Form 2553 is the gateway document that transforms a regular corporation (C corporation) into an S corporation for federal tax purposes. While that might sound technical, the core concept is straightforward: instead of your corporation paying taxes on its profits and then you paying taxes again on dividends (double taxation), an S corporation's income flows directly to shareholders who report it on their personal tax returns. This single-layer taxation structure has made S corporations a popular choice for small businesses across America.
What Form 2553 Is For
Form 2553 serves as your corporation's formal election to be treated as an S corporation under Section 1362(a) of the Internal Revenue Code. When you file this form with the IRS, you're essentially saying, “We want our corporation taxed like a partnership or sole proprietorship, where income passes through to shareholders rather than being taxed at the corporate level.”
The S corporation structure offers significant advantages. Shareholders report their share of corporate income, losses, deductions, and credits on their personal tax returns and pay tax at their individual rates. The corporation itself generally doesn't pay federal income tax on most of its income, eliminating the double taxation problem that affects traditional C corporations. However, S corporations may still owe taxes on certain built-in gains and passive income at the entity level.
IRS.gov
To qualify for S corporation status, your business must meet strict eligibility requirements. It must be a domestic corporation with no more than 100 shareholders, have only allowable shareholders (individuals, certain trusts, and estates—not partnerships, corporations, or non-resident aliens), maintain only one class of stock, and avoid being an ineligible corporation type such as certain financial institutions or insurance companies.
IRS Instructions for Form 2553
When You’d Use Form 2553
Standard Filing Deadline
Timing is everything with Form 2553. The standard deadline requires filing no more than two months and 15 days after the beginning of the tax year when you want the election to take effect. Alternatively, you can file anytime during the tax year preceding the year you want S corporation status to begin.
For a calendar-year corporation wanting to be an S corporation starting January 1, you must file Form 2553 between January 1 of the preceding year and March 15 of the election year.
IRS Instructions for Form 2553
Late and Amended Elections
Missing the deadline doesn’t necessarily mean disaster. Revenue Procedure 2013-30 provides simplified relief procedures for late S corporation elections. You may still qualify if you failed to file on time solely because Form 2553 was not submitted, had reasonable cause for the delay, and file within three years and 75 days of the intended effective date.
All shareholders during the period between the intended effective date and the actual filing date must confirm they consistently reported income as if the S election were in effect.
IRS Late Election Relief
When filing a late election, write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of the form and include a detailed reasonable-cause statement. If you do not meet the simplified relief criteria, a private letter ruling and user fee may be required.
Key Rules or Details You Need to Know
Eligibility Requirements
Not every corporation can become an S corporation. Your corporation must be domestic and may have no more than 100 shareholders. Certain family members may be treated as a single shareholder for counting purposes, and spouses automatically count as one shareholder.
One Class of Stock Rule
All outstanding shares must provide identical rights to distributions and liquidation proceeds. Differences in voting rights are allowed, but economic rights must be identical. Violating this rule immediately terminates S corporation status.
Shareholder Eligibility
Only U.S. citizens or residents, estates, certain exempt organizations, and specific trusts may be shareholders. Corporations, partnerships, and non-resident aliens are not permitted shareholders.
Tax Year Restrictions
Most S corporations must use a calendar year ending December 31. Alternative tax years require a business-purpose ruling, a Section 444 election, or qualification under the natural business year test.
IRS Instructions for Form 2553
Step-by-Step Filing Process (High Level)
Step 1: Obtain an EIN
Your corporation must have an Employer Identification Number before filing. Apply online at IRS.gov/EIN or submit Form SS-4.
Step 2: Complete Part I of Form 2553
Provide your corporation’s legal name, address, EIN, effective date, and selected tax year. For new corporations, the effective date is the earliest date you had shareholders, assets, or began doing business.
Step 3: Collect Shareholder Consents
Every shareholder must complete the consent section with their identifying information and signature. Special rules apply for spouses, estates, minors, and trusts.
Step 4: Address Tax Year Selection
Most corporations select a calendar year. If requesting a fiscal year, complete Part II and be prepared for additional IRS review and possible user fees.
Step 5: Sign and File the Form
An authorized corporate officer must sign the form. Mail or fax it to the appropriate IRS Service Center based on your principal business location. Retain proof of filing.
Common Mistakes and How to Avoid Them
Missing the Filing Deadline
Many businesses miss the early-year deadline. Filing during the prior tax year helps avoid this issue.
Incomplete Shareholder Consents
Every required shareholder signature must be present. One missing consent invalidates the election.
Entity Classification Errors (LLCs)
LLCs must first elect corporate tax treatment (Form 8832) before or in conjunction with Form 2553.
Ineligible Shareholders
Partnerships, corporations, and non-resident aliens invalidate S corporation eligibility. Audit your ownership structure carefully.
Wrong Tax Year Elections
Business-purpose fiscal year requests require IRS approval and may involve significant user fees.
Incorrect Filing Address
Always confirm current IRS filing addresses before mailing. Using outdated addresses delays processing.
What Happens After You File
IRS Review and Notification
The IRS typically responds within 60 days. Fiscal year requests may take up to 150 days. If no response is received, call 1-800-829-4933.
After Acceptance
Once accepted, the election remains in effect until revoked or terminated. File Form 1120-S annually and issue Schedule K-1s to shareholders.
IRS S Corporations
If Your Election Is Rejected
Rejection notices explain the reason. You may correct the issue and refile, possibly under late election relief rules.
Recordkeeping and Proof of Filing
Maintain certified mail receipts, IRS acceptance letters, or stamped copies permanently. Do not file Form 1120-S before acceptance.
FAQs
Can I file Form 2553 for a brand-new corporation?
Yes, as soon as the corporation legally exists and has an EIN. The election can be effective from the start of operations.
What if a shareholder refuses to sign?
The election cannot proceed without unanimous consent. Options include negotiation, buyout, or abandoning the election.
Do I need to refile Form 2553 every year?
No. The election remains in effect until revoked or terminated.
Can I make the election retroactive?
Yes, under late election relief rules, up to three years and 75 days if all requirements are met.
What happens if an ineligible shareholder acquires stock?
This causes automatic termination, though inadvertent termination relief may be available.
Do LLCs file Form 2553 or Form 8832 first?
LLCs must elect corporate treatment first, but a timely Form 2553 can serve as both elections when filed correctly.
