IRS Form 2553 is used to make an election with the Internal Revenue Service to have your business entity treated as an S corporation for tax purposes. The IRS will assume that it's a C corporation if you don't take this step, and your business would then be obligated to pay a corporate income tax on its net taxable income for the year.
You should establish your business entity in the state where the company will conduct the bulk of its business before you make the election.
What Is Form 2553?
Form 2553 notifies the IRS that you want to elect S corp status. Upon receipt and review, the IRS will then send a letter to your corporation confirming its election for this tax treatment or denying your request.
You must first incorporate your business by drawing up articles of incorporation, by-laws, and the various required legal documents that are required to form and operate your business. These can vary by state.
Who Uses Form 2553?
If your company meets the eligibility criteria for an S corporation and you've decided that you want to elect that status, you must prepare and file Form 2553, "Election by a Small Business Corporation," with the IRS. Eligibility criteria include:
- Yours is a domestic corporation.
- It has no more than 100 qualifying shareholders.
- It has only one class of stock.
- It's not ineligible to be a corporation.
Where to Get Form 2553
An interactive Form 2553 is available on the IRS website. You can complete it online and download a finished copy to print out.
How to Fill Out Form 2553
Form 2553 includes four parts and is relatively complex. Part I mostly asks for general information, such as your employer identification number (EIN), the effective date of your election, and identifying information for each shareholder. This is also where you'll sign.
Part II asks for information regarding the fiscal year you're selecting. Part III is dedicated to trusts, so you can skip this if you're not making a qualified Subchapter S Trust (QSST) election. Likewise, it's only necessary to complete Part IV if you're filing late.
You might want to enlist the help of a tax professional when completing this form so you're sure you get it right. It includes numerous technical questions, and while all are clearly labeled and explained, professional help could be necessary.
Can Form 2553 Be E-Filed?
Form 2553 can't be e-filed. You can mail in a paper copy of the original, or you can send it by fax to one of two numbers. The fax number will depend on the state where your corporation is located. The IRS provides a breakdown of which states should use which number on its website.
Where to Mail Form 2553
Likewise, the mailing address for Form 2553 depends on your state. There are two addresses, and the IRS cites which states should use which on its website.
Requirements for Filing Form 2553
Form 2553 must be filed before the 16th day of the third month of the corporation's tax year, or before the 15th day of the second month of a tax year if the tax year is 2½ months or less. You can also file the form at any time during the tax year before the year in which you want the election to take effect.
You can file at any time after these deadlines if your corporation follows special rules for making a late S corporation election. Here are some examples:
- ABC Corporation incorporated on July 1. ABC therefore has until October 16 to file Form 2553 for the S corporation election to be valid for the company's first year of operation.
- DEF Corporation incorporated on November 1 so its first tax year would be less than 2½ months long—November 1 through December 31. DEF therefore has until January 15 of the following year to file Form 2553 for the S corporation election to be valid for the company's first year of operation.
- GHI Corporation has been incorporated for several years and is currently taxed as a C corporation. GHI can file Form 2553 by December 31 if the company wants to convert to an S corporation in the following year.
Form 2553 requires the signature of each shareholder, so leave yourself ample time to take care of this.
Procedures for Late Elections
A corporation can file Form 2553 after the due date and still receive IRS approval to make the election retroactive to the beginning of the corporation's tax year.
Normally, if a corporation files Form 2553 after the 15th day of the third month of its tax year but before the 15th day of the third month of the following tax year, the IRS considers the S corporation election to be valid for the following tax year, but not valid for the preceding tax year.
The corporation must first make sure that it's eligible to make a late election. In addition to meeting S corporation eligibility criteria, it must have intended to be classified as an S corporation as of the intended effective date of the S corp election. The corporation can only have failed to qualify as an S corporation because it didn't file Form 2553 in a timely manner, and not for any other reason.
A corporation must have reasonable cause for missing the deadline, but the IRS is pretty generous in this regard. Inadvertently failing to file Form 2553 is considered reasonable cause.
The corporation must also provide statements that each of its shareholders have reported their incomes in a manner inconsistent with the corporation's intention to file as an S corporation. If your corporation meets these requirements, you should write "FILED PURSUANT TO REV. PROC. 2013-30" at the top of Form 2553.
Attach a statement indicating that the corporation either had reasonable cause or inadvertently failed to file Form 2553 in a timely manner. Explain the circumstances in detail. The attached statement must be signed by each shareholder.
Reasonable Cause for Filing Late
Reasonable cause refers to the specific facts or circumstances that caused the forms to be filed late. Be sure to address the following points when you're writing a reasonable cause statement:
- What happened and when did it happen?
- What facts and circumstances prevented filing during the period of time that the business entity had not yet filed the form?
- How did these facts and circumstances result in the form not being filed on time?
- How did the business entity handle the remainder of its financial and tax affairs during this time?
- What attempt did the business entity make to correct the situation when the facts and the circumstances changed?
Elections by Other Entities
IRS Form 8832 is used by business entities other than corporations that elect to be classified as S corporations for federal tax purposes. Other entities can make this election as well. A common example is a single-member limited liability company (LLC).
Ordinarily, a single-member LLC would be treated as a disregarded entity. It could elect to be treated as a corporation instead, then subsequently elect to be treated as an S corporation.
Sometimes the single-member limited liability company doesn't elect to be treated as a corporation and doesn't elect to be treated as an S corporation within the prescribed time frames. The IRS has developed procedures that permit such taxpayers to retroactively file both elections.
This procedure also applies to other tax entities, such as associations formed as partnerships and any business entity that would not normally be classified as a corporation for federal tax purposes.
Business entities must request both retroactive classification as corporations and retroactive election as S corporations under this procedure. The business entity must prepare Form 8832, including Part II, and it must also prepare Form 2553, including the reasonable cause statement in section H of Part I and the required representations found in Part IV.
- IRS Form 2553 is an election to have your business entity recognized as an S corporation for tax purposes.
- The form should be filed before the 16th day of the third month of the corporation's tax year, or before the 15th day of the second month of a tax year if the tax year is 2½ months or less.
- It’s possible to file Form 2553 late if you have “reasonable cause.”
- Business entities other than corporations must also file Form 8832.