Form 2553 Election by a Small Business Corporation
Checklist – 2017 Tax Year
Form 2553 allows eligible corporations and certain entities to elect S corporation tax treatment under Subchapter S of the Internal Revenue Code. This election changes how the business reports income and how owners pay federal taxes on business profits.
Understanding S Corporation Status and Form 2553
An S corporation operates as a pass-through entity for federal tax purposes. Business income flows directly to shareholders, who report it on their individual tax returns. This structure helps many small business owners reduce self-employment taxes compared to sole proprietorships while maintaining liability protection similar to C corporations. Filing IRS Form 2553 converts an eligible corporation or limited liability company taxed as a corporation into an S corporation for tax purposes.
The election remains effective until the corporation revokes it or the IRS terminates it.
Corporations must meet specific eligibility tests and obtain shareholder consent before filing.
Eligibility Requirements for S Corporation Election
Your corporation must satisfy several conditions to qualify for S corporation status. The business must operate as a domestic corporation incorporated under state laws in any U.S. state or territory. Partnerships, trusts, and other non-corporate entities cannot file Form 2553 unless they first elect corporate classification. The Internal Revenue Code establishes these requirements to limit which businesses may choose pass-through taxation.
Shareholder restrictions apply strictly under the ownership rules
- An S corporation may have no more than 100 shareholders, and those shareholders
must be individuals, estates, or qualifying trusts.
- To qualify, every shareholder must be a U.S. citizen, a resident alien, an estate, a
qualifying trust, or a tax-exempt organization described in the Internal Revenue Code.
- At no point may foreign nationals or other non-qualifying entities hold stock in the
corporation.
- The corporation is permitted to issue only one class of stock; however, differences in
voting rights alone do not constitute a second class for this purpose.
Stock ownership structure determines whether your business meets these tests. Review your
Articles of Incorporation and operating agreement to confirm your corporate structure complies with these ownership restrictions before filing.
Filing Deadlines and Timing Rules
Corporations must file Form 2553 within two months and fifteen days after the first day of the tax year when the election takes effect. Alternatively, you may file at any time during the preceding tax year. For calendar-year corporations seeking S corporation status effective for the 2017 tax year, the deadline was March 15, 2017. Calculate the filing deadline carefully using the two-month-and-fifteen-day rule to ensure timely submission.
The two-month period begins on the day the tax year starts and ends on the corresponding day of the second following month. Add fifteen days to the current deadline to determine the final deadline.
Late Election Relief Under Rev. Proc. 2013-30
Missing the deadline does not permanently prevent S corporation status. The election becomes effective for the following tax year unless you qualify for late-election relief. Rev. Proc. 2013-30 provides simplified procedures for obtaining relief when corporations miss filing deadlines due to reasonable cause. You must demonstrate that the corporation and its tax professionals exercised ordinary care when attempting to file timely.
Relief applications require specific documentation and shareholder statements. All shareholders during the period between the intended effective date and the actual filing date must confirm they reported income consistently with S corporation status on all affected tax returns. The corporation must file Form 2553 within three years and seventy-five days of the intended effective date to qualify for simplified relief procedures. Acting diligently to correct mistakes upon discovery strengthens your reasonable cause argument.
Shareholder Consent Requirements
Shareholder consent timing depends on when you file the election relative to its effective date. If filing before the effective date, only shareholders who own stock on the day the election is made must provide consent.
Filing on or after the effective date requires consent from all shareholders who owned stock at any time from the effective date through the filing date, even if they no longer hold shares. This distinction affects which former shareholders must participate in the election process.
Each consenting shareholder must sign Form 2553 and provide their taxpayer identification number. When filing by fax, signatures may be transmitted electronically, and the corporation should retain the original Form 2553 with corporate records. Community property rules affect consent requirements in certain states. Both spouses must consent when either spouse has a community interest in the stock or its income.
Filing Methods and Form Completion
The 2017 instructions authorize two filing methods for Form 2553. You may mail the original election to the designated Internal Revenue Service Center for your region, or you may fax the completed form to the appropriate fax number. When filing by fax, keep the original Form 2553 with your permanent corporate records. The IRS processes elections at designated service centers based on the corporation's principal business location.
Enter your corporation's legal name, Employer Identification Number, and principal business address exactly as shown on recent IRS correspondence or your most recent tax return. Specify the effective date carefully, particularly for new corporations. State the month and day the corporation first had shareholders, assets, or began conducting business operations. This information determines when your S corporation status begins for federal tax purposes.
Late elections may attach to Form 1120-S in certain circumstances when all earlier returns have been filed. Mark "FILED PURSUANT TO REV. PROC. 2013-30" in the top margin when requesting late-election relief.
Processing and Acceptance
The IRS generally issues acceptance or rejection notices within sixty days after receiving a complete and timely filed election. Follow up with the appropriate service center if you do not receive notification within this timeframe or within five months when requesting special tax-year approvals.
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