signatures, or photocopies of signatures to ensure compliance.
All available guidance shows that a faxed signature or a photocopy of a wet signature should satisfy the original signature requirements to file an S election or QSub election. This should come as a relief for taxpayers and tax practitioners alike, since it allows them to avoid the hassle of obtaining and mailing in wet signatures.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Zachary M. Nolan is a tax counsel at Greenberg Glusker in Los Angeles who advises clients on a wide range of federal, state, and international tax issues, including entity selection and formation, financing, restructurings, mergers and acquisitions, cross-border planning, and tax-efficient dissolution.
Sally C. James is a corporate partner at Greenberg Glusker, primarily in the entertainment industry. She handles large film finance and M&A transactions for established Hollywood brands and negotiates deals for entertainment start-ups.
Michael Wiener is a partner in Greenberg Glusker’s corporate, finance and securities practice group. His practice focuses on structuring real estate and corporate transactions in a tax-efficient manner.
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