What Form 2553 Is For
Form 2553 is the official IRS document that a corporation or eligible entity files to elect S corporation tax treatment under section 1362(a) of the Internal Revenue Code. When a business makes this election, it transforms how the company is taxed—shifting from the double taxation typical of C corporations to a pass-through structure where income, losses, deductions, and credits flow directly to shareholders' personal tax returns. This election allows S corporations to avoid entity-level taxation on most income, though the corporation may still owe tax on certain built-in gains and passive income.
The form serves as both an application and a declaration that your business meets all S corporation requirements. It requires signatures from every shareholder, confirms your business structure qualifies under IRS rules, and establishes the effective date of your S corporation status. Think of it as the gateway document that converts your standard corporation into an S corporation, fundamentally changing your tax obligations and how you report business income to the IRS.
When You’d Use Form 2553
Standard Timeline
You must file Form 2553 within a specific window: no more than 2 months and 15 days after the beginning of the tax year when you want the election to take effect, or at any time during the preceding tax year. For example, if your calendar-year corporation wants S corporation status starting January 1, you must file between January 1 of the prior year and March 15 of the election year. A brand-new corporation starting on November 8 would need to file between November 8 and January 22 to have the election effective for its first tax year.
Late Election Relief
Missing the deadline doesn't necessarily mean losing your chance at S corporation status. Revenue Procedure 2013-30 provides streamlined relief for late elections filed within 3 years and 75 days of the intended effective date. To qualify, you must demonstrate reasonable cause for the delay, show that you and all shareholders reported income consistently with S corporation status since the intended effective date, and provide consent statements from all shareholders during the period between the intended effective date and actual filing. The IRS can grant this relief without requiring a costly private letter ruling.
An important exception extends beyond the 3 years and 75 days if your corporation and all shareholders reported income as an S corporation from the start, at least 6 months have passed since filing your first Form 1120-S, and the IRS hasn't notified you of any problems within those 6 months. This exception is rare but available for qualifying situations.
Amended Elections
Form 2553 cannot be amended in the traditional sense, but you may need to file a new election if you're correcting inadvertent errors or if your S corporation status was previously terminated or revoked. Generally, the IRS requires consent before allowing another election within the first 5 tax years after a termination or revocation takes effect.
Key Rules or Details for the Tax Year
Eligibility Requirements
Your corporation must meet eight strict eligibility tests to qualify for S corporation status. First, it must be a domestic corporation or an entity eligible to be treated as a corporation. Second, it cannot have more than 100 shareholders, though the IRS counts a married couple as one shareholder and treats family members (as defined in section 1361(c)(1)(B)) and their estates as one shareholder.
Third, shareholders must be individuals, certain trusts (including qualified subchapter S trusts and electing small business trusts), estates, or exempt organizations under sections 401(a) or 501(c)(3). Crucially, partnerships, corporations, and nonresident aliens cannot be shareholders—this is a common disqualifier.
Fourth, the corporation can have only one class of stock, meaning all shares must provide identical rights to distribution and liquidation proceeds (voting differences are allowed).
Ineligible Entities and Tax Year Rules
Fifth, the corporation cannot be an ineligible entity such as certain financial institutions using the reserve method for bad debts, insurance companies subject to subchapter L taxation, or domestic international sales corporations.
Sixth, it must adopt or change to an allowable tax year—typically a calendar year ending December 31, though natural business years, ownership tax years, and section 444 elections are permitted with proper justification.
Shareholder Consent Rules
Seventh, every shareholder must consent to the election by signing column K of Form 2553 or a separate consent statement. This includes community property spouses, tenants in common, joint tenants, minors (through representatives or parents), estates (through executors), and trust beneficiaries as defined by trust classification rules.
Finally, the timing of consent matters: if filing before the effective date, only current shareholders need to consent; if filing on or after the effective date, all shareholders and former shareholders who owned stock from the effective date through the filing date must consent.
Step-by-Step Filing Process
Step 1: Confirm Eligibility
Review all eight qualification tests carefully. Verify your shareholder count, shareholder types, stock structure, and corporate classification. Address any disqualifying factors before proceeding—for instance, if you have a nonresident alien shareholder, they must divest before you can file.
Step 2: Obtain an Employer Identification Number
If your corporation doesn't have an EIN, apply immediately at IRS.gov/EIN (instant online issuance) or by filing Form SS-4. You'll need this number to complete Form 2553.
Step 3: Complete Form 2553
Fill out Part I with your corporation's legal name, address, EIN, incorporation date, and state of incorporation. Enter the effective date for your election in Item E—this is typically the first day of the tax year you want S corporation treatment to begin. In Item F, check the appropriate box for your tax year selection. If you're not using a calendar year, you'll need to complete Part II with justification for your fiscal year choice.
Step 4: Gather Shareholder Information and Consents
List each shareholder in columns J through N, including their names, addresses, social security numbers (or EINs for trusts/estates), number of shares owned, acquisition dates, and tax year ends. Each shareholder must sign and date in column K. Missing signatures are a leading cause of rejection.
Step 5: Complete Additional Parts if Applicable
If you're making a qualified subchapter S trust (QSST) election simultaneously, complete Part III. If you're requesting late election relief or filing a late entity classification election concurrently, include the required statements explaining reasonable cause and documenting consistent tax reporting.
Step 6: Submit to the Correct IRS Service Center
Mail the original form (no photocopies) to the service center address based on your principal business location. Connecticut through Wisconsin corporations mail to Kansas City, MO; Alabama through Wyoming corporations mail to Ogden, UT. You may also fax using the designated numbers. Keep copies and proof of mailing (certified mail receipt or equivalent from approved private delivery services).
Step 7: Follow Up
The IRS typically responds within 60 days (or 150 days if requesting a business purpose fiscal year). If you haven't received acceptance or rejection within these timeframes, call 1-800-829-4933 to inquire about your election status.
Common Mistakes and How to Avoid Them
Missing Shareholder Signatures
The most frequent error is incomplete consent statements. Every shareholder who owned stock during the relevant period must sign. This includes community property spouses who are considered shareholders under state law even if the stock is in one spouse's name.
Filing After the Deadline Without Seeking Relief
Many corporations miss the 2-month-and-15-day deadline and file anyway without requesting late election relief or explaining reasonable cause. The IRS will reject these elections.
Ineligible Shareholders
Discovering after filing that one shareholder is a nonresident alien, partnership, or corporation invalidates the entire election.
Inconsistent Tax Reporting
Some businesses file Form 2553 but continue filing Form 1120 (C corporation returns) instead of Form 1120-S. Others file 1120-S returns before receiving election acceptance.
Incorrect Effective Date
Entering an effective date that doesn't align with actual tax year start dates confuses the IRS and delays processing.
Missing or Inadequate Business Purpose Justification
If you're requesting a fiscal year instead of a calendar year without checking the section 444 election box, you must provide detailed business purpose justification in Part II.
Not Keeping Proof of Filing
If the IRS claims they never received your Form 2553, you'll need proof.
What Happens After You File
Within 60 days of filing (or 150 days if you requested a business purpose fiscal year in box Q1), the IRS will notify you whether your election has been accepted or rejected. Accepted elections result in a CP261 notice confirming your S corporation status and the effective date. This letter is an important document—keep it with your permanent corporate records as proof of your election.
If your election is rejected, the IRS will explain which requirements you failed to meet. Common rejection reasons include missing shareholder signatures, ineligible shareholders, multiple classes of stock, or untimely filing without proper relief requests. You can correct the problems and refile, or if you disagree with the rejection, you can request reconsideration or seek a private letter ruling.
Once accepted, your S corporation election remains in effect indefinitely until it's voluntarily revoked or involuntarily terminated. Revocations require consent from shareholders holding more than 50% of the stock and become effective at the start of the following tax year (or mid-year if specified and the IRS agrees). Terminations occur automatically if the corporation fails to meet any eligibility requirement—such as exceeding 100 shareholders, admitting an ineligible shareholder, or creating a second class of stock.
Your first tax return as an S corporation should be Form 1120-S, U.S. Income Tax Return for an S Corporation, filed by the 15th day of the third month after the end of your tax year (March 15 for calendar-year corporations). Don't file this return until you receive your acceptance notice. Each shareholder receives a Schedule K-1 showing their share of corporate income, losses, deductions, and credits to report on their individual returns.
If your S corporation status is later terminated or revoked, you generally cannot re-elect S corporation status for five tax years without IRS consent. This makes maintaining eligibility and compliance crucial for the long-term benefit of pass-through taxation.
FAQs
Can I file Form 2553 for a limited liability company (LLC)?
Yes, but only if your LLC is eligible to be treated as a corporation and either has already filed Form 8832 to be classified as a corporation or is filing Form 2553 simultaneously with a late entity classification election. Single-member LLCs disregarded for tax purposes and multi-member LLCs taxed as partnerships must first become corporations before S corporation election is possible.
What happens if one shareholder refuses to sign the consent statement?
Your Form 2553 will be rejected. S corporation election requires unanimous shareholder consent—every single shareholder must agree.
Do I need to file a new Form 2553 every year?
No. S corporation election is permanent once accepted. You file Form 2553 only once, and the election continues automatically for all subsequent tax years until voluntarily revoked or involuntarily terminated.
Can I choose a fiscal year instead of a calendar year?
Yes, but it requires justification and IRS approval. Most S corporations must use a calendar year ending December 31 unless they qualify for an exception.
What if I discover an error after filing but before receiving a response?
Contact the IRS immediately or file a corrected Form 2553 with “AMENDED” written clearly at the top, along with a cover letter explaining the correction.
How do I prove my S corporation election if I lost my acceptance letter?
Request a transcript from the IRS Business & Specialty Tax Line or order a Business Master File Extract showing your entity status.
If my S election is terminated, how long must I wait to re-elect?
Generally, you must wait until the fifth tax year after the first tax year the termination became effective, unless you obtain IRS consent through a private letter ruling.
