IRS forms
Form 2553, the S corporation election
Form 2553 is how a corporation or an eligible LLC asks to be taxed under subchapter S. It is one page, it is free to file, and almost everything that goes wrong with it is a date.
What the form does
An S corporation does not pay federal income tax itself. Its income, losses, deductions and credits pass through to the shareholders, who report them on their own returns. Form 2553 is the election that asks for that treatment, and nothing happens until the IRS accepts it.
For an LLC it does a second job. An entity eligible to elect corporate treatment is treated as a corporation as of the effective date of the S election and does not need to file Form 8832 as well. One form, not two — filing an 8832 alongside a timely 2553 is a common and unnecessary step.
Who can elect
The corporation has to pass every one of these tests, not most of them. One failure at any point in the year ends the election.
- It is a domestic corporation, or an entity eligible to be treated as one.
- It has no more than 100 shareholders, with spouses and members of a family counted as one.
- Its shareholders are individuals, estates, exempt organisations described in section 401(a) or 501(c)(3), or certain trusts — not partnerships and not corporations.
- It has no nonresident alien shareholders, other than as potential current beneficiaries of an electing small business trust.
- It has one class of stock, disregarding differences in voting rights.
- It is not an ineligible corporation: a bank using the reserve method of accounting for bad debts, an insurance company taxed under subchapter L, or a current or former DISC.
- It has or will adopt a permitted tax year.
Why a non-resident owner cannot use it
This is the test that stops most of the founders who ask us about it. An S corporation cannot have a nonresident alien shareholder, so a US LLC owned from abroad is outside subchapter S however profitable it is and however much self-employment tax the election would appear to save.
That is not a paperwork obstacle to be worked around; a share held by a nonresident alien terminates the election. If you are a foreign owner of a US company, the forms that actually apply to you are the ones on our Form 5472 page, and the number you need first is usually an ITIN or an EIN rather than an S election.
The deadline, and how it is measured
Form 2553 is filed 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 before it.
The two-month period is measured precisely: it begins on the day of the month the tax year begins and ends with the close of the day before the numerically corresponding day of the second calendar month. If there is no corresponding day, it ends on the last day of that month. For a calendar-year company that arithmetic lands on 15 March.
A company that has not yet started a tax year counts from the earliest of three dates: when it first had shareholders, when it first had assets, or when it began doing business. That is what makes "75 days from forming the LLC" a rough approximation rather than the rule — a company that acquired assets before its formation date started its year earlier than its owner thinks.
Where it goes
There is no e-filing for a standalone Form 2553. It is mailed or faxed to one of two service centres, and which one depends on where the corporation is located — the table in the instructions decides, so check it against your state rather than guessing.
One is the Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999, fax 855-887-7734. The other is the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201, fax 855-214-7520. A designated private delivery service can be used instead of the mail.
The form is signed by a corporate officer — president, vice president, treasurer, assistant treasurer, chief accounting officer or another officer authorised to sign — and every shareholder has to consent, by signing column K in Part I or a separate consent statement. A missing consent is a missing election.
If you missed the deadline
Late is usually survivable. Rev. Proc. 2013-30 provides relief where the only thing that went wrong is the timing, and relief has to be requested within 3 years and 75 days of the effective date entered on line E.
It asks for three things: reasonable cause for the failure to file on time together with evidence that you acted diligently to correct it, statements from all shareholders confirming they reported their income consistently with the S election on every affected return, and the words FILED PURSUANT TO REV. PROC. 2013-30 written across the top margin of the form.
It also asks that the returns line up — either every Form 1120-S was filed consistently with the requested treatment, or the first one is not due yet. Certain late elections can be filed attached to that Form 1120-S rather than on their own.
The rest of the form
Most filers complete Part I and stop. The other parts exist for narrower situations, and an unnecessary entry in them slows the election down.
- Part II is for a tax year other than the required one: a natural business year, an ownership year, a business purpose request, or a section 444 backup election.
- Part III is the qualified subchapter S trust election under section 1361(d)(2), for a trust that holds the stock.
- Part IV carries the representations that have to be attached when a late S election and a late corporate classification election are made together.
What happens next
The service centre notifies the corporation whether the election is accepted, and a determination generally arrives within 60 days of filing. Checking box Q1, the business purpose request, generally adds about 90 days to that.
If nothing has arrived within two months of filing — or within five months where box Q1 was checked — the instructions say to call the IRS at 1-800-829-4933 rather than assume it went through. Do not start running payroll on an election you have not seen accepted.
Want the election filed on time?
USTAXX files S-corp elections with the returns and payroll that have to follow them, so the dates line up instead of being reconstructed a year later.
Questions people ask
When is Form 2553 due?
No more than two months and 15 days after the start of the tax year the election is to take effect, or any time in the year before it. For a calendar-year company that is 15 March. A company that has not yet begun a tax year counts from the earliest of first shareholders, first assets, or first doing business.
Can a non-resident owner elect S corporation status?
No. An S corporation cannot have a nonresident alien shareholder, except as a potential current beneficiary of an electing small business trust. A single share held by a nonresident alien ends the election.
Does my LLC need Form 8832 as well?
No. An entity eligible to be treated as a corporation is treated as one from the effective date of its S election, so a timely Form 2553 is sufficient on its own.
What if I filed Form 2553 late?
Rev. Proc. 2013-30 grants relief within 3 years and 75 days of the date on line E, if you show reasonable cause and diligence, provide consistent shareholder statements, and write FILED PURSUANT TO REV. PROC. 2013-30 in the top margin.
How do I know the election was accepted?
The service centre notifies you, generally within 60 days, and about 90 days later than that if box Q1 is checked. If nothing arrives within two months of filing, or five months with box Q1, the instructions say to call 1-800-829-4933.
Can Form 2553 be filed electronically?
Not on its own. It is mailed or faxed to the Kansas City or Ogden service centre, although certain late elections can be attached to the Form 1120-S.
Where these rules come from
General information, current when written, not advice about your situation. Fees and forms change; the official pages above are the authority.