What Form 2553 is for
Form 2553 is how a corporation, or an entity eligible to be treated as a corporation, makes the election under section 1362(a) to be an S corporation. The income of an S corporation generally is taxed to the shareholders rather than to the corporation itself, though an S corporation may still owe tax on certain income.
You can only make the election if the business meets every test the IRS lists. That means 100 shareholders or fewer, one class of stock, no nonresident alien shareholders, and a permitted tax year. Every shareholder has to consent, and a corporate officer has to sign. An eligible entity that qualifies does not need to file Form 8832.
Who can elect S corporation status?
Your business qualifies only if it meets all of the tests. It has to be a domestic corporation or a domestic entity eligible to elect to be treated as a corporation. It can have no more than 100 shareholders, and for that test you can count an individual and their spouse as one shareholder and all members of a family as one shareholder. Shareholders must be individuals, estates, exempt organizations described in section 401(a) or 501(c)(3), or certain trusts described in section 1361(c)(2)(A).
There can be no nonresident alien shareholders, other than as potential current beneficiaries of an ESBT, and only one class of stock, ignoring differences in voting rights. The corporation also has to have or adopt a permitted tax year: a year ending December 31, a natural business year, an ownership tax year, a year elected under section 444, a 52-53 week year tied to one of those, or any year it can establish a business purpose for.
- A bank or thrift institution using the reserve method of accounting for bad debts under section 585 cannot elect
- An insurance company subject to tax under subchapter L cannot elect
- A domestic international sales corporation (DISC) or former DISC cannot elect
- Each shareholder must consent as explained for column K
When do you file Form 2553?
File it no more than 2 months and 15 days after the beginning of the tax year you want the election to take effect, or at any time during the tax year before the one it takes effect. The 2 month period begins on the day of the month your tax year begins and ends with the close of the day before the numerically matching day of the second calendar month after that. If there is no matching day, use the close of the last day of that month.
The instructions walk through three cases. A calendar year corporation that begins its first tax year on January 7 can file from January 7 through March 21. A corporation that has been filing Form 1120 and wants S status for its next year beginning January 1 can file from January 1 of its last C corporation year through March 15. A corporation whose first tax year begins November 8 can file from November 8 through January 22. With no prior tax year, an election filed before the year starts is not valid.
What if you file Form 2553 late?
A late election generally takes effect for the tax year following the tax year that begins on the date you entered on line E. Relief may be available if you can show the failure to file on time was due to reasonable cause. Write FILED PURSUANT TO REV. PROC. 2013-30 in the top margin of the first page of Form 2553. Explain your reasonable cause and the diligent actions you took to fix the mistake on line I or in an attached statement.
The main relief route asks that Form 2553 be filed within 3 years and 75 days of the date on line E, and that every shareholder from that stretch of time state that they reported income consistent with S corporation status. Column K covers that statement. Past that window, relief can still be requested if the corporation and shareholders reported income consistently, at least 6 months have passed since the first year's return was filed, and no one was notified by the IRS of a problem with S status within 6 months of that filing.
The election can be filed with the current Form 1120-S if all earlier Forms 1120-S have been filed, or attached to the first Form 1120-S for the year that includes the effective date when it goes in with any other delinquent Forms 1120-S. It can also be filed on its own. If a late entity classification election is meant to take effect on the same date, Part IV representations apply.
Where do you send Form 2553?
Send the original election, no photocopies, or fax it to the Internal Revenue Service Center for the state where the corporation's principal business, office, or agency is located. If you file by fax, keep the original Form 2553 with the corporation's permanent records. You can also use a private delivery service designated by the IRS, and the service can tell you how to get written proof of the mailing date. Certain late elections can be filed attached to Form 1120-S instead.
- Kansas City, MO 64999, fax 855-887-7734: Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin
- Ogden, UT 84201, fax 855-214-7520: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming
What happens after you file?
The service center will notify the corporation if the election is accepted and when it takes effect, and also if it is not accepted. You should generally get a determination within 60 days of filing. If box Q1 in Part II is checked, you will get a ruling letter that approves or denies the tax year you picked, and acceptance of Form 2553 generally takes another 90 days. Call 1-800-829-4933 if you have not heard anything within 2 months of the date you faxed or mailed it, or within 5 months when box Q1 is checked.
Do not file Form 1120-S for any tax year before the year the election takes effect. Keep filing Form 1120 or any other return that applies until then. Once the election is made, it stays in effect until it is terminated or revoked. After that, IRS consent generally is required for another election on Form 2553 for any tax year before the 5th tax year following the first tax year the termination or revocation took effect.
- Proof of filing can be a certified or registered mail receipt that was timely postmarked, or the equivalent from a designated private delivery service
- A Form 2553 with an accepted stamp works as proof
- A Form 2553 with a stamped IRS received date works as proof
- An IRS letter stating the form has been accepted works as proof
What if you want a fiscal tax year?
Check box (2) or (4) in item F and complete Part II. Item O says whether you are a new corporation adopting the tax year, an existing corporation keeping it, or an existing corporation changing to it. Item P is for automatic approval of a natural business year or an ownership tax year under Rev. Proc. 2006-46. A natural business year claim needs a statement showing gross receipts month by month for the most recent 47 months, so a corporation without a 47 month record of gross receipts cannot use it.
Item Q asks for a fiscal year based on a business purpose, and checking box Q1 brings a user fee of $6,200. Do not pay the fee when you file. The service center sends the form to the IRS in Washington, DC, and the corporation is then notified that the fee is due. Item R makes a regular section 444 election, which requires Form 8716 either attached to Form 2553 or filed separately.
Form 2553 line by line
| Line | What goes there |
|---|---|
| A | Your employer identification number. With no EIN yet, apply online or with Form SS-4, and enter Applied For plus the date you applied. |
| E | The date the election starts. A first year corporation enters the earliest of the date it first had shareholders, first had assets, or began business. |
| F | Your selected tax year: calendar year, fiscal year ending, or a 52-53 week year. Boxes (2) and (4) also require Part II. |
| H | Name and title of the officer or legal representative the IRS may call for more information, plus a telephone number. |
| I | Your reasonable cause explanation for a late election, and a description of what you did to correct the mistake after finding it. |
| Sign Here | Signature, title, and date from the president, vice president, treasurer, assistant treasurer, chief accounting officer, or another authorized officer. |
| J | Name and address of each shareholder or former shareholder required to consent. For a disregarded single member LLC, enter the owner's name and address. |
| K | Each shareholder signs and dates here to consent to the election. A separate consent statement attached to the form does the same job. |
| L | Shares each shareholder owns on the date you file and the dates acquired. Enter -0- for former shareholders. An entity without stock enters percentage. |
| M | The social security number of each individual listed in column J, or the EIN of each estate, qualified trust, or exempt organization. |
| N | The month and day each shareholder's tax year ends. A shareholder changing years enters the new year and attaches an explanation. |
| Part II | Fiscal tax year details. Everyone using this part completes item O and item P, Q, or R. |
| Part III | The QSST election by the income beneficiary, usable only if stock went to the trust on or before the date the corporation makes its S election. |
| Part IV | Representations for a late entity classification election meant to be effective on the same date as the late S corporation election. |
Source: IRS, Form 2553 (Rev. Dec 2017) and Instructions for Form 2553, Election by a Small Business Corporation. This page explains the form in plain English. It is not tax advice.