What is IRS Form 2553?

IRS Form 2553, Election by a Small Business Corporation, allows eligible corporations to elect S corporation (S corp) status for tax purposes. By making this election, businesses can benefit from pass-through taxation, avoiding the double taxation typically imposed on traditional C corporations. Filing Form 2553 ensures that the IRS recognizes the company as an S-corp, which can provide tax advantages for shareholders.

Table of Contents

1.1 Why File Form 2553 and Become an S Corp?

Choosing S-corp status provides several benefits:

Pass-through taxation: Business profits and losses pass directly to shareholders and are reported on their tax returns, avoiding corporate income tax.
Self-employment tax savings: Shareholder-employees may take a portion of earnings as distributions, potentially reducing self-employment taxes.
Limited liability protection: Owners remain protected from personal liability for company debts and obligations.
Increased credibility: Operating as an S-corp can enhance a company’s professional reputation and business opportunities.

Eligibility Requirements for Filing Form 2553

To qualify for S-corp status, the business must meet the following IRS eligibility criteria:

Must be a domestic corporation
Cannot have more than 100 shareholders
Shareholders must be individuals, certain trusts, or estates (not partnerships, corporations, or non-resident aliens)
Must have only one class of stock
Must not be an ineligible corporation (e.g., certain financial institutions, insurance companies, or domestic international sales corporations)

Form 2553 Instructions

3.1 Part I: Election Information

This section requires basic business information:

Corporation’s name and address
Employer Identification Number (EIN)
Date and state of incorporation
Effective date of election
Signatures of all shareholders consenting to the S-corp election

3.2 Part II: Selection of Fiscal Tax Year

Corporations must typically adopt a calendar year as their fiscal year. If a business wants a different fiscal year, it must provide a valid reason and request IRS approval.

3.3 Part III: Qualified Subchapter S Trust (QSST) Election Under Section 1361(d)(2)

If a shareholder is a Qualified Subchapter S Trust (QSST), the trustee must complete this section to elect QSST status, allowing the trust to hold S-corp stock.

3.4 Part IV: Late Corporate Classification Election Representations

If filing late, businesses must provide a reasonable cause explanation for the delay. The IRS may grant retroactive S-corp status if the corporation meets all criteria and submits a valid explanation.

How to Submit a Completed Form 2553

Corporations can submit Form 2553 via mail or fax to the IRS. The correct address or fax number depends on the business’s location. The IRS Form 2553 Instructions PDF provides the latest submission details.

What is the Deadline to Submit Form 2553?

Businesses should file Form 2553 no later than 2 months and 15 days after the start of the tax year in which they want S-corp status. Alternatively, corporations may file any time in the year before when the election is intended to take effect.

5.1 Filing Form 2553 Late

If filing late, businesses may still qualify if they provide a reasonable cause for the delay. IRS guidelines allow for automatic relief if all eligibility criteria were met on time, even if the form was filed late.

How Long Does the Process Take?

The IRS typically processes Form 2553 within 60 days of submission. However, processing times may vary depending on IRS workload and submission errors.

How to Get a Copy of Form 2553

To obtain a copy of a previously filed Form 2553:

Contact the IRS Business & Specialty Tax Line at 800-829-4933
Request a copy via written request to the IRS office where it was originally filed

Conclusion

Filing IRS Form 2553 is an essential step for corporations seeking S-corp status, offering tax advantages and operational flexibility. Ensuring timely filing and adherence to IRS guidelines will help businesses maximize the benefits of an S-corp election.