What Form 2553 Is For
Form 2553 is the official IRS document that a corporation or eligible business entity must file to elect “S corporation” status for federal tax purposes. Think of it as the application that transforms how your business is taxed. When you file this form and the IRS accepts it, your corporation stops being taxed as a regular “C corporation” and becomes an S corporation instead.
The key difference is where taxes are paid. With a C corporation, the business itself pays corporate income tax on its profits. But with an S corporation, the income, deductions, and credits flow through to the shareholders, who report them on their personal tax returns. The corporation generally doesn't pay federal income tax itself, though it may still owe tax on certain specific types of income. This pass-through taxation structure can provide significant tax advantages for small business owners who meet the eligibility requirements.
To use Form 2553, your corporation must meet specific tests:
- You can have no more than 100 shareholders.
- All shareholders must be individuals, estates, certain trusts, or certain tax-exempt organizations (no corporations or partnerships as shareholders).
- You can have only one class of stock.
- You must be a domestic corporation.
Limited liability companies can also elect S corporation status by filing Form 2553, and the IRS will automatically treat the LLC as a corporation for tax purposes if the S election is approved.
When You’d Use Form 2553
Standard (On-Time) Elections
Timing is everything with Form 2553. To make your S corporation election effective for the current tax year, you must file the form no more than 2 months and 15 days after the beginning of that tax year. Alternatively, you can file it at any time during the preceding tax year.
For example, if your corporation operates on a calendar year and wants to be an S corporation starting January 1, you must file Form 2553 between January 1 of the prior year and March 15 of the current year.
Late and Amended Elections
If you miss this deadline, don't panic. The IRS offers relief for late elections under Revenue Procedure 2013-30. You can request late election relief if you:
- File within 3 years and 75 days of your intended effective date
- Can demonstrate reasonable cause for missing the deadline
- Acted diligently to correct the mistake once discovered
- And you and all shareholders have already been reporting income consistently with S corporation status on your tax returns
There’s even an exception to the 3-years-and-75-days rule. If:
- At least 6 months have passed since you filed your first Form 1120-S return
- The IRS hasn't notified you of any problems with your S corporation status within those 6 months
- You and all shareholders have been reporting income consistently as an S corporation
You may still qualify for relief beyond the standard time limit.
Key Rules or Details to Remember
Shareholder Consent Requirements
All shareholders must consent to the election by signing Form 2553. This means:
- Every person who owns stock on the date you file the election must sign
- Anyone who owned stock at any time between your intended effective date and the date you actually file must also consent
Special rules apply for married couples in community property states, joint tenants, tenants in common, and tenants by the entirety.
Employer Identification Number (EIN)
Your corporation must have an Employer Identification Number before filing Form 2553. If you don't have one yet:
- Apply online at IRS.gov/EIN, or
- File Form SS-4
The IRS will not process your election without an EIN.
Choosing the Correct Effective Date
The effective date you enter on the form matters tremendously.
- For a brand-new corporation, this should be the earliest date when you first had shareholders, first had assets, or began doing business
- For an existing C corporation switching to S status, you'll typically enter the first day of the tax year when you want the election to take effect
Duration and Termination of the Election
Once your S election is made and accepted, it remains in effect indefinitely until you revoke it or it terminates. If your election is terminated or revoked, you generally cannot make another S corporation election for five years without IRS consent.
Step-by-Step Filing Process (High Level)
Step 1: Confirm Eligibility
First, ensure your corporation meets all eligibility requirements by checking your shareholder count, shareholder types, stock classes, and business type.
Step 2: Obtain or Verify Your EIN
Second, obtain or confirm your corporation's EIN.
Step 3: Complete Form 2553
Third, complete Form 2553 with your corporation's identifying information, the desired effective date, the selected tax year, and information about each shareholder.
Step 4: Collect Shareholder Signatures
Fourth, have all current shareholders (and any former shareholders who owned stock during the relevant period) sign the consent section in Column K.
Step 5: Officer Signature
Fifth, have a corporate officer sign and date the form.
Step 6: Submit the Form
Sixth, determine where to mail or fax your form based on your corporation's principal business location—the IRS provides specific addresses and fax numbers for different regions.
Finally, mail the original form (not a photocopy) or fax it to the appropriate IRS Service Center and keep a copy for your permanent records.
If you're filing a late election, write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of the first page and include a detailed statement explaining your reasonable cause for the late filing.
Common Mistakes and How to Avoid Them
Missing the Filing Deadline
The most frequent error is missing the filing deadline. Mark your calendar for 2 months and 15 days after the start of your tax year and file early.
Incomplete Shareholder Consent
Another common mistake is incomplete shareholder consent. Every shareholder during the relevant period must sign the consent statement. If even one signature is missing, the IRS will reject your election.
Choosing an Ineligible Tax Year
Most S corporations must use a calendar year ending December 31. Selecting a fiscal year without proper approval can cause problems.
Forgetting Required Late Election Statements
If you're requesting relief for a late election, you must include a detailed explanation of your reasonable cause and the actions you took to correct the error.
No Proof of Filing
Always use certified or registered mail with a return receipt, or obtain fax confirmation. Proof of filing protects you if the IRS questions whether your form was received.
What Happens After You File
IRS Review Timeline
The IRS Service Center will review your Form 2553 and notify you whether your election is accepted and when it becomes effective. You should generally receive a determination within 60 days.
If you requested a special tax year, processing may take up to 150 days.
Following Up on Your Election
If the IRS hasn't responded within 2 months (or 5 months for a special tax year), call 1-800-829-4933 to check your election status.
Ongoing Filing Responsibilities
Once accepted, you must file Form 1120-S and provide Schedule K-1 to each shareholder, who will then report the information on their personal tax returns.
If Your Election Is Rejected
If rejected, the IRS will explain why. Common reasons include missing signatures, ineligible shareholders, multiple classes of stock, or late filing without relief. You may correct the issue and refile or respond with documentation.
FAQs
Can I file Form 2553 before incorporating my business?
No. Your corporation must legally exist before filing Form 2553. The earliest effective date is when your corporation first had shareholders, assets, or began doing business.
What happens if I miss the deadline to file Form 2553?
You may request late election relief if you file within 3 years and 75 days, have reasonable cause, and have reported consistently as an S corporation.
Do I need a lawyer or accountant to complete Form 2553?
The form is straightforward, but the tax consequences can be complex. Many business owners benefit from professional guidance.
How do I know if my corporation qualifies as a small business corporation?
Your corporation qualifies if it meets shareholder limits, shareholder eligibility rules, single-class stock requirements, and is a domestic eligible entity.
What if a shareholder refuses to sign the consent?
If any shareholder refuses, the election cannot proceed. All shareholders must consent.
Can I revoke my S corporation election later?
Yes. Revocation requires consent from shareholders holding more than 50 percent of the shares, and a new election is generally barred for five years.
Where can I find the most current version of Form 2553 and instructions?
Visit IRS.gov and search for “Form 2553” to access the most current form and instructions.
