Form 2553 Instructions: How to File the S Corporation Election

What the S corporation election does

An S corporation is not a kind of company you form at the state. It is a tax status. A corporation is taxed as a C corporation by default, and an LLC is taxed as a sole proprietorship or a partnership by default. Form 2553 changes that: the company’s income passes through to the owners’ personal returns without corporate tax, and owners who work in the business are paid a salary through payroll with the rest distributed as profit. The reason most small companies elect it is that distributions are not subject to self-employment tax the way sole proprietor or partnership profit is. Whether that saves money depends on the numbers, and a tax professional should run them before you file.

Who can file Form 2553

The company must be a domestic corporation, or an LLC or other eligible entity that will be treated as one, and it must meet all of these on the day the election takes effect and every day after:

• No more than 100 shareholders. Members of one family can elect to count as a single shareholder.
• Only individuals, estates, certain trusts, and exempt organizations described in section 401(a) or 501(c)(3) as shareholders. No partnerships, no corporations, no nonresident aliens.
• Only one class of stock. Different voting rights are fine; different rights to distributions are not.
• Not an ineligible corporation, such as certain banks, insurance companies, and domestic international sales corporations.
• A permitted tax year, which for nearly every small company means the calendar year.

An LLC that meets the list files Form 2553 alone. The IRS treats a timely S election by an eligible entity as also electing to be classified as a corporation, so Form 8832 is only needed when you want C corporation status instead.

The deadline: 2 months and 15 days

Form 2553 must be filed no more than 2 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 before it. For a company that already exists and uses the calendar year, that means by March 15 for the election to cover that year.

For a new company the first tax year begins on the earliest of the day it first had shareholders, first acquired assets, or first began doing business, and the count runs from that day. The IRS’s own example: a tax year that begins on January 7 has its 2 month period end on March 6, and the 2 months and 15 days end on March 21. A new LLC formed on that January 7 has until March 21 to file. Miss it and the election takes effect the following year, unless you qualify for late relief, covered below.

Form 2553, line by line

Part I: Election information

• Name and address. The exact legal name on the state filing and the IRS record. A name that differs from the one on the EIN record is the most common reason a 2553 bounces.
• Line A, employer identification number. The company’s EIN. Do not write “applied for” and do not use an owner’s SSN or a number issued to an earlier sole proprietorship. If the company has no EIN yet, get it first; the EIN for an LLC guide and the EIN for a corporation guide cover the application.
• Line B, date incorporated. The formation date on the state certificate. For an LLC, the date the state approved the articles of organization.
• Line C, state of incorporation.
• Line D. Check the box only if the company changed its name or address after applying for the EIN.
• Line E, effective date. The first day of the tax year the election covers. For a new company that is the formation date. This is the date the 2 months and 15 days is measured from, and the date late relief is measured from.
• Line F, tax year. Calendar year for almost everyone. Any other choice sends you to Part II and requires a business purpose or a section 444 election.
• Line G. Check it only if the company has more than 100 shareholders and is treating family members as one.
• Line H, contact. A person the IRS can call with questions, with a phone number.
• Line I, late election explanation. Leave blank for a timely filing. For a late one, the reasonable cause statement goes here; see the relief section below.
• Signature. An officer of the corporation, or a member or manager of the LLC, signs and dates the form.

Part I, shareholder consent (columns J through N)

Every shareholder on the effective date must be listed and must sign. For each: name and address (J), the signature and date (K), the number of shares or the percentage of ownership and the date acquired (L), the SSN or EIN (M), and the shareholder’s tax year end, which is December for individuals (N). A spouse who owns shares as community property signs too. One missing signature invalidates the election, and the IRS will not tell you until it rejects it.

Parts II through IV

Part II is only for a fiscal tax year and almost no small company completes it. Part III is for a qualified subchapter S trust shareholder. Part IV is the late corporate classification election representations, used only by an LLC filing late under Rev. Proc. 2013-30.

Where to file Form 2553

Two IRS centers handle the form, by the state of the company’s principal business, office, or agency. Fax is the route to use; the number arrives at the center the same day and the fax confirmation is your proof of timely filing.

The Form 2553 fax number guide covers the cover sheet, what to keep, and what to do when no acceptance letter arrives.

Filing late: Rev. Proc. 2013-30

A company that missed the 2 months and 15 days can still get the election for the year it wanted if it files within 3 years and 75 days of the effective date on line E and meets four conditions: it intended to be an S corporation as of that date, it failed to qualify only because the form was not filed on time, it has reasonable cause for the delay, and it has filed its returns, or has not yet had to file, consistently with S corporation status. To claim relief:

1. Write “FILED PURSUANT TO REV. PROC. 2013-30” across the top of the form.
2. Put the reasonable cause explanation on line I. “We did not know about the deadline” and “our accountant did not file it” are accepted far more often than people expect, provided the company has behaved as an S corporation throughout.
3. Have every shareholder sign, including anyone who held shares at any point since the effective date.
4. File it on its own by fax or mail, or attach it to the first Form 1120-S if that return is being filed at the same time.

Beyond 3 years and 75 days the only route is a private letter ruling, which carries a user fee and a long wait.

After you file

• The IRS generally notifies the company within 60 days whether the election is accepted. The acceptance is a letter, notice CP261, stating the effective date. Keep it with the CP 575; banks, payroll providers and buyers of the company ask for both.
• If nothing arrives in 60 days, call the IRS Business and Specialty Tax Line at 800-829-4933 with the fax confirmation in hand and ask them to confirm the election is on file.
• Set up payroll. An S corporation owner who works in the business must be paid a reasonable salary through payroll, which means employment tax registrations with the IRS and the state.
• File Form 1120-S each year by March 15, with a Schedule K-1 to each shareholder.

Quick answers

Can an LLC file Form 2553?

Yes. An LLC that meets the shareholder rules files Form 2553 by itself and is treated as a corporation that has elected S status from the effective date. It does not file Form 8832 first.

Does the EIN change when a company becomes an S corporation?

No. An existing LLC or corporation keeps its EIN through the election. The IRS lists an existing entity choosing S corporation taxation among the changes that do not require a new number; the new EIN scenario table has the full list.

Can I file Form 2553 online?

No. The IRS does not accept Form 2553 electronically on its own. It goes by fax or mail, or attached to an electronically filed Form 1120-S in a late election case.

Can a single-member LLC elect S corporation status?

Yes. A one-owner LLC is a one-shareholder S corporation. The owner then becomes an employee of the company for payroll purposes.

What if the company has a non-resident owner?

A nonresident alien cannot be an S corporation shareholder, so the company cannot elect S status while that person owns shares. Resident aliens with a green card or who meet the substantial presence test can.

Do I have to file a new Form 2553 every year?

No. The election stays in effect until it is revoked or the company stops qualifying. Revoking it takes a written statement signed by holders of more than half the shares, and a company that revokes generally cannot re-elect for five years.