What Is Form 2553 Used For? Filing for S Corp Status

Form 2553, “Election by a Small Business Corporation,” is the document an eligible entity files with the Internal Revenue Service (IRS) to be taxed as an S corporation. This election changes how the business is treated for federal tax purposes, shifting it from a default status like a C corporation. The form serves as a formal declaration that the company meets all qualifications and that its shareholders consent to the change.

Understanding the S Corporation Election

Filing Form 2553 allows a business to adopt a pass-through taxation structure. In a C corporation, profits are taxed at the corporate level and again on shareholders’ personal returns when distributed as dividends, a situation known as double taxation. The S corporation election is designed to prevent this.

Once the IRS approves the election, the corporation’s profits and losses are “passed through” directly to the shareholders instead of being taxed at the company level. Each shareholder reports their portion of the company’s income or loss on their individual tax returns and pays tax at their personal rate.

This method integrates the business’s income into each shareholder’s personal tax situation. The business itself still files an informational tax return, Form 1120-S, which reports the total income, deductions, profits, and losses, and details how those amounts are allocated among the shareholders.

Eligibility Requirements for Filing

To qualify for S corporation status, a business must satisfy several requirements set by the IRS:

• Be a domestic corporation created or organized in the United States.
• Have only one class of stock, where all shares have identical rights to distribution and liquidation proceeds, though differences in voting rights are permissible.
• Have no more than 100 shareholders, and for this count, members of a family can be treated as a single shareholder.
• Have only allowable shareholders, which includes individuals, certain trusts, and estates, but not partnerships, corporations, or non-resident aliens.

These criteria ensure the S corporation structure is used by the small businesses it was intended for. An entity must meet all of these requirements when the election is filed and must continue to meet them to maintain its S corporation status. A failure to adhere to these rules can result in the termination of the S corp election, reverting the business to a C corporation tax status.

Information and Documentation Needed to Complete Form 2553

To complete Form 2553, a business must have its exact legal name, mailing address, and Employer Identification Number (EIN). If an EIN has been applied for but not yet received, you can write “Applied for” in the designated box. The form also requires the date and state of incorporation.

A complete list of all shareholders is also necessary, including their name, address, and Social Security Number or EIN for trusts and estates. The form requires detailing the number of shares each person owns and the date they were acquired. This information is used to confirm the corporation meets shareholder eligibility rules.

The form can be downloaded from the IRS website. A shareholder consent statement is found in Part I, and every shareholder must sign and date it to signify their agreement. If there is not enough space on the form, a separate consent statement can be attached.

The Filing Process for Form 2553

To be effective for the current tax year, Form 2553 must be filed no later than two months and 15 days after the beginning of that tax year. For a business that uses the calendar year, this deadline is March 15. A corporation can also file the form at any time during the preceding tax year. If the form is filed after the deadline, the S corp election will typically become effective for the next tax year, unless the business qualifies for late relief by showing it had reasonable cause for the delay.

Form 2553 cannot be filed electronically and must be sent to the IRS by mail or fax. The correct mailing address or fax number depends on the state where the corporation’s main business is located, which is listed on the IRS website. Attaching Form 2553 to your annual corporate tax return does not count as a valid election. After submission, the IRS will review the application and, if approved, send a notification letter confirming the S corporation status and its effective date.