IRS Form 2553 is used to make an election with the IRS to treat your business entity as an S corporation for tax purposes. If you don’t take this step, the IRS will assume it’s a C corporation, and your business will then be obligated to pay corporate income tax on its net taxable income for the year. Before you make your choice, you should establish your business entity in the state where the company will conduct most of its business.
What is Form 2553?
Form 2553 notifies the IRS that you are choosing S corp status. After receipt and review, the IRS will send your business a letter confirming its selection for this tax treatment or denying your request. You must first incorporate your business by drafting articles of incorporation, articles of association, and various legal documents required to form and operate your business. These may vary by state.
Who uses Form 2553?
If your corporation meets the eligibility criteria for an S corporation and you decide you want to choose that status, you must prepare and file Form 2553 S Corp Election with the IRS. Eligibility criteria include:
- You are a domestic company.
- It has no more than 100 eligible shareholders.
- It has only one class of stock.
- Not ineligible to be a company.
Where to get Form 2553
The Interactive Form 2553 is basically available on the official IRS website. You can do it online and download the finished copy to print it.
How to Fill Out Form 2553
Form 2553 consists of four parts, which are more complicated. The first section primarily asks for general information such as your Employer Identification Number (EIN), the effective date of your election, and identifying information for each shareholder. The second part asks for information about your chosen fiscal year. The third section is dedicated to trusts, so you can skip this section if you are not making a Qualifying Subchapter S Trust (QSST) election. Again, you only need to complete Part IV if you are late.
Can Form 2553 be electronically filed?
Form 2553 cannot be filed electronically. You can mail a paper copy of the original or fax it to one of two numbers. The fax number depends on the state where your business is located.
Where to Mail Form 2553
Again, the mailing address for Form 2553 depends on your state. There are two addresses, and the IRS cites which states should use which address on their website.
Requirements for filing Form 2553
Form 2553 must be filed by the 16th of the third month of the corporation’s tax year, or by the 15th of the second month of the tax year if the tax year is 2.5 months or less. You can also file the form any time during the tax year you want the election to take effect. If your corporation follows special rules for Late Election for S Corp Election, you can file at any time after these deadlines. Here are some examples:
- ABC Corporation was incorporated on July 1. Therefore, ABC must file Form 2553 by October 16 for the S corporation election to be valid for the first year of operation of the corporation.
- A DEF corporation was incorporated on November 1, so its first tax year will be less than 2.5 months – from November 1 to December 31. Therefore, the DEF must file Form 2553 by January 15 of the following year for an S corporation election to the corporation’s first year of operations.
- GHI Corporation has been established for several years and is currently taxed as a C corporation. If the corporation wants to convert to an S corporation in the following year, GHI has until December 31 to file Form 2553.
Delayed election process
Corporations can file Form 2553 after the deadline and still receive approval from the IRS to have the election retroactive to the beginning of the corporation’s tax year. Generally, if a corporation files Form 2553 after the 15th of the third month of its tax year but before the 15th of the third month of the next tax year, the IRS considers the S corporation’s election to be valid for the next tax year, but not valid for the previous tax year. The company must first ensure it is eligible for a delayed election. In addition to meeting the eligibility criteria for an S corporation, it must also be classified as an S corporation on the scheduled effective date of the S corporation election. The corporation can only fail to become an S corporation by failing to file Form 2553 in a timely manner and not for any other reason.