For a step by step video guide of completing the Form 2553, watch the video below:
Form 2553 is used for corporations to elect to be taxed federally as a s corporation. The form can be either filled using a computer, or can be printed and mailed or faxed into the IRS. The form can be found on the IRS website here. It is important to note that there are several things which you will need to have completed before filing Form 2553. The form itself is broken into four different parts, though most businesses will only need to focus on the first one. In this blog, we’ll go over the prerequisites, the first section, and other information you need to know about Form 2553.
There are several conditions which must be in place for a business to be eligible to be an s corporation.
In order to qualify:
- Be a domestic corporation, or have the ability to become one.
- Have only allowable shareholders.
- Have no more than 100 shareholders.
- Have only one class of stock.
- Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
- Must operate under a calendar year, natural business year, ownership tax year, or other applicable tax year.
- Each shareholder must consent to operate as an s corporation.
More information on the prerequisites can be found on the instructions for Form 2553 found here.
Part I - Election Information
As we can see above, the first part of the form is fairly simple information. Things like name and address are found here. Also found are:
A) Employer identification number (EIN) - This identification number is issued by the IRS. If your business does not have an employer identification number, you may apply for one using Form SS-4.
B) Date incorporated - This is the date from the Secretary of State that your corporation or LLC was incorporated. Many times this information can be found on your states Secretary of State website.
C) State of incorporation - Enter the state you incorporated in.
D) Check box if name or address was changed since EIN was established.
E) Election is to be effective for tax year beginning - Generally, this is the same as the tax year the corporation started.
F) Tax year - Unless operating under a fiscal year, most corporations will elect for a calendar year. This makes for the easiest filing since most personal returns are also filed on a calendar year.
G) Check box for corporations with more than 100 members - most smaller corporations will not need to check this. If you have more than 100 members, you may want to seek guidance for forming your s corporation.
H) Name and title of officer or legal representative - Someone the IRS can contact if they need more information. Do not forget to include a working phone number in the box next to this.
I) Line I is where you are allowed to provide an explanation for not filing this form in a timely manner. The date you should file this election by is 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 preceding the tax year it is to take effect. If you are requesting a late election you must include “FILED PURSUANT TO REV. PROC. 2013-30.” at the top of the form. If you are attaching Form 2253 to Form 1120S, the corporation must enter “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30.” on the top of Form 1120S.
The second page for part one of Form 2553 is where you will enter information about each individual shareholder.
J) Name and address for each shareholder.
K) Shareholders Consent Statement - Very important to make sure all shareholders have signed this before sending. For the business to become a s corporation, all owners must consent therefore, they must each sign and date on this line.
L) Stock owned/percentage of ownership - Enter number of shares or ownership percentage as well as date of acquisition.
M) SSN or EIN - SSN for each owner, if owner is a business use EIN.
N) Shareholder’s tax year ends - Enter the month and date of each shareholders tax year end (month and date). For most shareholders, this will be the 31st of December.
If you need a continuation sheet or use a separate consent statement, attach it to Form 2553. It must contain the name, address, and EIN of the corporation and the information requested in columns J through N of Part I.
You will need to send the completed 2553 to one of the following address/fax numbers depending upon which state your business is located in.
Form 2553 is different from most IRS forms in that it does need to be signed more than once. The first signature is at the bottom of the first page, the second signature(s) are on the second page where each shareholder must sign to consent to the s corp election. Form 2553 must signed by the president, vice president, treasurer, chief accounting officer, or any other corporate officer. If it isn’t signed, it is not considered timely filed.
Once this form is sent, the service center will notify the corporation if its election is accepted and the date it will take effect. Generally, a determination is made within 60 days.
After the s corporation election is made, it will stay in effect until terminated or revoked.
If you check box (2) or (4) in Part I, item F then you must complete part II.
If you would like to become an S corporation you can save the hassle of filling out the form yourself by using Halon Tax’s S corporation election generator. All you need is your contact, business, and shareholder information. The cost of each form is $49 and if a late filing is requested, $69. You can find our generator by clicking here.
Certain states such as Arkansas, New Jersey and New York also require businesses to elect to operate as an S corporation. Be sure to check with your states requirements.