How Do I Check My Form 2553 Status?

Filing Form 2553 is the step a small business takes to be taxed as an S corporation. This election allows a company’s profits and losses to be passed through directly to the shareholders’ individual tax returns, which avoids the double taxation associated with C corporations. Since the process is not complete until the Internal Revenue Service (IRS) accepts the election, verifying the status of a submitted Form 2553 is an important step.

How to Check Your Filing Status

After submitting Form 2553, you can expect to receive correspondence from the IRS. The agency mails a letter notifying the corporation of its decision, which generally arrives within 60 days, but can take up to 90 days. If you do not receive a response within 90 days, you should call the IRS to check on its status.

To proactively check the status, call the IRS Business & Specialty Tax Line at 800-829-4933. Before calling, have the corporation’s full legal name, mailing address, and Employer Identification Number (EIN) available.

Only an authorized person, such as a corporate officer, can receive this information. A designated representative with a valid Form 2848, Power of Attorney and Declaration of Representative, on file with the IRS can also inquire. State that you are calling to confirm the status of your Form 2553 filing.

Understanding the IRS Response

The most favorable response is an official approval notice, the CP261 Notice. This letter serves as proof that your S corporation election has been accepted and will specify the date the status becomes effective. This document should be retained with the corporation’s permanent records, as it may be required by lenders or state tax authorities.

Conversely, the IRS may issue a rejection. Common issues include missing shareholder signatures, incomplete information, or the corporation failing to meet eligibility requirements. If you receive a rejection, the notice will explain the reason, and you will need to correct the error and refile the form.

Addressing a Late Filing Determination

A specific type of denial from the IRS is a determination that the Form 2553 was filed late. To be effective for the current tax year, the form must be filed no more than two months and 15 days after the beginning of that tax year. For a calendar-year corporation, this deadline is March 15. The form can also be filed at any point during the preceding tax year to take effect in the following year.

If the IRS denies the election solely because of a missed deadline, it is still possible to obtain approval by seeking late election relief. The IRS has procedures that allow a corporation to be treated as if it had filed on time, provided it can demonstrate a “reasonable cause” for the delay. This relief is most commonly sought under the guidelines in IRS Revenue Procedure 2013-30.

To request this relief, the corporation must file Form 2553 and attach a statement to the front of the form explaining the reasonable cause for the late submission. Examples of reasonable cause include reliance on a tax professional who failed to file or a natural disaster that disrupted business operations. The statement must be signed under penalty of perjury by an authorized officer.

The corporation must also explain that it has not filed any tax returns inconsistent with S corporation status for the year in question, such as a Form 1120. If the IRS accepts the reasonable cause explanation, it will treat the Form 2553 as if it were filed on time, granting the S corporation status retroactively.

Maintaining S Corporation Status

Once your S corporation election is approved, the focus shifts to ongoing compliance. The primary annual requirement is filing an informational tax return, Form 1120-S, U.S. Income Tax Return for an S Corporation. This form reports the corporation’s income, deductions, and credits, and the responsibility for paying tax on the income passes to the individual shareholders.

Beyond the annual tax filing, several rules must be followed to preserve S corporation status.

• The corporation must not have more than 100 shareholders.
• Shareholders must be ‘eligible,’ which means they are individuals, certain trusts, or estates.
• Partnerships and corporations are not permitted to be shareholders.
• Non-resident aliens are not permitted to be shareholders.

Another requirement is that the corporation may only have one class of stock. This means that all shares must confer identical rights to distribution and liquidation proceeds. While it is permissible to have differences in voting rights, the economic rights must remain uniform for all shareholders.

If a corporation violates one of these requirements, it can lead to an inadvertent termination of its S corporation status. This would cause the corporation to revert to being taxed as a C corporation, potentially resulting in a much higher tax liability.