IRS Form 2553

IRS Form 2553 is an official form required by the IRS to elect a Corporation to be taxed as an S-Corporation. When a corporation files Form 2553 accurately and timely, it elects to be a small business corporation under Subchapter S of the Internal Revenue Code (IRC). An S Corporation is taxed differently from a traditional C Corporation. An S Corporation is a pass-through entity. So, the corporation’s income, deductions, and tax credits flow to the shareholders. These shareholders report their income on their individual tax returns.

Download IRS form 2553

IRS Form 2553

Where to find the 2553 Form?

You can find the updated 2553 Form on the IRS website. Make sure you have the last edition of the form since it may change from time to time.

You can also contact a tax professional or attorney to fill it out. Although this option is more expensive, you will have proper guidance and consultation for your election. 

However, this article will provide you with plenty of information to file the S-corp election.

Three Key Elements of S-corp Election: Qualification, Accuracy, and Timing

When making an S Corporation election, three crucial elements come into play: qualification, accuracy, and timing. Ensuring eligibility, completing the process correctly, and meeting the designated timeframe are vital for a successful S-corp election.

Qualification:

You must establish a legal entity: LLC, or corporation. Your entity must qualify for the S-corp election. There are some conditions, such as the number of shareholders, entity type, etc. Read below in this article for more about qualifications before filing your S-corp election.

Accuracy:

You must accurately fill out the 2553 Form to be accepted by the IRS. Incorrect or missing information may lead to rejection of your S-corp election. You must follow the steps below to file an accurate 2553 form.

Timing: 

Timing means a deadline, and you must file your election by a specific time. If you file Form 2553 after a particular time, it may be rejected, or the start date may differ from the desired date. You can also backdate your S-corp election by filing a late S-corp election, which is more complicated than the regular one. 

Who Can File an S Corporation Election?

If the corporation meets the below requirements, it can file the 2553 Form with the Internal Revenue Service (IRS) to elect to be taxed as an S Corporation.

Corporate Structure

The corporation must be domestic as defined in the Internal Revenue Code (IRC). A domestic corporation is an eligible entity or company incorporated in the US.

The Number of Shareholders

There is a 100-shareholder limit for the companies electing S-corp. The number of shareholders (owners) cannot be more than one hundred. Shareholders for an S corporation can be individuals, estates, certain trusts, and tax-exempt organizations.

Types of Shareholders

The corporation may have only one stock class. Some corporations may issue different types of stocks, such as preferred and common. Such corporations cannot file IRS form 2553 and are not qualified to be S Corporations.

Residency Requirement

All owners of the company must live in the United States, and they must be official residents of the US. The corporation may not have nonresident alien shareholders. For example, if the corporation has shareholders from overseas who are not US residents, that corporation cannot be elected to an S Corporation.

Election Deadline

It is crucial to ensure that the timing of your S Corporation status is accurate. You must select the appropriate start date and file the 2553 Form correctly. The election must be timely and no later than 75 days (two months and 15 days) after the start of the tax year or by the deadline of the corporation’s tax return, including any extensions.

Can You Elect an LLC To Be an S Corporation By Filing the 2553 Form?

Yes. But An S Corporation election is only available for entities that meet the eligibility requirements stated in Subchapter S by the Internal Revenue Code (IRC).

When you start an LLC for one owner, by default, it is a “disregarded entity” for federal tax purposes. You must file as a sole proprietorship tax for that Single-member LLC. And if the entity has more than one owner, then a separate partnership( Form 1065) return is filed. However, an LLC can make an election for C Corporation or S Corporation election by filing Form 8832 and or 2553.

If you want your LLC to be treated as an S Corporation for taxation purposes, you can begin by choosing to be taxed as a C Corporation (by filing the 8832 form). Then, you need to file Form 2553 to make a separate election for S Corporation taxation.

However, in practice, many people directly file the 2553 form for a single-member LLC or multi-member LLC, IRS accepts it without any problem.

How to Fill Out IRS Form 2553?

To ensure IRS acceptance, follow the instructions and IRS guidelines for Form 2553. Accurately complete the form by gathering the required information, reviewing it for completeness, and filing within the deadline. If you don’t fill out the 2553 Form correctly, your S-corp election may be rejected, and you may end up filing a wrong tax return. An incomplete S-corp election application may cost unnecessary tax penalties and tax-saving opportunities.

Key Steps to File and Accurate IRS Form 2553

Follow these steps for a successful S Corporation election.

Step 1: Provide Corporation Information

In the election information section of Part I of Form 2553, provide the corporation’s name, address, Employer Identification Number (EIN), and the date the corporation or LLC was established. You must also indicate the state name where the entity is formed, for example, Virginia.

Step 2: S-corp effective date

Enter the date you want your S-corp status to begin in line E of Form 2553. If you just registered an LLC, that is the S-corp effective. If you established your company the previous year, you might need to enter January 1.

Step 3: Identify the Correct Tax Year

Check the box for the correct tax year for your S-corporation tax filing. Most companies follow a calendar year, which starts on January 1st and ends on December 31.

Step 4. Legal representative

Write the name and last name of the legal representative of your S-corporation on the first line of box H. Legal representative is usually the company owner. Type the title in the second line of this section. Also don’t forget to write your phone number.

Step5: Provide Shareholder Information

You must provide all corporation shareholders’ names, addresses, social security numbers, and ownership percentages on the second page of the 2553 Form. The ownership start date is the day when a particular shareholder receives an ownership interest in the company.  For example, it is the same as the LLC registration date for Single-member LLC owners. 

Step6: Signature of Officer

An officer of the corporation must sign and type the title ( such as President) and date in Part I of Form 2553. Titles may differ depending on the entity type, such as President if you have a corporation or Managing Member if you established an LLC.

Step 7: Fax or Mail the 2553 Form

The completed Form 2553 must be sent to the IRS within 75 days after the beginning of the tax year for which the S Corporation election is to be effective or by the due date of the corporation’s tax return, including extensions. You can eighter fax or mail it to the correct address. In some cases, you may also send your election with your first S-corp tax return, form 1120-S. However, you must indicate on the form that Form 2553 is attached to the tax return.

When to File the 2553 Form?

To ensure a successful S Corporation election, file the 2553 Form within 75 days after the tax year begins or by the corporation’s tax return deadline (including extensions). Acting promptly and meeting the deadline ensures the desired effective date for S Corporation status.

For example, if a corporation wants the S Corporation election to be effective for the tax year starting on January 1, 2023, then Form 2553 must be filed by March 15, 2023, or by the due date of the corporation’s tax return, including extensions, if later.

It’s important to file Form 2553 on time. If the election is late, the corporation will be taxed as a C Corporation, subject to double taxation.

Late S Corporation Election: IRS Form 2553 Late Filing Instruction

Filing an S Corporation election after the deadline is considered late and may not be accepted by the IRS. If the election is rejected, the corporation will be taxed as a C Corporation, facing double taxation.

However, in some cases, the IRS may accept a late S Corporation election if the corporation can demonstrate that it had a valid reason for filing late, such as reasonable cause, and acted promptly to correct the error once it was discovered.

The corporation must submit a written statement explaining the reasons for the late filing on Form 2553 to request relief for a late S Corporation election. 

If the IRS grants relief for a valid reason, a late-filed S Corporation election can be retroactively effective to the intended tax year’s start. This allows the corporation to enjoy the benefits of S Corporation status from the beginning of that tax year.

Following the Revenue Procedure provides relief for late S Corporation elections.

Revenue Procedure 2013-30

Rev. Proc. 2013-30 grants relief for late-filing S corporation elections in certain circumstances. Late S corporation election can be up to three years and 75 days from the date of the relief.

How to File the Late Election Using the Revenue Procedure?

One of the Revenue Procedures above can be used for the late S Corporation election. The late election form 2553 is usually filed with the S corporation tax return (1120-S) for that period. Type the “FILED PURSUANT TO REV. PROC. 2013-30” on top of form 2553. Then write an explanation in Section I, Part 1 of Form 2553. For example, “Inadvently failed to file Form 2553 on time. Please accept our application for relief of an S Corporation election under Revenue Procedure 2013-30”.

Where to Sign in the IRS Form 2553?

To be considered valid, all corporation shareholders must sign Form 2553, indicating their agreement to be taxed as an S Corporation.

The signature(s) must be original and must be dated. A signature stamp or a typed signature is not acceptable.

In addition to the shareholder signature(s), Form 2553 must also be signed by an authorized corporate officer. For example, the President, secretary, or treasurer can sign it. The officer’s signature certifies that the information on the form is true and that the corporation is eligible to make the election to be taxed as an S Corporation.

You need to submit the 2553 Form to the IRS no later than 75 days from the day that you want the S Corporation election to take effect or by the deadline of the corporation’s tax return, including any extensions.

How to File IRS Form 2553?

You can file the 2553 Form with the Internal Revenue Service (IRS) in the following ways:

1. Mail: You can complete Form 2553 and mail it to a specific address, which depends on the location (state) of the corporation.
2. Faxing the form to the IRS is another acceptable method of filing. If you need to file Form 2553, you can fax the document to a specific fax number depending on the location (state).
3. E-file: You can e-file Form 2553 using an approved e-file provider. 

Where to file Form 2553?

You must file a 2553 Form depending on the corporation’s principal business, office, or agency location. 

For States: 

Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine,

Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina,

Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin

If your corporation is located in any state above, fax the signed 2553 Form to 855-887-7734 

or mail to 

Department of the Treasury

Internal Revenue Service

Kansas City, MO 64999

For States:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,

Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North

Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming

If your corporation’s location is in any state listed above, fax the signed 2553 Form to 855-214-7520

or mail to 

Department of the Treasury

Internal Revenue Service

Ogden, UT 84201

How to Report S Corporation Election to Your State?

All states recognize and accept the S Corporation election for federal tax purposes. However, the election may have different state tax implications and may not automatically extend to state tax purposes.

Tax laws and regulations can differ from state to state, meaning that each state has its own unique set of requirements and limitations when it comes to corporations. These requirements and restrictions are determined based on the state where the corporation is established and registered. It’s essential to understand and adhere to the specific laws of the state to ensure compliance and prevent any potential complications.

The election is only valid for federal tax purposes and does not automatically extend to state tax purposes. To determine if your state accepts the S Corporation election for state tax purposes, check the state tax agency where your corporation is formed and registered. For example, if your S corporation is for a Virginia corporation, you file a pass-through entity tax return with the state. However, you file a franchise tax return for an S-corp in the District of Columbia and pay franchise tax on the company level. 

Officer of S Corporation vs. Shareholder of S Corporation

Officers and shareholders can receive a share of the corporation’s profits in an S Corporation. However, how the profits are taxed can be different for officers and shareholders, depending on the specific circumstances of the corporation and the individuals involved.

Officers of a Corporation

An officer is an individual who holds a position of responsibility within the corporation, such as President, vice president, secretary, or treasurer. An officer is responsible for managing the corporation’s day-to-day operations. For example, he/she makes important decisions and ensures that the corporation complies with all applicable laws and regulations.

Shareholders of a Corporation

Shareholders are individuals who own stocks in a corporation, giving them a stake in the company’s ownership. They have the right to receive a share of the corporation’s profits and participate in key decisions like electing directors and approving significant transactions.

Benefits of S Corporation Election

An S Corporation offers several tax and non-tax benefits, including:

1. Avoidance of double taxation

An S Corporation is not taxed at the corporate level, as the company’s income, deductions, and credits pass through to the shareholders and are only taxed on their individual tax returns.

2. Flexibility in the distribution of profits

S Corporations can distribute profits in any manner they choose, as long as the distribution is proportional to the shareholders’ ownership interests.

3. Ability to attract investment

S Corporations can attract investment by issuing stock, making it easier to raise capital.

4. Potential for lower self-employment taxes

Shareholders of an S Corporation may be eligible for lower self-employment taxes. 

Disadvantages of S Corporation Election

An S Corporation has some tax advantages, but it also has drawbacks. Some of the disadvantages include:

Complexity

S Corporation elections and taxation can be more complex than traditional C Corporations due to the requirement to follow specific rules and regulations related to Subchapter S of the Internal Revenue Code (IRC).

Limits on shareholders

An S Corporation can have no more than 100 shareholders and cannot have nonresident alien shareholders or more than one class of stock. This restriction may limit the ability of the corporation to raise capital or attract a diverse group of investors.

Limits on the types of businesses

Some businesses, like banks and insurance companies, cannot be taxed as S Corporations. They are not eligible for this tax status due to their specific nature and industry.

Payroll taxes

The wages and salaries paid to the shareholder-employees of an S Corporation are subject to payroll taxes, which can be a significant expense for the corporation.

Distributions

Distributions to shareholders in an S Corporation are considered taxable dividends, even if the corporation has not generated any taxable income. This can result in double taxation for the shareholders.

Summary for IRS Form 2553

S Corp offers many benefits, but you need to make sure the S-corp election is a good decision. It is more complicated to change the status of your LLC or Corporation once you file the 2553 Form. Carefully review the relevant tax laws and regulations about your S corporation election timing. You have to be sure all the information you have written is accurate and the form is signed correctly and filed timely.