Form 2553

From Wikicpa

A corporation or other entity eligible to elect to be treated as a corporation must use Form 2553 to make an election under section 1362(a) to be an S corporation. An entity eligible to elect to be treated as a corporation that meets certain tests discussed below will be treated as a corporation as of the effective date of the S corporation election and does not need to file Form 8832, Entity Classification Election.

The income of an S corporation generally is taxed to the shareholders of the corporation rather than to the corporation itself. However, an S corporation may still owe tax on certain income. For details, see Tax and Payments in the Instructions for Form 1120S, U.S. Income Tax Return for an S Corporation.

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Who May Elect

A corporation or other entity eligible to elect to be treated as a corporation may elect to be an S corporation only if it meets all the following tests.

1.It is (a) a domestic corporation, or (b) a domestic entity ehgible to elect to be treated as a corporation that timely files Form 2553 and meets all the other tests listed below. If Form 2553 is not timely filed, see Rev. Proc. 2004-48, 2004-32 l.R.B. 172.

2.It has no more than 100 shareholders. A husband and wife (and their estates) are treated as one shareholder for this test. A member of a family can elect under section 1361 (c)(1) to treat all members of the family as one shareholder for this test. All other persons are treated as separate shareholders.

3.Its only shareholders are individuals, estates, exempt organizations described in section 401(a) or 501 (c)(3), or certain trusts described in section 1361 (c)(2)(A).

For information about the section 1361 (d)(2) election to be a qualified subchapter S trust (QSST), see the instructions for Part Ill. For information about the section 1361 (e)(3) election to be an electing small business trust (ESBT), see Regulations section 1.1361-1(m). For guidance on how to convert a QSST to an ESBT, see Regulations section 1.1361-1 (jfl12). If these elections were not timely made, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.

4.t has no nonresident alien shareholders.

5.It has only one class of stock (disregarding differences in voting rights). Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation’s stock confer identical rights to distribution and liquidation proceeds. See Regulations section 1.1361-1 (I) for details.

6.It is not one of the following ineligible corporations.

a. A bank or thrift institution that uses the reserve method of accounting for bad debts under section 585.
b. An insurance company subject to tax under subchapter L of the Code.
c. A corporation that has elected to be treated as a possessions corporation under section 936.
d. A domestic international sales corporation (DISC) or former DISC.

7. It has or will adopt or change to one of the following tax years.

a. A tax year ending December31.
b. A natural business year.
c. An ownership tax year.
d. A tax year elected under section 444.
e. A 52-53-week tax year ending with reference to a year listed above.
f. Any other tax year (including a 52-53-week tax year) for which the corporation establishes a business purpose.

For details on making a section 444 election or requesting a natural business, ownership, or other business purpose tax year, see Part II of Form 2553.

8.Each shareholder consents as explained in the instructions for column K.

See sections 1361, 1362, and 1378, and their related regulations for additional information on the above tests.

A parent S corporation can elect to treat an eligible wholly-owned subsidiary as a qualified subchapter S subsidiary. If the election is made, the subsidiary’s assets, liabilities, and items of income, deduction, and credit are treated as those of the parent. For details, see Form 8869, Qualified Subchapter S Subsidiary Election.

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When To Make the Election

Complete and file Form 2553 (a) at any time before the 16th day of the 3rd month of the tax year the election is to take effect, or (b) at any time during the tax year preceding the tax year it is to take effect. An election made no later than 2 months and 15 days after the beginning of a tax year that is less than 21/2 months long is treated as timely made for that tax year.

An election made after the 15th day of the 3rd month but before the end of the tax year generally is effective for the next tax year. However, an election made after the 15th day of the 3rd month will be accepted as timely filed if the corporation can show that the failure to file on time was due to reasonable cause.

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