What Form 2553 Is For
Form 2553 is the official document a corporation or eligible business entity files with the Internal Revenue Service to elect taxation as an S corporation under section 1362(a) of the Internal Revenue Code. Instead of being taxed as a regular corporation (C corporation) where the company pays corporate income tax and shareholders pay tax again on dividends, an S corporation allows business income, losses, deductions, and credits to pass through directly to shareholders' personal tax returns.
This pass-through taxation structure eliminates double taxation at the corporate level, though the S corporation may still owe tax on certain built-in gains and passive income. By filing Form 2553, qualifying corporations essentially request a special tax treatment that can provide significant tax advantages for small business owners while maintaining the legal protections of a corporate structure.
IRS.gov
When You’d Use Form 2553
Standard Filing Deadline
Timing is critical when filing Form 2553. The form must generally be filed no more than two months and 15 days after the beginning of the tax year you want the S corporation election to take effect, or at any time during the preceding tax year.
For a new business starting on January 1st and wanting immediate S corporation status, the deadline would be March 15th. If your corporation has operated as a C corporation and wants to switch for the upcoming tax year, you can file the election any time during your current year as a C corporation.
Late and Retroactive Elections
However, if you miss the deadline, all is not lost. The IRS provides relief for late elections under Revenue Procedure 2013-30. You can still obtain S corporation status retroactively if you meet specific requirements:
- Your entity intended to be an S corporation
- You have reasonable cause for filing late
- All shareholders reported income consistently as if the election were in effect
- You file within 3 years and 75 days of the intended effective date
For corporations filing late that meet these criteria, you write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of Form 2553 and explain your reasonable cause in the designated space.
An even more generous exception exists if at least 6 months have elapsed since filing your first intended S corporation return and the IRS hasn't contacted you about problems with your S corporation status.
When the IRS doesn't grant relief under these simplified procedures, you must request a private letter ruling and pay associated user fees.
IRS.gov
Key Rules and Eligibility Requirements for 2014
Entity and Shareholder Requirements
Not every business can elect S corporation status. Your corporation must satisfy strict eligibility tests. First, it must be a domestic corporation or an eligible domestic entity treated as a corporation.
The shareholder structure cannot exceed 100 shareholders, though family members can count as a single shareholder. All shareholders must be individuals, certain trusts, estates, or specific tax-exempt organizations—partnerships, corporations, and non-resident aliens are prohibited from being shareholders.
Stock and Ownership Restrictions
The corporation can have only one class of stock, disregarding differences in voting rights. All outstanding shares must provide identical rights to distribution and liquidation proceeds.
Ineligible Corporations
Certain types of businesses are automatically ineligible, including:
- Banks or thrift institutions using the reserve method of accounting for bad debts
- Insurance companies taxed under Subchapter L
- Corporations electing possessions corporation status under section 936
- Domestic international sales corporations
Tax Year Rules
The corporation must also adopt a permissible tax year—typically:
- A calendar year ending December 31
- A natural business year
- An ownership tax year
- A tax year elected under section 444
- Another tax year for which the corporation establishes a valid business purpose
Shareholder Consent Requirement
Finally, and critically, every single shareholder must consent to the election by signing either on the form itself or on a separate statement attached to Form 2553. Missing even one signature can invalidate the entire election.
IRS.gov
Step-by-Step: How to Complete Form 2553 (High Level)
Step 1: Gather Required Identification Information
Begin by ensuring you have the corporation's correct legal name as stated in the corporate charter and its Employer Identification Number. If you haven't obtained an EIN yet, apply immediately online at IRS.gov, by telephone, or by filing Form SS-4, because the EIN is required information.
Step 2: Complete Part I and Select the Effective Date
In Part I of Form 2553, enter the effective date carefully. For a first-year business, this is typically the earliest date the corporation had shareholders, assets, or began operations. For an existing C corporation, it's the beginning date of the tax year when you want S status to begin.
Step 3: Choose the Corporation’s Tax Year
Select your tax year by checking the appropriate box. Most small corporations choose a calendar year ending December 31. If you select a fiscal year or another option, you'll need to complete Part II providing substantial justification for why this tax year serves a business purpose or meets natural business year tests based on gross receipts patterns.
Step 4: Obtain Shareholder Consents
The shareholder consent section requires meticulous attention:
- List every shareholder’s name and address
- Enter the number of shares owned and dates acquired
- Provide each shareholder's Social Security number or EIN
- Enter each shareholder’s tax year end
Each shareholder must personally sign and date the form in Column K. For community property states, both spouses must sign. For stock owned by trusts, estates, or minors, the appropriate legal representative must sign.
Step 5: Sign and Submit the Form
An authorized corporate officer—president, vice president, treasurer, assistant treasurer, or chief accounting officer—must sign and date the form at the bottom.
Mail the original form (or fax it and retain the original in corporate records) to the IRS Service Center corresponding to your corporation's principal business location.
IRS.gov
Common Mistakes and How to Avoid Them
Missing Shareholder Signatures
The most frequent error causing Form 2553 rejections is missing shareholder signatures. Even if one shareholder among many fails to sign, the entire election is invalid.
Create a checklist ensuring every shareholder named in Column J has signed in Column K before mailing the form.
IRS.gov
Filing After the Deadline
Many new business owners incorrectly assume they have until their tax return due date to file Form 2553. The actual deadline is two months and 15 days after the tax year begins.
If you do file late, don't simply submit the form hoping it will be accepted—include the Rev. Proc. 2013-30 language and a detailed reasonable cause explanation.
Using an Incorrect Effective Date
Corporations often enter an incorrect effective date in Part I, Item E. First-year businesses should use the earliest date they had shareholders, assets, or began operations. Existing corporations must use the first day of the intended S tax year.
Ineligible Shareholders
Before filing Form 2553, audit your shareholders carefully. If any shareholder is a partnership, corporation, or non-resident alien, your election will fail—even if already accepted.
IRS.gov
What Happens After You File
IRS Review and Determination
After mailing or faxing Form 2553, the IRS reviews your election. You should generally receive a determination letter within 60 days.
The IRS issues:
- CP261 — Election accepted
- CP264 — Election rejected
Requests involving tax year rulings may take an additional 90 days.
IRS.gov
If You Don’t Hear Back
If you receive no response within two months (or five months for fiscal year requests), call 1-800-829-4933. Acceptable proof of filing includes certified mail receipts, IRS-stamped copies, or written IRS acknowledgment.
Ongoing Compliance After Acceptance
Once accepted, the S election remains in effect until revoked or terminated. If terminated, re-election is generally prohibited for five tax years without IRS consent.
Until the election is effective, continue filing Form 1120. After acceptance, file Form 1120-S annually and issue Schedule K-1s to shareholders.
IRS.gov
FAQs
Can a single-member LLC file Form 2553 to become an S corporation?
Yes, but the LLC must first be treated as a corporation for tax purposes. By filing Form 2553, the LLC makes both an entity classification election and an S corporation election simultaneously, provided it meets all eligibility requirements.
IRS.gov
What happens if one shareholder refuses to sign?
The election is invalid without unanimous shareholder consent. Options include negotiating, buying out the shareholder, or operating as a C corporation. Limited relief exists for certain community property situations.
IRS.gov
Can an S corporation revoke its election?
Yes. Shareholders holding more than 50 percent of shares must consent. File a written revocation with the IRS. Timing determines the effective date.
IRS.gov
Do all shareholders need the same tax year end?
No. Shareholders may have different tax years, but the corporation must adopt a permissible tax year.
IRS.gov
What’s the deadline for a new corporation formed on March 1st?
The deadline is May 16th—two months and 15 days after March 1st. File between March 1st and May 16th for immediate S status.
IRS.gov
What if we never filed Form 2553 but have been operating as an S corporation?
File Form 2553 immediately using late election relief under Revenue Procedure 2013-30. If within 3 years and 75 days, simplified relief usually applies.
IRS.gov
Are there any filing fees?
No filing fee applies to Form 2553 itself. However, requesting a fiscal year business purpose ruling triggers a user fee (historically $2,700).
IRS.gov
Note: This summary is based on Form 2553 and instructions current for 2014. Tax rules and forms may have changed since then. Always verify information with current IRS publications at IRS.gov or consult a qualified tax professional.
