What is the Form 2553?

Form 2553, also known as the Election by a Small Business Corporation, is a document filed by corporations or other eligible entities to elect S corporation status under section 1362(a). In this article, we'll provide you with the exact steps for filling out Form 2553 and other important information.

Here's a summary of the type of information included in Form 2553:

• Corporation's (entity's) name, address, and EIN
• Shareholder information, including names, addresses, social security numbers, and number of shares owned
• Effective date of the election
• Tax year information
• QSST election information (if applicable)
• Late corporate classification election information (if applicable)

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Who needs to file the Form 2553?

Form 2553 is typically filed by small business corporations or other eligible entities that meet specific criteria and wish to be taxed as an S corporation. These entities are usually closely held businesses with no more than 100 shareholders, where all shareholders are U.S. citizens or residents, and the corporation has only one class of stock. However, there are certain exceptions to these general rules:

• Estates and certain trusts can be shareholders in an S corporation
• Organizations described in section 401(a) or 501(c)(3) can be shareholders
• Nonresident aliens cannot be shareholders, but certain nonresident alien individuals may be indirect shareholders through a qualified Subchapter S trust (QSST)
• Members of a family, as defined in section 1361(c)(1)(B), can be treated as a single shareholder
• Entities that are ineligible for S corporation status include certain financial institutions, insurance companies, and domestic international sales corporations

Essential updates to the Form 2553

In recent years, there have been some updates to Form 2553 that may impact businesses seeking to elect S corporation status. Some of the most notable changes include:

• For tax years beginning after December 31, 2017, the IRS has eliminated the requirement for an S corporation to file Form 2553 if it has already filed Form 8832, Entity Classification Election, to elect to be treated as an association taxable as a corporation. This change simplifies the process for entities that have already made an entity classification election.
• As of 2020, the IRS has updated the mailing address for submitting Form 2553. Businesses should now send the completed form to the appropriate IRS Service Center based on their state.
• While not a direct change to Form 2553 itself, the Tax Cuts and Jobs Act (TCJA) of 2017 introduced a new 20% qualified business income (QBI) deduction for certain pass-through entities, including S corporations. This deduction may provide additional tax benefits for businesses electing S corporation status.

It's essential for businesses to stay informed about any updates to Form 2553 and related tax regulations to ensure they remain compliant and take advantage of any potential tax benefits.

2024 Form 2553 filing deadlines

Form 2553 is generally filed once to make an election to be an S corporation. The due date for filing Form 2553 is either prior to two months and 15 days after the start of the current tax year that the S corp election is to take effect or any time during the tax year prior to the tax year the S corp election is to take effect. The IRS typically allows taxpayers to file on the next business day if a due date falls on a weekend or holiday. For more information on filing requirements and due dates.

Exact deadline dates for 2024

• First quarter (January, February, March) - due by March 15
• Second quarter (April, May, June) - due by May 15
• Third quarter (July, August, September) - due by September 15
• Fourth quarter (October, November, December) - due by December 15
• Any time during the tax year prior to the tax year the S corp election is to take effect

Form 2553 late payment penalty

Failure to file Form 2553 on time may result in the IRS not recognizing the S corporation election, which could lead to the corporation's income being taxed at the corporate level instead of passing through to shareholders. It is crucial to ensure that the form is submitted within the required time frame to avoid potential tax complications. To avoid such issues, make sure to 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.

Step-by-Step Instructions for IRS Form 2553

Part I: Election Information

• Name and Address: Enter the legal name and address of the corporation making the S corporation election.
• Employer Identification Number (EIN): Provide the corporation's EIN.
• Date and State of Incorporation: Enter the date the corporation was incorporated and the state in which incorporation occurred.
• Effective Date of Election: Specify the tax year for which the S corporation election should become effective.
• Fiscal or Tax Year Information: Indicate the type of tax year the corporation will use (calendar year, fiscal year, 52-53-week year related to December, or another month).
• Signature of Officer: An authorized officer of the corporation must sign, indicating that all information is accurate and complete under penalties of perjury.

Part II: Selection of Fiscal Tax Year

• Tax Year Selection:
  • New, Retaining, or Changing Tax Year: Indicate whether the corporation is adopting, retaining, or changing its tax year.
  • Natural Business Year or Ownership Tax Year: Choose if the corporation meets the criteria for a natural business year or if it aligns with the tax years of the majority shareholders.
  • Business Purpose or Section 444 Election: If applicable, indicate a business purpose for the fiscal year or make a Section 444 election to maintain a fiscal year different from the required tax year, including agreeing to necessary changes if the IRS does not approve the requested fiscal year.

Part III: Qualified Subchapter S Trust (QSST) Election

• QSST Details:
  • Provide information about any trusts that hold stock in the corporation, ensuring they qualify as QSSTs to be eligible shareholders in an S corporation.
  • Signature of Trust Beneficiary or Representative: Must be signed to validate the QSST election, certifying that the trust meets all requirements.

Part IV: Late Corporate Classification Election Representations

• Late Election Representations:
  • Confirm that the entity is eligible, intended to be classified as a corporation, and failed to qualify as an S corporation solely due to late filing.
  • Confirm that all required federal tax returns consistent with an S corporation have been filed for the relevant years, or that no returns have been filed yet if the first tax year has not ended.

Where To File

• Mailing or Faxing:
  • The form should be sent to the IRS center designated for the state where the corporation’s principal business, office, or agency is located. Specific addresses and fax numbers are provided in the form instructions, varying based on the corporation's location.

Additional Notes

• Shareholders’ Consent:
  • All shareholders at the time the election is made must consent to the election, generally by signing and dating the form.
• Multiple Copies for Shareholders:
  • If additional space is needed for shareholder consents, additional copies of the relevant pages may be used.

How to file Form 2553

Form 2553 can be filed by mail or fax. To file by mail, send the completed form to the appropriate Internal Revenue Service Center based on the corporation's principal business, office, or agency location. The mailing addresses can be found in the "Where To File" section of the instructions. Alternatively, the form can be faxed to the appropriate IRS Service Center. The primary difference between these methods is the submission method (fax vs. mail) and the potential for faster processing with fax filing.

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