The IRS 2553 form, officially titled "Election by a Small Business Corporation," serves a crucial function for businesses choosing to be treated as an S corporation for tax purposes. This election allows companies to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The form must be filed with the Internal Revenue Service to take effect.
Filing taxes can often seem like a daunting task, especially for small business owners navigating the complexities of their financial obligations to the Internal Revenue Service (IRS). Among the numerous forms the IRS requires, one notable document is the IRS 2553 form, a critical form for businesses that choose to be taxed as an S corporation. This election allows businesses to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The form itself serves as the official request to the IRS for S corporation status, and its proper completion and timely submission are crucial for businesses looking to benefit from this taxation structure. Understanding the specifics of the form, including who needs to file it, the filing deadline, and the detailed information required, can help ensure that businesses comply with IRS requirements and avoid potential pitfalls associated with incorrect filings.
Note: Form 2553 begins on the next page.
Where To File Form 2553 after 6/17/19
If the corporation’s principal business, office,
Use the following address
or agency is located in
or fax number
Connecticut, Delaware, District of Columbia,
Department of the Treasury
Georgia, Illinois, Indiana, Kentucky, Maine,
Internal Revenue Service
Maryland, Massachusetts, Michigan, New
Kansas City, MO 64999
Hampshire, New Jersey, New York, North Carolina,
Ohio, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Vermont, Virginia, West Virginia,
Fax # 855-887-7734
Wisconsin
Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,
Louisiana, Minnesota, Mississippi, Missouri,
Ogden, UT 84201
Montana, Nebraska, Nevada, New Mexico, North
Dakota, Oklahoma, Oregon, South Dakota, Texas,
Utah, Washington, Wyoming
Fax # 855-214-7520
Form 2553
(Rev. December 2017)
Department of the Treasury Internal Revenue Service
Election by a Small Business Corporation
(Under section 1362 of the Internal Revenue Code)
(Including a late election filed pursuant to Rev. Proc. 2013-30)
▶You can fax this form to the IRS. See separate instructions.
▶Go to www.irs.gov/Form2553 for instructions and the latest information.
OMB No. 1545-0123
Note: This election to be an S corporation can be accepted only if all the tests are met under Who May Elect in the instructions, all shareholders have signed the consent statement, an officer has signed below, and the exact name and address of the corporation (entity) and other required form information have been provided.
Part I
Election Information
Name (see instructions)
A Employer identification number
Type
Number, street, and room or suite no. If a P.O. box, see instructions.
B Date incorporated
or
Print
City or town, state or province, country, and ZIP or foreign postal code
C State of incorporation
D
Check
the applicable box(es) if the corporation (entity), after applying for the EIN shown in A above, changed its
name or
address
EElection is to be effective for tax year beginning (month, day, year) (see instructions) . . . . . . ▶
Caution: A corporation (entity) making the election for its first tax year in existence will usually enter the beginning date of a short tax year that begins on a date other than January 1.
FSelected tax year:
(1) Calendar year
(2) Fiscal year ending (month and day) ▶
(3) 52-53-week year ending with reference to the month of December
(4) 52-53-week year ending with reference to the month of ▶
If box (2) or (4) is checked, complete Part II.
GIf more than 100 shareholders are listed for item J (see page 2), check this box if treating members of a family as one shareholder results in no more than 100 shareholders (see test 2 under Who May Elect in the instructions) ▶
HName and title of officer or legal representative whom the IRS may call for more information
Telephone number of officer or legal representative
IIf this S corporation election is being filed late, I declare I had reasonable cause for not filing Form 2553 timely. If this late election is being made by an entity eligible to elect to be treated as a corporation, I declare I also had reasonable cause for not filing an entity classification election timely and the representations listed in Part IV are true. See below for my explanation of the reasons the election or elections were not made on time and a description of my diligent actions to correct the mistake upon its discovery. See instructions.
Under penalties of perjury, I declare that I have examined this election, including accompanying documents, and, to the best of my
Sign knowledge and belief, the election contains all the relevant facts relating to the election, and such facts are true, correct, and complete.
Here
▲Signature of officer
Title
Date
For Paperwork Reduction Act Notice, see separate instructions.
Cat. No. 18629R
Form 2553 (Rev. 12-2017)
Page 2
Name
Employer identification number
Part I Election Information (continued) Note: If you need more rows, use additional copies of page 2.
J
Name and address of each
shareholder or former shareholder required to consent to the election.
(see instructions)
K
Shareholder’s Consent Statement
Under penalties of perjury, I declare that I consent to the election of the above-named corporation (entity) to be an S corporation under section 1362(a) and that I have examined this consent statement, including accompanying documents, and, to the best of my knowledge and belief, the election contains all the relevant facts relating to the election, and such facts are true, correct, and complete. I understand my consent is binding and may not be withdrawn after the corporation (entity) has made a valid election. If seeking relief for a late filed election, I also declare under penalties of perjury that I have reported my income on all affected returns consistent with the S corporation election for the year for which the election should have been filed (see beginning date entered on line E) and for all subsequent years.
Signature
L
Stock owned or
percentage of ownership
Number of
shares or
percentage
Date(s)
of ownership
acquired
M
Social security
number or
N
employer
Shareholder’s
identification
tax year ends
number (see
(month and
instructions)
day)
Page 3
Part II
Selection of Fiscal Tax Year (see instructions)
Note: All corporations using this part must complete item O and item P, Q, or R.
O Check the applicable box to indicate whether the corporation is:
1.
A new corporation adopting the tax year entered in item F, Part I.
2.
An existing corporation retaining the tax year entered in item F, Part I.
3.
An existing corporation changing to the tax year entered in item F, Part I.
PComplete item P if the corporation is using the automatic approval provisions of Rev. Proc. 2006-46, 2006-45 I.R.B. 859, to request (1) a natural business year (as defined in section 5.07 of Rev. Proc. 2006-46) or (2) a year that satisfies the ownership tax year test (as defined in section 5.08 of Rev. Proc. 2006-46). Check the applicable box below to indicate the representation statement the corporation is making.
1. Natural Business Year ▶
I represent that the corporation is adopting, retaining, or changing to a tax year that qualifies
as its natural business year (as defined in section 5.07 of Rev. Proc. 2006-46) and has attached a statement showing separately for each month the gross receipts for the most recent 47 months. See instructions. I also represent that the corporation is not precluded by section 4.02 of Rev. Proc. 2006-46 from obtaining automatic approval of such adoption, retention, or change in tax year.
2. Ownership Tax Year ▶
I represent that shareholders (as described in section 5.08 of Rev. Proc. 2006-46) holding more
than half of the shares of the stock (as of the first day of the tax year to which the request relates) of the corporation have the same tax year or are concurrently changing to the tax year that the corporation adopts, retains, or changes to per item F, Part I, and that such tax year satisfies the requirement of section 4.01(3) of Rev. Proc. 2006-46. I also represent that the corporation is not precluded by section 4.02 of Rev. Proc. 2006-46 from obtaining automatic approval of such adoption, retention, or change in tax year.
Note: If you do not use item P and the corporation wants a fiscal tax year, complete either item Q or R below. Item Q is used to request a fiscal tax year based on a business purpose and to make a back-up section 444 election. Item R is used to make a regular section 444 election.
QBusiness Purpose—To request a fiscal tax year based on a business purpose, check box Q1. See instructions for details including payment of a user fee. You may also check box Q2 and/or box Q3.
1. Check here ▶ if the fiscal year entered in item F, Part I, is requested under the prior approval provisions of Rev. Proc. 2002-39, 2002-22 I.R.B. 1046. Attach to Form 2553 a statement describing the relevant facts and circumstances and, if applicable, the gross receipts from sales and services necessary to establish a business purpose. See the instructions for details regarding the gross receipts from sales and services. If the IRS proposes to disapprove the requested fiscal year, do you want a conference with the IRS National Office?
Yes
No
2.Check here ▶ to show that the corporation intends to make a back-up section 444 election in the event the corporation’s business purpose request is not approved by the IRS. See instructions for more information.
3.Check here ▶ to show that the corporation agrees to adopt or change to a tax year ending December 31 if necessary for the IRS to accept this election for S corporation status in the event (1) the corporation’s business purpose request is not approved and the corporation makes a back-up section 444 election, but is ultimately not qualified to make a section 444 election, or (2) the corporation’s business purpose request is not approved and the corporation did not make a back-up section 444 election.
RSection 444 Election—To make a section 444 election, check box R1. You may also check box R2.
1.Check here ▶ to show that the corporation will make, if qualified, a section 444 election to have the fiscal tax year shown in item F, Part I. To make the election, you must complete Form 8716, Election To Have a Tax Year Other Than a Required Tax Year, and either attach it to Form 2553 or file it separately.
2.Check here ▶ to show that the corporation agrees to adopt or change to a tax year ending December 31 if necessary for the IRS to accept this election for S corporation status in the event the corporation is ultimately not qualified to make a section 444 election.
Page 4
Part III Qualified Subchapter S Trust (QSST) Election Under Section 1361(d)(2)* Note: If you are making more than
one QSST election, use additional copies of page 4.
Income beneficiary’s name and address
Social security number
Trust’s name and address
Date on which stock of the corporation was transferred to the trust (month, day, year) . . . . . . . . ▶
In order for the trust named above to be a QSST and thus a qualifying shareholder of the S corporation for which this Form 2553 is filed, I hereby make the election under section 1361(d)(2). Under penalties of perjury, I certify that the trust meets the definitional requirements of section 1361(d)(3) and that all other information provided in Part III is true, correct, and complete.
Signature of income beneficiary or signature and title of legal representative or other qualified person making the election
*Use Part III to make the QSST election only if stock of the corporation has been transferred to the trust on or before the date on which the corporation makes its election to be an S corporation. The QSST election must be made and filed separately if stock of the corporation is transferred to the trust after the date on which the corporation makes the S election.
Part IV Late Corporate Classification Election Representations (see instructions)
If a late entity classification election was intended to be effective on the same date that the S corporation election was intended to be effective, relief for a late S corporation election must also include the following representations.
1The requesting entity is an eligible entity as defined in Regulations section 301.7701-3(a);
2The requesting entity intended to be classified as a corporation as of the effective date of the S corporation status;
3The requesting entity fails to qualify as a corporation solely because Form 8832, Entity Classification Election, was not timely filed under Regulations section 301.7701-3(c)(1)(i), or Form 8832 was not deemed to have been filed under Regulations section 301.7701-3(c)(1)(v)(C);
4The requesting entity fails to qualify as an S corporation on the effective date of the S corporation status solely because the S corporation election was not timely filed pursuant to section 1362(b); and
5a The requesting entity timely filed all required federal tax returns and information returns consistent with its requested classification as an S corporation for all of the years the entity intended to be an S corporation and no inconsistent tax or information returns have been filed by or with respect to the entity during any of the tax years, or
bThe requesting entity has not filed a federal tax or information return for the first year in which the election was intended to be effective because the due date has not passed for that year’s federal tax or information return.
When a business opts to be treated as an S corporation, it must file Form 2553 with the IRS. This election impacts how the company is taxed, potentially leading to tax savings and influencing its financial and operational strategy. The process of completing Form 2553 is a critical step for businesses choosing this tax status. Adhering to the correct procedure ensures that the election is made effectively and within the specified time frame. The following guidelines are designed to assist in accurately completing and submitting the form.
Steps for Filling Out IRS Form 2553:
After submitting Form 2553, the waiting begins. The IRS will review the form, a process that can take several weeks. A response will be sent, formally accepting or denying the S corporation election. If accepted, the business will be taxed under Subchapter S of the Internal Revenue Code, starting with the elected tax year. It's crucial during this waiting period to maintain compliance with all other tax obligations and operational requirements as normal. An acceptance letter from the IRS is a key document, signifying the transition to S corporation status and should be kept for the company's records.
What is the IRS 2553 form used for?
The IRS 2553 form, also known as the "Election by a Small Business Corporation," is used by small businesses to be taxed as an S corporation. This election allows profits and losses to pass directly to the shareholders' personal tax returns, avoiding double taxation at the corporate level.
Who needs to file the IRS 2553 form?
Businesses that want to be taxed as an S corporation must file the IRS 2553 form. This includes any business entity that meets the IRS requirements for S corporations, such as having 100 or fewer shareholders, being a domestic corporation, and having only allowable shareholders (individuals, certain trusts, and estates, but not partnerships or corporations).
When should the IRS 2553 form be filed?
The IRS 2553 form should be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect. For a new company, this usually means the form should be filed shortly after the company is formed. Existing businesses that want to change their tax status can also file, but the timing requirements are the same relative to their tax year.
How can a business file the IRS 2553 form?
Businesses have two options for filing the IRS 2553 form: by mail or by fax. Detailed instructions, including the appropriate fax number and mailing address, can be found on the IRS website or in the form's instructions. The form needs to be signed by all shareholders to be valid.
What happens if the IRS 2553 form is filed late?
If the form is filed late, an S corporation election might still be accepted if the company can show that the failure to file on time was due to reasonable cause. The IRS reviews these situations on a case-by-case basis, and it's important to provide a detailed explanation of the reasons for the delay.
Can the IRS 2553 election be revoked?
Yes, an S corporation election can be revoked, but there are specific rules about how and when this can be done. Generally, to revoke the election, more than half of the corporation's shareholders must agree to the revocation. The process involves written consent and, in some cases, a new tax filing. It's crucial to consult the IRS rules or a tax professional to understand the implications and the correct procedure.
Filling out IRS Form 2553, the election by a Small Business Corporation form, is a critical step for businesses electing to be taxed under Subchapter S of the Internal Revenue Code (S corp status). However, common mistakes can create bumps in the road towards obtaining this beneficial tax status. Here’s a closer look at seven pitfalls you should avoid.
Steering clear of these pitfalls elevates the chance of a smooth process in securing S corporation status, optimizing tax outcomes, and supporting business growth.
When a business decides to elect S corporation status by filing the IRS 2553 form, it's stepping into a structured tax regime that necessitates compliance with various reporting and documentation requirements. The 2553 form is just the beginning. Alongside this essential document, there are several other forms and documents often needed to complete the process, ensure compliance, and fully benefit from the S corporation election. Here's a look at some of these pivotal documents.
Securing the S corporation status involves intricate paperwork beyond just the IRS 2553 form. From setting up the business with the IRS via Form SS-4 to detailing the business's income on Form 1120S, and handling employment taxes through Forms 941 and 940, each document plays a critical role. Additionally, maintaining a Shareholder Agreement ensures clarity and fairness among stakeholders. Proper attention to these documents will pave the way for a successful S corporation journey.
The IRS 2553 form, known for its role in electing S corporation status for small businesses, shares similarities with a variety of other tax and business forms. One such document is the IRS Form 8832, Entity Classification Election. Both forms allow an entity to choose how it is classified for federal tax purposes, though Form 8832 offers a broader range of choices, enabling entities to be taxed as corporations, partnerships, or disregarded entities, dependant on the entity's structure and elections.
Similarly, the IRS Form 1120-S, U.S. Income Tax Return for an S Corporation, is closely related to Form 2553. Once a business elects S corporation status using Form 2553, it must annually file Form 1120-S to report income, gains, losses, deductions, credits, etc. This form ensures that the income of the corporation is passed through to the shareholders and taxed at their individual tax rates, highlighting the pass-through entity feature of S corporations.
The IRS W-9 form, Request for Taxpayer Identification Number and Certification, also shares a connection with Form 2553, primarily through its role in tax identification. While Form 2553 is used to elect a specific tax status, the W-9 is often required by financial institutions or entities that pay S corporations, to ensure correct identification and reporting of income to the IRS and to prevent backup withholding.
Form SS-4, Application for Employer Identification Number (EIN), is another document with ties to Form 2553. Whether electing to be taxed as an S corporation or not, businesses need an EIN for tax reporting purposes. This parallels the requirement of having a specific tax identification to elect S corp status through Form 2553, emphasizing the necessity of formal business identification in both processes.
The IRS Form 1065, U.S. Return of Partnership Income, though more directly associated with partnerships, shares an elective nature with Form 2553. Businesses opting for partnership status use Form 1065 to report their financial details to the IRS, similar to how S corporations report using Form 1120-S after filing Form 2553. Both documents are pivotal for entities choosing a tax status that benefits their financial and operational goals.
Another related document is the Articles of Incorporation, which is necessary for creating a corporation at the state level. While the Articles of Incorporation establish the company's legal existence, Form 2553 is used to elect its tax status with the federal government. The two documents are crucial at different stages of a business's lifecycle, from formation to electing how it is taxed.
The Operating Agreement for LLCs, though not a form filed with the IRS, is similar in spirit to Form 2553. It outlines the operational and financial decisions of an LLC, including how profits and losses are shared. While the Operating Agreement dictates internal operations, Form 2553 interacts with the IRS to determine the company's tax handling externally.
Lastly, the IRS Form 1040, U.S. Individual Income Tax Return, connects with Form 2553 through the S corporation's pass-through taxation feature. Shareholders of an S corp report their share of the corporation's income and losses on their personal tax returns, typically using Form 1040. This direct reporting illustrates the personal tax implications of the corporate structure elected with Form 2553.
Filing the IRS 2553 form, essential for entities electing to be treated as an S corporation, demands meticulous attention to detail. Observing the following dos and don'ts can streamline the process, ensuring accuracy and compliance.
Do:
Don't:
Understanding the IRS 2553 form is crucial for small business owners who wish to elect S corporation status for their business. However, there are common misconceptions about this form that can lead to confusion. Let’s address and clarify some of these misunderstandings:
Any business can file Form 2553: Actually, only certain businesses qualify to file Form 2553. To be eligible, a business must be a domestic corporation or entity and meet specific IRS requirements related to shareholders, stock, and fiscal year periods.
Filing Form 2553 is complicated: While it’s essential to fill out the form accurately, many businesses find the process straightforward. The form requires basic information about your corporation and its shareholders. Understanding the instructions can significantly simplify the filing process.
You can file Form 2553 at any time: There is a common belief that you can elect S corporation status at any time during the tax year. However, there are specific deadlines. Generally, to be effective for the current tax year, you must file Form 2553 no more than two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect.
Electing S corporation status will audit-proof your business: This is a myth. While S corporations enjoy various tax benefits, they are not immune to IRS audits. All businesses, regardless of their tax classification, can be audited by the IRS.
Once you elect S corporation status, you can’t revert back: This is not entirely true. While electing S corporation status is generally a binding election, there are circumstances under which a business can terminate its S corporation status and revert to a different classification. This process, however, involves strict requirements and IRS approval.
Late filing of Form 2553 automatically disqualifies you: Although it’s best to file on time, the IRS does allow for late election relief in certain situations. If you have a valid reason for filing late, it’s possible to seek approval for a late S corporation election by following specific IRS-provided procedures.
Filing Form 2553 changes how your business operates: Electing S corporation status affects how your business is taxed, not how it operates. The election merely allows profits and losses to be passed through to shareholders’ personal tax returns, avoiding double taxation. Your day-to-day business operations should not change.
All profits distributed to shareholders are tax-free: This is a misunderstanding. While it’s true that S corporation shareholders can receive tax-free distributions, these distributions are not subject to self-employment taxes only up to their stock basis. Profits distributed to shareholders beyond their stock basis are taxable.
Dispelling these misconceptions is crucial for any business owner considering the S corporation status. By understanding the truths behind these common beliefs, you can make more informed decisions about the tax strategies that are best for your business.
The IRS 2553 form is a critical document for certain small businesses that wish to be taxed under Subchapter S of the Internal Revenue Code, enabling them to be treated as an S Corporation. This election can lead to tax advantages but also requires adherence to specific rules and timelines. The key takeaways for successfully navigating and utilizing the IRS 2553 form include:
Properly handling the IRS 2553 form is essential for businesses seeking the benefits of S corporation status. By being diligent, informed, and timely, business owners can navigate the process more smoothly and position their businesses to take full advantage of this special tax classification.
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