What Form 2553 Is For
Form 2553 is the official Internal Revenue Service document that corporations and certain eligible entities use to elect S corporation status under section 1362 of the Internal Revenue Code. When you file this form, you're telling the IRS that you want your business taxed as an S corporation rather than as a traditional C corporation. The fundamental difference is significant: S corporations avoid double taxation by passing corporate income, losses, deductions, and credits directly through to shareholders, who then report these items on their personal tax returns and pay tax at their individual rates. This means the corporation itself generally doesn't pay federal income tax (though it may owe tax on certain built-in gains and passive income). In contrast, C corporations face taxation at both the corporate level and again when shareholders receive dividends.
To qualify for S corporation status, your business must meet specific requirements established by the IRS. You must be a domestic corporation with no more than 100 shareholders, all of whom must be allowable shareholders—specifically individuals, certain trusts, estates, and tax-exempt organizations. Partnerships, corporations, and nonresident aliens cannot be shareholders. Additionally, you can have only one class of stock (though differences in voting rights are permitted), and you cannot be an ineligible corporation such as certain financial institutions, insurance companies, or domestic international sales corporations.
When You’d Use Form 2553 (Including Late and Amended Elections)
Timely Elections
The timing of your Form 2553 filing is critical. For the election to take effect for your current tax year, you must file no more than two months and 15 days after the beginning of that tax year, or at any time during the preceding tax year. For example, if you're a calendar-year corporation wanting S corporation status for 2023, you could file Form 2553 anytime during 2022, or between January 1 and March 15, 2023. A newly formed corporation making the election for its first year must file during the period beginning when it first has shareholders, assets, or begins doing business, through two months and 15 days after that earliest date.
Late Elections
If you miss the filing deadline, all is not lost. The IRS provides relief for late elections under Revenue Procedure 2013-30. To qualify, you must demonstrate reasonable cause for missing the deadline and show that you acted diligently once the error was discovered. In addition, both the corporation and all shareholders must have consistently reported income as if the S election were already in effect.
Generally, you can request late election relief within three years and 75 days of the intended effective date. In certain situations where at least six months have passed since you filed your first Form 1120-S and the IRS has not contacted you about any issues, relief may be available even beyond this timeframe.
Amended or Corrected Elections
Form 2553 cannot be amended in the traditional sense. Once accepted, the election remains in effect until revoked or terminated. However, if you need to correct errors or missing information, you should contact the IRS service center where the original form was filed or submit a corrected form with appropriate explanations, depending on the issue involved.
Key Rules and Requirements
Eligibility Requirements
Several critical rules govern Form 2553 elections. The corporation must be a domestic corporation (or eligible domestic entity) and may not have more than 100 shareholders. Certain family members may be treated as a single shareholder for this purpose.
Shareholders must be individuals, estates, certain trusts, or qualifying tax-exempt organizations. Corporations, partnerships, and nonresident aliens are not eligible shareholders.
Stock and Business Restrictions
The corporation may have only one class of stock, meaning all shares must have identical rights to distributions and liquidation proceeds, though differences in voting rights are allowed. Certain businesses are automatically disqualified from S corporation status, including banks using the reserve method for bad debts, insurance companies taxed under specific provisions, and domestic international sales corporations.
Tax Year Rules
Most S corporations must use a calendar tax year ending December 31. Exceptions exist for corporations that qualify for a natural business year, meet the ownership tax year test, or obtain IRS approval for a fiscal year based on business purpose. Requests for non-calendar years are made in Part II of Form 2553.
Shareholder Consent Rules
Shareholder consent is mandatory. Every person who owns stock on the date the election is made must consent by signing Form 2553. For late elections, anyone who owned stock at any time between the intended effective date and the filing date must also consent.
Special rules apply for community property spouses, trusts, estates, minors, and joint owners, each with specific requirements regarding who must sign the consent.
Step-by-Step Filing Process (High Level)
Step 1: Verify Eligibility and Timing
Confirm that your corporation meets all S corporation requirements, including shareholder limits, stock structure, and eligible ownership. Determine the intended effective date and calculate the filing deadline based on your tax year.
Step 2: Complete Part I of Form 2553
Enter your corporation’s legal name exactly as it appears in IRS records, along with your Employer Identification Number (EIN), business address, state of incorporation, and incorporation date. Select the effective date in Item E and your tax year in Item F. If you are requesting a fiscal year, complete Part II.
If filing late, check the appropriate box and include a reasonable cause explanation. Write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of the form if applicable.
Step 3: Obtain Shareholder Consents
List all required shareholders in columns J through N, including names, addresses, taxpayer identification numbers, number of shares owned, dates acquired, and tax year ends. Each shareholder must sign and date in column K. Missing signatures invalidate the election.
Step 4: Sign and File the Form
An authorized corporate officer must sign and date the form. File the completed Form 2553 with the appropriate IRS service center based on your principal business location. The form may be submitted by mail or fax. Retain copies and proof of filing.
Step 5: Follow Up With the IRS
The IRS typically responds within 60 days. Requests involving a fiscal year based on business purpose may take longer. If you do not receive a response within the expected timeframe, contact the IRS Business & Specialty Tax Line to confirm receipt and status.
Common Mistakes and How to Avoid Them
Missing the Filing Deadline
Many businesses assume they can elect S corporation status when filing their tax return, but the deadline is much earlier. File Form 2553 as soon as possible after formation or decision to convert to S status to avoid missed deadlines.
Incomplete Shareholder Consents
Failure to obtain every required signature is a leading cause of rejection. This includes community property spouses and trust-related consents. Use a checklist to ensure no required signer is overlooked.
Incorrect Effective Date
The effective date is not the filing date. For existing corporations, it is usually the first day of the tax year. For new corporations, it is the earliest date the business had shareholders, assets, or began operations.
Overlooking Eligibility Issues
Ineligible shareholders, side agreements creating a second class of stock, or prohibited business activities will invalidate the election. Review ownership and corporate documents carefully before filing.
Improper Fiscal Year Requests
Fiscal year elections require strict compliance and, in some cases, a user fee. Many corporations inadvertently trigger additional IRS review by incorrectly completing Part II without meeting the requirements.
Failing to Keep Proof of Filing
Always retain certified mail receipts, fax confirmations, and copies of the filed form. Proof of timely filing is critical if the IRS later questions your election.
What Happens After You File
IRS Review and Processing
After submission, the IRS reviews Form 2553 to confirm eligibility, completeness, and proper timing. Most elections are processed within 60 days. Fiscal year requests based on business purpose may take up to 90 additional days.
If Your Election Is Accepted
You will receive an IRS acceptance letter confirming your S corporation status and effective date. This letter should be kept permanently. Once effective, the corporation must file Form 1120-S annually and issue Schedule K-1s to shareholders.
If Your Election Is Rejected
If rejected, the IRS will explain the reason. Some issues can be corrected and resubmitted, while others may require waiting until a future tax year or requesting late election relief.
Ongoing Compliance
Once effective, S corporation status continues until revoked or terminated. Voluntary revocation requires shareholder consent, and involuntary termination can occur if eligibility rules are violated. Re-electing S status after termination generally requires a five-year waiting period unless IRS consent is granted.
FAQs
Can an LLC file Form 2553?
Yes. An LLC can file Form 2553 if it is eligible to be treated as a corporation. In many cases, filing Form 2553 on time serves as both the corporate classification election and the S corporation election.
What if a shareholder forgot to sign?
An election without all required signatures is invalid. In many cases, late election relief may be available if the missing shareholder reported income consistently with S corporation treatment.
What if we’ve been filing Form 1120-S without filing Form 2553?
This situation often qualifies for late election relief under Revenue Procedure 2013-30. File Form 2553 immediately with the required explanations and consents.
Do minority shareholders still have to consent?
Yes. Every shareholder must consent regardless of ownership percentage.
Can we revoke an S corporation election?
Yes. Revocation requires consent from shareholders holding more than 50 percent of the stock and must be filed with the IRS. Re-election is generally restricted for five years.
Is a fiscal year election difficult to obtain?
Yes. Fiscal year approval requires meeting strict IRS tests or demonstrating a valid business purpose and paying a user fee. Many S corporations choose a calendar year to avoid this complexity.
Does Form 2553 cover state S corporation elections?
No. Form 2553 only applies to federal tax status. Many states require separate elections or follow different rules, so state requirements should be reviewed separately.
