Form 2553 - Instructions

Purpose

A corporation or other entity eligible to elect to be treated as a corporation must use Form 2553 to make an election under section 1362(a) to be an S corporation. An entity eligible to elect to be treated as a corporation that meets certain tests discussed below will be treated as a corporation as of the effective date of the S corporation election and does not need to file Form 8832, Entity Classification Election.

The income of an S corporation generally is taxed to the shareholders of the corporation rather than to the corporation itself. However, an S corporation may still owe tax on certain income.

Who May Elect

A corporation or other entity eligible to elect to be treated as a corporation may elect to be an S corporation only if it meets all the following tests.

  • It is (a) a domestic corporation, or (b) a domestic entity eligible to elect to be treated as a corporation that timely files Form 2553 and meets all the other tests listed below.
  • It has no more than 100 shareholders. A husband and wife (and their estates) are treated as one shareholder for this test. A member of a family can elect under section 1361(c)(1) to treat all members of the family as one shareholder for this test. All other persons are treated as separate shareholders.
  • Its only shareholders are individuals, estates, exempt organisations described in section 401(a) or 501(c)(3), or certain trusts described in section 1361(c)(2)(A).
  • For information about the section 1361(d)(2) election to be a qualified subchapter S trust (QSST), see the instructions for Part III. For information about the section 1361(e)(3) election to be an electing small business trust (ESBT), see Regulations section 1.1361-1(m). For guidance on how to convert a QSST to an ESBT, see Regulations section 1.1361-1(j)(12). If these elections were not timely made, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.
  • It has no nonresident alien shareholders.
  • It has only one class of stock (disregarding differences in voting rights).
  • Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation's stock confer identical rights to distribution and liquidation proceeds. See Regulations section 1.1361-1(l) for details.

It has or will adopt or change to one of the following tax years.

  • A tax year ending December 31.
  • A natural business year.
  • An ownership tax year.
  • A tax year elected under section 444.
  • A 52-53-week tax year ending with reference to a year listed above.
  • Any other tax year (including a 52-53-week tax year) for which the corporation establishes a business purpose.
  • Each shareholder consents as explained in the instructions for column K.

A parent S corporation can elect to treat an eligible wholly-owned subsidiary as a qualified subchapter S subsidiary. If the election is made, the subsidiary's assets, liabilities, and items of income, deduction, and credit are treated as those of the parent. For details, see Form 8869, Qualified Subchapter S Subsidiary Election.

When To Make the Election

Complete and file Form 2553 (a) at any time before the 16th day of the 3rd month of the tax year the election is to take effect, or (b) at any time during the tax year preceding the tax year it is to take effect. An election made no later than 2 months and 15 days after the beginning of a tax year that is less than 2½ months long is treated as timely made for that tax year.

An election made after the 15th day of the 3rd month but before the end of the tax year generally is effective for the next tax year. However, an election made after the 15th day of the 3rd month will be accepted as timely filed if the corporation can show that the failure to file on time was due to reasonable cause.

To request relief for a late election, the corporation generally must request a private letter ruling and pay a user fee in accordance with Rev. Proc. 2005-1, 2005-1 I.R.B. 1 (or its successor). However, the ruling and user fee requirements may not apply if the following revenue procedures apply.

  • If an entity eligible to elect to be treated as a corporation (a) failed to timely file Form 2553, and (b) has not elected to be treated as a corporation, see Rev. Proc. 2004-48, 2004-32 I.R.B. 172.
  • If a corporation failed to timely file Form 2553, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.
  • If Form 1120S was filed without an S corporation election and neither the corporation nor any shareholder was notified by the IRS of any problem with the S corporation status within 6 months after the return was timely file.