IRS Form 2553 is a 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 is electing 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.
You can find the updated IRS Form 2553 on the IRS website. Make sure you have the last edition of the form since it may change from time to time.
Who Can File an S Corporation Election?
If the corporation meets the below requirements, it can file Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service (IRS) to elect to be taxed as an S Corporation.
1. Corporate Structure
The corporation must be domestic as defined in the Internal Revenue Code (IRC). A domestic corporation means a company incorporated in the US.
2. The Number of Shareholders
The corporation must have no more than 100 shareholders. Shareholders for an S corporation can be individuals, estates, certain trusts, and tax-exempt organizations.
3. 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.
4. Residency Requirement
All shareholders must be residents of the United States. 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.
5. Election Timing
The election must be made within 2 months and 15 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.
Can You Elect an LLC To Be an S Corporation?
An S Corporation election is only available for corporations that meet the eligibility requirements stated in Subchapter S by the Internal Revenue Code (IRC).
An LLC, by default, is considered a “disregarded entity” for federal tax purposes and must file as a sole proprietorship tax if it has one owner. And if the LLC 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.
If an LLC wants to be taxed as an S Corporation, it must first make an election to be taxed as a C Corporation. Then form 2553 must be filed for a subsequent election to be taxed as an S Corporation.
How to Fill Out IRS Form 2553?
It’s important to carefully read and follow the instructions for Form 2553 and the relevant IRS guidelines and regulations to ensure that the IRS accepts your election.
Form 2553 can be filled out by following these steps:
Identify the Correct Tax Year
The first step in filling out Form 2553 is to determine the correct tax year for which the S Corporation election is to be effective.
Provide Corporation Information
In Part, I of Form 2553, provide the corporation’s name, address, Employer Identification Number (EIN), and the date the corporation was incorporated.
Elect S Corporation Status
In Part II of Form 2553, make the election to be taxed as an S Corporation by checking the appropriate box.
Provide Shareholder Information
In Part III of Form 2553, provide the names, addresses, and ownership percentages of all shareholders of the corporation.
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.
Sign and Date the Form
Form 2553 must be signed and dated by all shareholders holding more than 50% of the corporation’s stock.
Mail, Fax, or E-file the 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.
How to File IRS Form 2553?
Form 2553 can be filed with the Internal Revenue Service (IRS) in the following ways:
- Mail: You can complete Form 2553 and mail it to the address specified on the form, which depends on the location (state) of the corporation.
- Faxing the form to the IRS is another acceptable method of filing. If you need to file Form 2553, you can fax the form to a specific fax number depending on the location (state).
- E-file: You can e-file Form 2553 using an approved e-file provider.
Where to file Form 2553 depends 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
When to File IRS Form 2553?
Form 2553 must be filed within 2 months and 15 days ( 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.
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, which is subject to double taxation.
Late S Corporation Election: IRS Form 2553 Late Filing Instruction
If an S Corporation election is filed after the deadline, the election will be considered late and may not be accepted by the Internal Revenue Service (IRS). If the election is rejected, the corporation will be taxed as a C Corporation, which is subject to 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 that it 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.
Suppose the IRS determines that the corporation has a valid reason for filing late and grants relief. In that case, the S Corporation election will be retroactively effective to the beginning of the tax year for which the election was intended.
Following the Revenue Procedure provides relief for late S Corporation elections.
Revenue Procedure 2003-43
Rev. Proc. 2003-43 is a simplified method for taxpayers to request relief for late S corporation elections and provides guidance on the consequences of failing to make a timely election or amending an election.
You can file Form 2553 “pursuant to Rev. Proc. 2003-43” in order to make a late S Corporation election. The request for relief must be filed within 24 months of the due date of the S corp election.
Revenue Procedure 2003-43
Rev. Proc. 2013-30 also grants relief for late-filing S corporation elections in certain circumstances. Late S corporation election cannot be later than 3 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 provided 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. 2003-30” 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 2003-43”.
Where to Sign in IRS Form 2553?
Form 2553 must be signed by all the corporation’s shareholders to be considered valid. The signature(s) of the shareholder(s) signify their consent to the election 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 officer of the corporation. 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.
Form 2553 must be filed to the IRS within 2 months and 15 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.
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.
Each state has its own tax laws and regulations, and some states may have specific requirements or restrictions. It depends on the state in which the corporation is formed and registered.
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 corporation 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
A shareholder is a person that owns stock in the corporation. Shareholders have a company ownership interest in the corporation. They are entitled to a portion of the corporation’s profit if any, and to vote on important matters, such as the election of directors and approval of major transactions.
Benefits of S Corporation Election
An S Corporation offers several tax and non-tax benefits, including:
- 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.
- Flexibility in the distribution of profits: S Corporations have the flexibility to distribute profits in any manner they choose, as long as the distribution is proportional to the ownership interests of the shareholders.
- Ability to attract investment: S Corporations can attract investment by issuing stock, making it easier to raise capital.
- Deduction of health insurance: Shareholders of an S Corporation can deduct the cost of their health insurance premiums as a business expense, providing a tax benefit.
- 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: Certain types of businesses, such as financial institutions and insurance companies, are not eligible to be taxed as an S Corporation.
- 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
It’s important to carefully review the relevant tax laws and regulations and to consult a tax professional if you have any questions or need assistance with the election to be taxed as an S Corporation.
