The IRS 2553 form, officially designated as the "Election by a Small Business Corporation," is a crucial document for businesses opting to be taxed as an S corporation. This form serves as the formal request to the IRS, allowing eligible corporations to change their tax status under the Internal Revenue Code's Subchapter S. Completing and submitting this form on time is essential for businesses aiming to benefit from S corporation tax advantages.
Embarking on the journey of structuring a business introduces a maze of decisions and paperwork, with one of the early crossroads involving the IRS 2553 form. This pivotal document, while not widely discussed outside professional circles, serves as a gateway for eligible entities to opt into S corporation status, offering a blend of tax benefits and operational flexibility esteemed by entrepreneurs and established businesses alike. It meticulously outlines the eligibility criteria, procedural timelines, and the specific declarations required to transition into this designation. Importantly, the form not only affects how businesses are taxed but also impacts shareholder responsibilities and the overall management of profit distribution. Navigating the intricacies of the IRS 2553 form demands a comprehensive understanding and timely submission, as it frames the financial silhouette of the entity in the eyes of the federal tax system. Thus, becoming acquainted with this form is a critical step for businesses aiming to harness the advantages of S corporation status while adhering to regulatory expectations.
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.
Filling out the IRS 2553 form is a crucial step for small businesses electing to be treated as an S corporation for tax purposes. This election allows businesses to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The process of completing this form can seem daunting at first, but following a clear, step-by-step guide can simplify it significantly. Here's how to get started:
Upon completion, the form needs to be filed with the IRS. It's important to consult the instructions for the correct address, as it can vary depending on the state in which your business is located. Additionally, make sure to keep a copy of the filled-out form for your records. The IRS will notify you once your election is approved, but this can take several weeks. During this time, ensure your business begins to comply with S corporation tax filing requirements, as your election is pending approval. Remember, this is just a starting point; consulting with a tax professional can provide personalized advice and ensure that your business's transition to an S corporation status is smooth and beneficial.
What is the purpose of the IRS 2553 form?
The IRS 2553 form, known as the Election by a Small Business Corporation form, is used by small businesses to elect to be treated as an S corporation for tax purposes. This election allows the profits and losses of the business to be passed directly to the owners' personal income, avoiding double taxation on corporate income.
Who needs to file IRS form 2553?
Any corporation or entity that wishes to be treated as an S corporation under the tax code must file Form 2553. Additionally, certain LLCs (Limited Liability Companies) choosing to be taxed as S corporations instead of as partnerships or disregarded entities also need to submit this form. It is crucial for the entity to meet all the criteria set forth for S corporations, including having only allowable shareholders, such as individuals, certain trusts, and estates, and no more than 100 shareholders.
When is the deadline to file form 2553?
Typically, Form 2553 must be filed no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. If the entity is newly formed, the same time frame applies from the date of incorporation. For an existing corporation looking to change its election, the deadline is 2 months and 15 days into the tax year for which the change is desired. However, late election relief may be available under specific conditions as outlined by the IRS.
How do I obtain an IRS 2553 form?
The IRS 2553 form can be downloaded directly from the Internal Revenue Service's official website. It's available in PDF format and can be printed for manual completion. Alternatively, tax software and professional tax preparers also provide access to this form and can assist in its completion and submission.
Can the IRS 2553 form be filed electronically?
As of the last update, the IRS allows Form 2553 to be faxed to the appropriate service center, providing a somewhat electronic means of filing. However, the traditional method of mailing a paper form is still in use. Always check the current IRS guidelines or consult with a tax professional, as electronic filing options may expand.
What information is required to complete Form 2553?
Completing Form 2553 requires various pieces of information, including the corporation's name, address, Employer Identification Number (EIN), and the tax year for which the S corporation election is sought. It also requires information about each shareholder, such as name, address, Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), and the number of shares owned. All shareholders must consent to the election by signing the form.
What happens if an entity fails to file the Form 2553 on time?
If an entity fails to file Form 2553 on time, it risks losing its eligibility for S corporation status for the tax year in question. This failure could result in the entity being taxed as a C corporation, which includes double taxation of corporate profits. However, the IRS does provide for late election relief if the entity can show that the failure to file on time was due to reasonable cause. Documentation and a detailed explanation will be necessary to support such a request for relief.
Filing taxes can often seem like navigating through a maze, especially when it comes to the IRS 2553 form, necessary for electing S corporation status. A common mistake many make is missing the filing deadline. It is crucial to submit this form no later than two months and 15 days after the beginning of the tax year when the election is to take effect, or at any time during the year before the tax year the election is to take effect. This oversight can delay the benefits of being taxed as an S corporation, possibly impacting financial planning and tax obligations.
Another area where errors frequently occur is in the misunderstanding of shareholder consent requirements. Every shareholder must consent to the election; this includes not just consenting by signature but also ensuring that each shareholder's consent is properly documented and dated. The failure to obtain unanimous consent can invalidate the election, leading to unintended tax consequences and administrative headaches.
Incorrectly completing the form is also a stumbling block for many. The IRS 2553 form requires precise information about the corporation and its shareholders. Simple mistakes, such as incorrect or incomplete names, addresses, or Social Security Numbers, can lead to the form being rejected. Moreover, incorrect classification of shares or misunderstanding the rules regarding eligible shareholders (such as entities generally not being permitted as shareholders) can also cause significant issues.
Not including sufficient supporting documentation is another common error. The IRS may require additional documentation to understand the election or to verify information on the form. Without this, the IRS might delay or even refuse the S corporation election, complicating a company’s tax status and planning.
Lastly, companies sometimes fail to recognize state-specific requirements. While the IRS 2553 form applies at the federal level, states may have their own forms, deadlines, and processes for S corporation election. Neglecting these can result in unexpected state tax liabilities or penalties, thwarting the advantages sought by electing S corporation status at the federal level.
When a business elects to be treated as an S corporation by filing IRS Form 2553, it's a step toward changing its tax status to take advantage of certain tax benefits. However, this is just one part of the paperwork needed to establish and maintain the status of an S corporation. Alongside Form 2553, there are several other forms and documents that businesses might need to complete and maintain. These not only help in complying with IRS requirements but also in managing the company's operations and legal obligations more efficiently.
Completing and maintaining these documents ensures that the S corporation remains in good standing with regulatory authorities, complies with tax reporting requirements, and manages its internal affairs properly. It is important for businesses to consult with legal and tax professionals to ensure that all required documents are correctly completed and updated as needed. This comprehensive approach to documentation helps protect the business and its owners and facilitates smoother operational processes.
The IRS Form 8869, "Qualified Subchapter S Subsidiary Election," resembles the IRS 2553 form in its fundamental purpose to change a company's tax status. While the 2553 form is utilized by small businesses to elect S corporation status, allowing them to pass corporate income, losses, deductions, and credits through to shareholders, the 8869 permits an S corporation to treat one or more of its eligible subsidiaries as a Qualified Subchapter S Subsidiary, streamlining the tax filing process and potentially optimizing tax outcomes.
The IRS Form 1120S, "U.S. Income Tax Return for an S Corporation," also shares similarities with the 2553 form. After a company elects S corporation status using Form 2553, it must annually file Form 1120S. This document reports the corporation's income, gains, losses, deductions, credits, and other information necessary to determine the entity's tax liability. Both forms are integral steps in the S corporation election and annual reporting process.
Form SS-4, "Application for Employer Identification Number (EIN)," is akin to the IRS 2553 form in that both are initial steps often required when setting up a business entity's tax profile. While Form 2553 is used to elect S corporation status, Form SS-4 is used by a business entity to apply for an EIN, which is needed to identify the taxpayer entity and is a prerequisite for numerous business activities, including federal tax filings.
The IRS Form 8832, "Entity Classification Election," offers a parallel in choice to the IRS 2553. Form 8832 allows an entity to choose how it will be classified for federal tax purposes, such as a corporation, partnership, or disregarded entity, providing a key decision similar to the S corporation election process. The choice affects taxation, liability, and filing requirements, underscoring the importance and impact of such elections on a business’s operations.
Form 1065, "U.S. Return of Partnership Income," parallels the IRS 2553 in serving entities that have chosen a specific tax classification. Specifically, Form 1065 is used by partnerships to report their income, deductions, gains, losses, etc., similar to how Form 1120S is used by S corporations post-2553 election. Both forms fulfill the IRS’s requirement for reporting the entity’s financial activities in line with its tax status.
IRS Form 1040, "U.S. Individual Income Tax Return," while primarily for individuals, intersects with the IRS 2553 form regarding S corporation shareholders. Following an election with Form 2553, shareholders of an S corporation must report their share of the corporation's income and losses on their personal Form 1040. This connection underscores the pass-through tax mechanism fundamental to S corporations.
The IRS Form 941, "Employer's Quarterly Federal Tax Return," is related to Form 2553 in the context of payroll tax responsibilities. Once a business elects to be treated as an S corporation, it takes on specific employer tax obligations, reporting and paying federal income taxes, Social Security, and Medicare taxes via Form 941. This highlights the administrative responsibilities following an S corporation election.
Form 720, "Quarterly Federal Excise Tax Return," is connected to IRS 2553 in terms of tax reporting for businesses that deal in goods and services subject to federal excise taxes. Electing S corporation status via Form 2553 can influence a business's tax structure, including how it accounts for and pays excise taxes. Both documents are crucial in the broader context of a business's federal tax obligations.
The IRS Form 2555, "Foreign Earned Income," links to the 2553 primarily for S corporations with shareholders working and living abroad. After an S corporation election, these shareholders may need to file Form 2555 to claim the foreign earned income exclusion, showcasing another aspect of the tax implications that come with the S corporation status.
Finally, the IRS Form 4868, "Application for Automatic Extension of Time To File U.S. Individual Income Tax Return," is similar to the 2553 form in the aspect of tax filing deadlines. Shareholders in an S corporation may find themselves needing more time to prepare their individual returns due to the additional complexities introduced by S corporation income, deductions, and credits. Form 4868 provides a mechanism to request extra time, tying back to the initial election made with Form 2553.
Filling out IRS Form 2553 is essential for entities electing to be treated as an S corporation. Given the importance of accurate and timely submission, it is crucial to understand both what you should and shouldn't do during this process. The following guidelines are designed to aid in ensuring that the form is correctly completed and submitted.
Filing IRS Form 2553, which is essential for businesses choosing to be treated as an S corporation, can often be misinterpreted due to common myths surrounding its use and implications. Understanding these misconceptions is crucial for ensuring compliance and making informed decisions.
Only LLCs Can File Form 2553: A major misconception is that only Limited Liability Companies (LLCs) are eligible to file Form 2553. In reality, both LLCs and corporations can elect to be treated as an S corporation by filing this form, provided they meet the IRS eligibility criteria.
Filing Automatically Changes Your Legal Structure: Filing Form 2553 does not change a business's legal structure but rather its tax treatment. Electing S corporation status affects how a business is taxed, not its legal organization or liability protections.
Any Business Can Elect S Corp Status: Not all businesses are eligible to elect S corporation status. There are specific IRS requirements, including limitations on the number of shareholders (up to 100) and the type of shareholders (individuals, certain trusts, and estates).
Form 2553 is Filed with Your State: Form 2553 is filed with the IRS, not with any state agency. However, some states require a separate election or notification for state tax treatment purposes after the IRS accepts the federal S corporation election.
There's No Deadline for Filing: There is a misconception that businesses can file Form 2553 at any time. In reality, to be effective for the current tax year, the form must be filed by March 15 for corporations on a calendar year. If filed after that date, S corporation status generally begins in the next tax year, though some exceptions apply.
You Can't Lose S Corporation Status Once Elected: It's possible to lose S corporation status if the company no longer meets the IRS criteria, whether through changes in the number or type of shareholders, or if the company voluntarily revokes the election.
Filing Form 2553 Will Reduce Taxes: The assumption that electing S corporation status will always result in tax savings is misleading. While it can provide savings for some businesses, others may find little difference or even an increase in taxes due to the complexities of their financial situations.
The Election is Retroactive for Any Tax Year: A common myth is that S corporation status can be applied retroactively for any tax year. In fact, the IRS generally permits retroactive election only within specific time limits and under certain conditions.
Form 2553 Requires Annual Filing: Unlike certain tax forms, Form 2553 is not an annual filing requirement. Once a business elects S corporation status and the IRS accepts it, the election remains in effect until it is revoked or terminated.
Any Tax Professional Can Help Fill Out Form 2553: While many tax professionals are knowledgeable about S corporation elections, the specifics of Form 2553 and the associated regulations can be complex. It's essential to work with someone who has experience with S corporations and understands the nuances of your business.
Dispelling these misconceptions about IRS Form 2553 is key for business owners to make well-informed decisions regarding their tax standings and obligations. Careful consideration and consultation with a knowledgeable tax professional can help ensure that this election is beneficial for your particular business circumstances.
The IRS 2553 form, commonly known as the Election by a Small Business Corporation form, is pivotal for certain businesses that wish to be treated as S corporations for tax purposes. Completing and filing this form on time can lead to significant tax advantages for eligible businesses. Here are the key takeaways to understand when dealing with the IRS 2553 form:
It is essential to consult with a tax professional or legal adviser to navigate the complexities of the IRS 2553 form and ensure compliance with all IRS requirements. Proper handling and understanding of this form can lead to substantial tax benefits for eligible corporations.
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