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Choosing the right tax classification for a business can have lasting effects on its financial well-being and operational capabilities. Among the critical steps for certain business entities, particularly those considering the S corporation status, is the completion and submission of the IRS 2553 form, which is officially known as the "Election by a Small Business Corporation." This form is pivotal for businesses that aim to change their tax status to that of an S corporation, which can offer various tax advantages, including pass-through taxation. This means that the corporation itself is not taxed at the federal level; instead, its income, losses, deductions, and credits are passed through to its shareholders, who then report these items on their individual tax returns. It is a beneficial move for many businesses, but it requires timely and accurate filing. The form necessitates detailed information about the corporation, its shareholders, and the specific tax year for the election. The process of electing S corporation status is governed by strict IRS regulations, including precise deadlines and eligibility criteria, underscoring the importance of a carefully managed submission. Given these complexities, understanding the nuances of the IRS 2553 form is an essential step toward making an informed decision about a business's tax status and ensuring compliance with IRS requirements.

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Note: Form 2553 begins on the next page.

Where To File Form 2553 after 6/17/19

If the corporation’s principal business, office,

Use the following address

or agency is located in

or fax number

 

 

Connecticut, Delaware, District of Columbia,

Department of the Treasury

Georgia, Illinois, Indiana, Kentucky, Maine,

Internal Revenue Service

Maryland, Massachusetts, Michigan, New

Kansas City, MO 64999

Hampshire, New Jersey, New York, North Carolina,

 

Ohio, Pennsylvania, Rhode Island, South Carolina,

 

Tennessee, Vermont, Virginia, West Virginia,

Fax # 855-887-7734

Wisconsin

 

 

 

Alabama, Alaska, Arizona, Arkansas, California,

Department of the Treasury

Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,

Internal Revenue Service

Louisiana, Minnesota, Mississippi, Missouri,

Ogden, UT 84201

Montana, Nebraska, Nevada, New Mexico, North

 

Dakota, Oklahoma, Oregon, South Dakota, Texas,

 

Utah, Washington, Wyoming

Fax # 855-214-7520

 

 

Form 2553

(Rev. December 2017)

Department of the Treasury Internal Revenue Service

Election by a Small Business Corporation

(Under section 1362 of the Internal Revenue Code)

(Including a late election filed pursuant to Rev. Proc. 2013-30)

▶You can fax this form to the IRS. See separate instructions.

▶Go to www.irs.gov/Form2553 for instructions and the latest information.

OMB No. 1545-0123

Note: This election to be an S corporation can be accepted only if all the tests are met under Who May Elect in the instructions, all shareholders have signed the consent statement, an officer has signed below, and the exact name and address of the corporation (entity) and other required form information have been provided.

Part I

 

Election Information

 

 

 

 

 

 

Name (see instructions)

A Employer identification number

Type

 

 

 

 

 

 

Number, street, and room or suite no. If a P.O. box, see instructions.

B Date incorporated

 

or

 

 

 

 

 

 

 

 

 

Print

 

 

 

 

 

 

City or town, state or province, country, and ZIP or foreign postal code

C State of incorporation

 

 

 

 

 

 

 

 

 

 

 

D

Check

the applicable box(es) if the corporation (entity), after applying for the EIN shown in A above, changed its

name or

address

EElection is to be effective for tax year beginning (month, day, year) (see instructions) . . . . . . ▶

Caution: A corporation (entity) making the election for its first tax year in existence will usually enter the beginning date of a short tax year that begins on a date other than January 1.

FSelected tax year:

(1) Calendar year

(2) Fiscal year ending (month and day) ▶

(3) 52-53-week year ending with reference to the month of December

(4) 52-53-week year ending with reference to the month of ▶

If box (2) or (4) is checked, complete Part II.

GIf more than 100 shareholders are listed for item J (see page 2), check this box if treating members of a family as one shareholder results in no more than 100 shareholders (see test 2 under Who May Elect in the instructions) ▶

HName and title of officer or legal representative whom the IRS may call for more information

Telephone number of officer or legal representative

IIf this S corporation election is being filed late, I declare I had reasonable cause for not filing Form 2553 timely. If this late election is being made by an entity eligible to elect to be treated as a corporation, I declare I also had reasonable cause for not filing an entity classification election timely and the representations listed in Part IV are true. See below for my explanation of the reasons the election or elections were not made on time and a description of my diligent actions to correct the mistake upon its discovery. See instructions.

 

Under penalties of perjury, I declare that I have examined this election, including accompanying documents, and, to the best of my

Sign knowledge and belief, the election contains all the relevant facts relating to the election, and such facts are true, correct, and complete.

Here

▲Signature of officer

 

 

 

Title

Date

For Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 18629R

Form 2553 (Rev. 12-2017)

Form 2553 (Rev. 12-2017)

Page 2

Name

Employer identification number

Part I Election Information (continued) Note: If you need more rows, use additional copies of page 2.

J

Name and address of each

shareholder or former shareholder required to consent to the election.

(see instructions)

K

Shareholder’s Consent Statement

Under penalties of perjury, I declare that I consent to the election of the above-named corporation (entity) to be an S corporation under section 1362(a) and that I have examined this consent statement, including accompanying documents, and, to the best of my knowledge and belief, the election contains all the relevant facts relating to the election, and such facts are true, correct, and complete. I understand my consent is binding and may not be withdrawn after the corporation (entity) has made a valid election. If seeking relief for a late filed election, I also declare under penalties of perjury that I have reported my income on all affected returns consistent with the S corporation election for the year for which the election should have been filed (see beginning date entered on line E) and for all subsequent years.

Signature

Date

L

Stock owned or

percentage of ownership

(see instructions)

Number of

 

shares or

 

percentage

Date(s)

of ownership

acquired

M

 

Social security

 

number or

N

employer

Shareholder’s

identification

tax year ends

number (see

(month and

instructions)

day)

Form 2553 (Rev. 12-2017)

Form 2553 (Rev. 12-2017)

Page 3

Name

 

Employer identification number

 

 

Part II

Selection of Fiscal Tax Year (see instructions)

 

Note: All corporations using this part must complete item O and item P, Q, or R.

 

O Check the applicable box to indicate whether the corporation is:

 

1.

A new corporation adopting the tax year entered in item F, Part I.

 

2.

An existing corporation retaining the tax year entered in item F, Part I.

 

3.

An existing corporation changing to the tax year entered in item F, Part I.

 

PComplete item P if the corporation is using the automatic approval provisions of Rev. Proc. 2006-46, 2006-45 I.R.B. 859, to request (1) a natural business year (as defined in section 5.07 of Rev. Proc. 2006-46) or (2) a year that satisfies the ownership tax year test (as defined in section 5.08 of Rev. Proc. 2006-46). Check the applicable box below to indicate the representation statement the corporation is making.

1. Natural Business Year ▶

I represent that the corporation is adopting, retaining, or changing to a tax year that qualifies

as its natural business year (as defined in section 5.07 of Rev. Proc. 2006-46) and has attached a statement showing separately for each month the gross receipts for the most recent 47 months. See instructions. I also represent that the corporation is not precluded by section 4.02 of Rev. Proc. 2006-46 from obtaining automatic approval of such adoption, retention, or change in tax year.

2. Ownership Tax Year ▶

I represent that shareholders (as described in section 5.08 of Rev. Proc. 2006-46) holding more

than half of the shares of the stock (as of the first day of the tax year to which the request relates) of the corporation have the same tax year or are concurrently changing to the tax year that the corporation adopts, retains, or changes to per item F, Part I, and that such tax year satisfies the requirement of section 4.01(3) of Rev. Proc. 2006-46. I also represent that the corporation is not precluded by section 4.02 of Rev. Proc. 2006-46 from obtaining automatic approval of such adoption, retention, or change in tax year.

Note: If you do not use item P and the corporation wants a fiscal tax year, complete either item Q or R below. Item Q is used to request a fiscal tax year based on a business purpose and to make a back-up section 444 election. Item R is used to make a regular section 444 election.

QBusiness Purpose—To request a fiscal tax year based on a business purpose, check box Q1. See instructions for details including payment of a user fee. You may also check box Q2 and/or box Q3.

1. Check here ▶ if the fiscal year entered in item F, Part I, is requested under the prior approval provisions of Rev. Proc. 2002-39, 2002-22 I.R.B. 1046. Attach to Form 2553 a statement describing the relevant facts and circumstances and, if applicable, the gross receipts from sales and services necessary to establish a business purpose. See the instructions for details regarding the gross receipts from sales and services. If the IRS proposes to disapprove the requested fiscal year, do you want a conference with the IRS National Office?

Yes

No

2.Check here ▶ to show that the corporation intends to make a back-up section 444 election in the event the corporation’s business purpose request is not approved by the IRS. See instructions for more information.

3.Check here ▶ to show that the corporation agrees to adopt or change to a tax year ending December 31 if necessary for the IRS to accept this election for S corporation status in the event (1) the corporation’s business purpose request is not approved and the corporation makes a back-up section 444 election, but is ultimately not qualified to make a section 444 election, or (2) the corporation’s business purpose request is not approved and the corporation did not make a back-up section 444 election.

RSection 444 Election—To make a section 444 election, check box R1. You may also check box R2.

1.Check here ▶ to show that the corporation will make, if qualified, a section 444 election to have the fiscal tax year shown in item F, Part I. To make the election, you must complete Form 8716, Election To Have a Tax Year Other Than a Required Tax Year, and either attach it to Form 2553 or file it separately.

2.Check here ▶ to show that the corporation agrees to adopt or change to a tax year ending December 31 if necessary for the IRS to accept this election for S corporation status in the event the corporation is ultimately not qualified to make a section 444 election.

Form 2553 (Rev. 12-2017)

Form 2553 (Rev. 12-2017)

Page 4

Name

Employer identification number

Part III Qualified Subchapter S Trust (QSST) Election Under Section 1361(d)(2)* Note: If you are making more than

one QSST election, use additional copies of page 4.

Income beneficiary’s name and address

Social security number

Trust’s name and address

Employer identification number

Date on which stock of the corporation was transferred to the trust (month, day, year) . . . . . . . . ▶

In order for the trust named above to be a QSST and thus a qualifying shareholder of the S corporation for which this Form 2553 is filed, I hereby make the election under section 1361(d)(2). Under penalties of perjury, I certify that the trust meets the definitional requirements of section 1361(d)(3) and that all other information provided in Part III is true, correct, and complete.

Signature of income beneficiary or signature and title of legal representative or other qualified person making the election

 

Date

*Use Part III to make the QSST election only if stock of the corporation has been transferred to the trust on or before the date on which the corporation makes its election to be an S corporation. The QSST election must be made and filed separately if stock of the corporation is transferred to the trust after the date on which the corporation makes the S election.

Part IV Late Corporate Classification Election Representations (see instructions)

If a late entity classification election was intended to be effective on the same date that the S corporation election was intended to be effective, relief for a late S corporation election must also include the following representations.

1The requesting entity is an eligible entity as defined in Regulations section 301.7701-3(a);

2The requesting entity intended to be classified as a corporation as of the effective date of the S corporation status;

3The requesting entity fails to qualify as a corporation solely because Form 8832, Entity Classification Election, was not timely filed under Regulations section 301.7701-3(c)(1)(i), or Form 8832 was not deemed to have been filed under Regulations section 301.7701-3(c)(1)(v)(C);

4The requesting entity fails to qualify as an S corporation on the effective date of the S corporation status solely because the S corporation election was not timely filed pursuant to section 1362(b); and

5a The requesting entity timely filed all required federal tax returns and information returns consistent with its requested classification as an S corporation for all of the years the entity intended to be an S corporation and no inconsistent tax or information returns have been filed by or with respect to the entity during any of the tax years, or

bThe requesting entity has not filed a federal tax or information return for the first year in which the election was intended to be effective because the due date has not passed for that year’s federal tax or information return.

Form 2553 (Rev. 12-2017)

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Document Attributes

Fact Number Detail
1 The IRS 2553 form is used by small businesses to elect S corporation status for tax purposes.
2 S corporation status allows companies to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
3 Shareholders of an S corporation report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.
4 To be eligible for S corporation status, a company must meet several IRS requirements, such as having only allowable shareholders, which include individuals, certain trusts, and estates, and not partnerships, corporations, or non-resident alien shareholders.
5 The form must be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.
6 There is no filing fee for IRS Form 2553.
7 If a business fails to file the form on time, it may lose its S corporation status and will be taxed as a C corporation.
8 Some states require a separate state-level S corporation election; the necessity for this and the governing laws vary by state.
9 An S corporation can have no more than 100 shareholders.
10 S corporations can only have one class of stock.

How to Fill Out IRS 2553

After deciding that an S corporation is the right choice for your business structure, the next step is filling out the IRS Form 2553. This form is essential for businesses that want to change their tax status to be treated as an S corporation, which can offer benefits in how profits and losses are taxed. The following steps will guide you through the process of completing the form accurately. By following these instructions, you can ensure that the IRS has all the information needed to process your request without unnecessary delays.

  1. Begin by obtaining the most recent version of the IRS Form 2553 from the IRS website to ensure you have the current form.
  2. Enter the name of your corporation in the designated space at the top of the form.
  3. Provide your corporation's Employer Identification Number (EIN) next to the name.
  4. Fill in the address of the corporation, including the city, state, and ZIP code.
  5. Add the date the corporation was incorporated and the state in which it was incorporated.
  6. Check the appropriate tax year calendar box that applies to your corporation.
  7. If your corporation has more than one class of stock, you'll need to include additional statements with the form; otherwise, affirm that your corporation has only one class of stock.
  8. List all shareholders, their addresses, and their Social Security Numbers or EINs. Ensure that each shareholder consents to the election; they can do this by signing the form or you can attach separate consent statements.
  9. Designate a tax year end date if your corporation will have a fiscal year end rather than a calendar year end.
  10. Sign and date the form. An officer of the corporation who has the authority to sign should do this. Include the officer's title next to the signature.
  11. Review the form and attached documents for completeness and accuracy before submission. Missing information or errors can lead to processing delays.
  12. Submit the form to the IRS. You can find the appropriate address or fax number for Form 2553 submission on the IRS website. The submission method may depend on the state in which your corporation is located.

After you've submitted the form, it's a waiting game, but you can be proactive during this time. The IRS will review your Form 2553, and if all is in order, your corporation's election to be taxed as an S corporation will be approved. This could take several weeks, so patience is key. In some cases, the IRS may reach out if they need additional information or clarification. It's essential to respond promptly to any such requests. Once approved, you'll receive a confirmation letter from the IRS, and your election will be in effect for the tax year specified on your Form 2553. Congratulations, your corporation is now on its way to being taxed as an S corporation!

More About IRS 2553

  1. What is the IRS 2553 form used for?

    The IRS 2553 form, also known as the Election by a Small Business Corporation form, is used by small businesses to elect to be treated as an S corporation for tax purposes. This election allows the corporation's profits and losses to be passed directly to the shareholders' personal income, preventing double taxation that occurs with C corporations.

  2. Who needs to file the IRS 2553 form?

    Corporations that wish to be taxed as S corporations must file the IRS 2553 form. The form must be signed by all shareholders, indicating their consent to the S corporation election.

  3. When is the deadline to file form 2553?

    The form 2553 must be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect. For a newly formed corporation, it's within two months and 15 days of its creation. If a corporation misses this deadline, they can still file the form late under certain circumstances, provided they meet the IRS's criteria for reasonable cause for late filing.

  4. Can the IRS 2553 form be filed electronically?

    As of the current knowledge cutoff date, the IRS does not allow the form 2553 to be filed electronically. Businesses must mail the completed form to the appropriate IRS service center. It is recommended to send it via a method that provides a delivery receipt.

  5. What information is required on form 2553?

    The form requires detailed information about the corporation, including its name, address, date of incorporation, and employer identification number (EIN). Additionally, it requires the consent of all shareholders with their names, addresses, and Social Security numbers or EINs. The specific tax year for the S corporation election to take effect must also be indicated.

  6. What are the eligibility requirements for filing IRS 2553?

    To be eligible for S corporation status, a corporation must meet the following criteria: have only allowable shareholders, including individuals, certain trusts, and estates; have no more than 100 shareholders; have only one class of stock; and be a domestic corporation. Additionally, all shareholders must consent to the election.

  7. How long does it take for the IRS to process form 2553?

    The IRS typically processes form 2553 within 60 days. However, processing times can vary, especially during peak filing seasons. Businesses are encouraged to file as early as possible and retain proof of mailing and delivery confirmation.

  8. What happens if form 2553 is rejected?

    If the IRS rejects a form 2553 application, the corporation will be notified and given the reason for rejection. Common reasons include missing information or failure to meet eligibility criteria. Businesses have the opportunity to correct and resubmit the form. Getting the assistance of a tax professional may be beneficial to address any issues and to help ensure approval upon resubmission.

Common mistakes

When completing the IRS Form 2553, which is used by businesses to elect S corporation status for tax purposes, many people inadvertently make mistakes. It is crucial to fill out this form accurately to avoid delays in processing or even the rejection of S corporation status, which can have significant tax implications. Here’s a more detailed look at common errors:

  1. Not filing on time: Timing is critical. The form must be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.

  2. Incorrect identification of the business: Failing to accurately provide the name or Employer Identification Number (EIN) of the business can lead to the IRS being unable to process the form.

  3. Omitting signatures: All shareholders must sign the form for it to be valid. Missing signatures can invalidate the election.

  4. Incomplete information: All relevant sections of the form must be filled out completely. Partially filled forms are subject to rejection.

  5. Selecting the wrong tax year: Mistakes in choosing the correct tax year for the election to take effect are common and can lead to unintended tax consequences.

  6. Failure to obtain shareholder consent: Each shareholder must consent to the election; any missing consent forms can lead to the IRS not recognizing the election.

  7. Using incorrect forms: Using outdated versions of Form 2553 or not adhering to updated IRS guidance can result in processing delays.

  8. Improper state notification: While Form 2553 is a federal form, some states require separate notification of S corporation status. Overlooking this can affect state tax obligations.

  9. Mistakes in shareholder information or allocations: Inaccurate details about shareholders or how income, deductions, losses, and credits are to be allocated among them can lead to issues with the IRS.

To ensure the smooth processing of IRS Form 2553, it’s advisable to double-check all entered information, adhere strictly to deadlines, and consult with a tax professional if any uncertainties arise.

Documents used along the form

Filing for an S Corporation status involves more than just the submission of the IRS Form 2553. This procedure requires the careful preparation and submission of various documents to ensure compliance with tax obligations and to establish the entity's legal and operational structures. Businesses must provide accurate and comprehensive documentation alongside Form 2553 to enable a smooth transition to S Corporation status. The following documents, while not exhaustive, represent some of the vital forms that are often filed in conjunction with IRS Form 2553.

  • Articles of Incorporation: This foundational document officially registers the business with the state and outlines its operational and structural framework. It includes key details such as the business name, purpose, duration, stock details, and information about the incorporators.
  • Employer Identification Number (EIN) Application (Form SS-4): Prior to filing Form 2553, a business must obtain an EIN via Form SS-4. This unique nine-digit number is necessary for tax administration purposes, allowing the IRS to identify the business for tax reporting and withholding taxes on employee wages.
  • Bylaws: Although not submitted to the IRS, bylaws are critical internal documents that establish the rules and procedures for the operation of the corporation. They address matters such as shareholder meetings, the election of the board of directors, and the roles of officers. Bylaws help to ensure that the corporation's governance is in line with S Corporation requirements.
  • Operating Agreement: Especially relevant for LLCs electing to be treated as S Corporations, the Operating Agreement specifies the members' rights, powers, and responsibilities, the allocation of profits and losses, and the rules governing the addition and departure of members. It ensures that the LLC operates in a manner consistent with S Corporation criteria.

Each document plays a pivotal role in establishing and maintaining the business's legal and operational structure. When accurately completed and thoughtfully prepared, these documents collectively support a business's S Corporation election and its ongoing compliance with associated legal and regulatory obligations. Firms undertaking this transition should meticulously prepare and review these documents to align with their business goals and legal requirements, relying on professional guidance as necessary.

Similar forms

  • IRS Form 1120S

    Similar to IRS Form 2553, IRS Form 1120S is designed for S corporations, allowing them to report their annual income, deductions, profits, losses, etc. The completion of Form 2553 is a prerequisite for an entity to file taxes as an S corporation, subsequently leading to the necessity of filing Form 1120S. Both play crucial roles in the S corporation tax reporting process, with Form 2553 signifying the election and Form 1120S serving as the annual tax return.

  • IRS Form 8832

    IRS Form 8832, titled Entity Classification Election, shares similarities with Form 2553 in that it allows an entity to choose how it is classified for federal tax purposes. While Form 8832 is broader, applicable to a variety of entities wishing to change their tax status (not limited to S corporations), Form 2553 is specifically tailored for corporations and certain LLCs electing to be treated as S corporations. Both forms involve electing a specific tax treatment to optimize taxation.

  • IRS Form 1065

    For partnerships, IRS Form 1065 serves a function similar to that of Form 2553 for S corporations. It is the form used by partnerships to report their income, gains, losses, deductions, credits, etc., to the IRS. While Form 2553 initiates the election for a corporation to be taxed as an S corporation, Form 1065 is for entities immediately recognized as partnerships, dictating the reporting method for their operations. The similarity lies in the role both forms play in tax reporting for their respective entity types.

  • IRS Form 1040 Schedule C

    IRS Form 1040 Schedule C, Profit or Loss from Business, is used by sole proprietors to report the income or loss from a business they operated or a profession they practiced as a sole proprietor. Similar to IRS Form 2553's role for S corporations, Schedule C allows individual entrepreneurs to calculate their business income and determine tax liabilities. Both forms facilitate the reporting of business income, albeit for different types of entities and tax structures.

  • IRS Form SS-4

    IRS Form SS-4, the Application for Employer Identification Number (EIN), is similar to Form 2553 in that it is a foundational step for businesses managing their federal tax obligations. Form SS-4 is used by entities to apply for an EIN, necessary for tax filing and reporting purposes. Form 2553 also deals with entity identification but is specifically for electing S corporation status. Both are prerequisite steps for a business entity in organizing its tax reporting and identity.

  • IRS Form 720

    IRS Form 720, the Quarterly Federal Excise Tax Return, is a tax form used by businesses to report and pay excise taxes on specific goods, services, and activities. Though focused on excise taxes, instead of income taxes like Form 2553, Form 720 similarly requires businesses to navigate complex tax obligations systematically. Both forms are critical for compliance with federal tax laws but cater to different aspects of a business's tax responsibilities.

Dos and Don'ts

Filling out the IRS 2553 form, necessary for an S corporation election, is a critical process that demands attention to detail. Here's an insightful guide to navigate this process effectively:

  • Do ensure your eligibility: Before proceeding, verify that your corporation or entity meets the strict IRS eligibility criteria for S corporation status. This includes limitations on the number and type of shareholders, as well as allowable classes of stock.
  • Do obtain shareholder consent: Each shareholder must consent to the election; this is crucial. Make sure to gather and document this consent in writing, keeping it for your records.
  • Do fill out the form accurately: Accuracy cannot be overstated when completing IRS forms. Double-check all entries for correct information, including the corporation’s name, address, and Employer Identification Number (EIN).
  • Do file timely: Timing is essential. The form must be filed within two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.
  • Don’t overlook state requirements: While federal filing is a given, some states require a separate S corporation election. Failing to comply can lead to unexpected tax liabilities and penalties.
  • Don’t neglect to sign the form: An easily overlooked but critical final step is ensuring that the form is signed by an authorized officer of the corporation. An unsigned form will not be processed.
  • Don’t use outdated forms: Tax laws and forms can change. Always use the latest version of the IRS 2553 form to ensure compliance with current regulations.
  • Don’t hesitate to seek professional advice: Given the complexities of tax laws and the significant implications of S corporation status, consulting a tax professional or attorney can be invaluable. They can provide guidance tailored to your specific situation.

Misconceptions

The IRS Form 2553, titled "Election by a Small Business Corporation," is commonly misunderstood in several ways. This document is critical for businesses choosing to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Misconceptions can lead to errors in filing, which in turn can affect a company's tax obligations and benefits. Below are ten common misconceptions about IRS Form 2553:

  1. Any business can file Form 2553: Only companies that meet specific requirements set by the IRS can elect to be treated as an S corporation. These requirements include having a permissible number of shareholders, which must be 100 or fewer, and shareholders must be individuals, certain trusts, or estates.

  2. Filing Form 2553 automatically changes a company’s legal structure: Electing S corporation status changes how a company is taxed, not its legal structure. The business remains a corporation or other eligible entity under state law.

  3. Form 2553 is due when filing your annual tax return: The deadline to file IRS Form 2553 is no later than two months and fifteen days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.

  4. There is no penalty for late filing: If Form 2553 is filed late, the IRS might not allow the S corporation election for the intended tax year, which could result in being taxed as a C corporation.

  5. All shareholders must consent to the election: It is a widespread belief that not all shareholders need to consent to the election, but in truth, all shareholders must consent to the election at the time the election is filed, regardless of when during the tax year the election is made.

  6. Nonresident aliens can be shareholders of an S corporation: S corporations cannot have nonresident alien shareholders. All shareholders must be U.S. citizens or resident aliens.

  7. IRS Form 2553 requires detailed financial information: Form 2553 requires basic information about the corporation and its shareholders, but it does not require detailed financial information.

  8. Any tax professional can sign Form 2553 on behalf of the corporation: Only an officer of the corporation or other authorized individual, such as a duly authorized agent having power of attorney, can sign Form 2553. This authorization must be attached if the form is signed by an agent.

  9. Once elected, S corporation status is permanent: S corporation status is not permanent. A corporation can voluntarily revoke its S corporation election or lose its S corporation status if it no longer meets the IRS eligibility requirements.

  10. Filing this form is optional for eligible corporations: While it's true that not every eligible corporation must elect S corporation status, filing IRS Form 2553 is mandatory for those that wish to be taxed under Subchapter S. This election offers tax benefits, such as avoiding double taxation on the corporate income, which can be substantial.

Understanding these misconceptions about IRS Form 2553 is important for businesses considering the S corporation election. Accurate knowledge ensures compliance with IRS regulations and helps in maximizing the benefits of S corporation status.

Key takeaways

The IRS 2553 form, officially titled "Election by a Small Business Corporation," is a critical document for companies choosing to be taxed under subchapter S of Chapter 1 of the Internal Revenue Code. When filled out accurately and submitted in a timely manner, this election allows corporations to pass through their income, deductions, losses, and credits to their shareholders for federal tax purposes. Here are key takeaways pertaining to the completion and use of the IRS 2553 form:

  1. Eligibility requirements must be carefully reviewed before a corporation can elect S corporation status. These include being a domestic corporation, having only allowable shareholders (which include individuals, certain trusts, and estates but exclude partnerships, corporations, or non-resident alien shareholders), having no more than 100 shareholders, having only one class of stock, and not being an ineligible corporation (such as certain financial institutions, insurance companies, and domestic international sales corporations).
  2. The form must be filed in a timely manner. Specifically, for a new corporation, the form should be filed no later than two months and 15 days after the beginning of the tax year when the election is to take effect. An existing corporation must file by the 15th day of the 3rd month of the tax year. Late election relief provisions are available under certain conditions.
  3. Accurate information about the corporation must be provided, including the name, address, date of incorporation, and the state of incorporation. Any errors in these details can lead to the rejection of Form 2553.
  4. All shareholders must consent to the election. This is done by having each shareholder sign and date the consent statement found in Part II of Form 2553.
  5. Shareholders’ names and addresses, along with their Social Security Numbers (SSNs) or Employer Identification Numbers (EINs), must be accurately listed. This information must match IRS records; discrepancies can lead to processing delays or denials.
  6. Choosing an effective date of election is crucial. A corporation can elect to have S status effective in the current tax year, provided the form is filed no later than two months and 15 days after the start of the tax year. Alternatively, a corporation can elect for the next tax year if the form is filed at any time during the tax year preceding the tax year it wants the election to take effect.
  7. The IRS will issue a letter of acceptance or denial of the S corporation election. Normally, this occurs within 60 days of filing Form 2553. If approved, the corporation will be taxed as an S corporation starting with the effective date indicated on Form 2553. If denied, the corporation has the option to file an explanation or request reconsideration.
  8. If any changes occur to the information provided after the filing of Form 2553, the IRS should be notified promptly. Changes in shareholder status, addresses, or the corporation’s contact information are relevant examples.
  9. Understanding the tax implications of electing S corporation status is vital. While this election can offer tax advantages, such as avoiding double taxation experienced by C corporations, it also requires adherence to strict procedures and responsibilities, like allocating income and deductions based on shares owned.

Proper completion and filing of IRS Form 2553 are foundational steps for a corporation opting for S corporation status. The benefits can be significant, but the rules and regulations require careful attention to ensure compliance and to maximize the financial and operational advantages of this election.

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