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IRS Form 2553: S Corporation Election
How to elect S corporation status using Form 2553. Covers eligibility requirements, filing deadlines, late election relief, and the tax advantages of S corp.
Learn
How to elect S corporation status using Form 2553. Covers eligibility requirements, filing deadlines, late election relief, and the tax advantages of S corp.
This guide is designed for first-pass understanding. Start with core terms, then apply the framework in your own account workflow.
Form 2553 is the Election by a Small Business Corporation; the form that converts a regular C corporation into an S corporation for tax purposes. Electing S status allows business income to pass through to shareholders' individual returns, avoiding the double taxation that plagues C corporations. But the election has strict deadlines — typically within 75 days of formation or by March 15 of the tax year; and a single missed requirement can invalidate the entire election.
The S corporation originated with the Technical Amendments Act of 1958, championed by President Eisenhower's Treasury Department. The idea was to allow small businesses to choose the corporate form for liability protection without being penalized by the double taxation of corporate income (first at the corporate level, then again when distributed as dividends to shareholders).
Initially called "Subchapter S corporations" after the section of the Internal Revenue Code that governed them, these entities were limited to 10 shareholders, could only have one class of stock, and faced numerous restrictions. The Subchapter S Revision Act of 1982 significantly expanded eligibility, increasing the shareholder limit to 35 and relaxing several other requirements.
Over the decades, the rules have continued to evolve. The shareholder limit was raised to 75 in 1996, then to 100 in 2004. Family members can now be treated as a single shareholder. Certain trusts and estates became eligible shareholders, and the restrictions on S corporation subsidiaries were loosened. Today, the S corporation is one of the most popular business structures in America, with over 5 million S corporation returns filed annually.
Form 2553 is the mechanism by which an eligible corporation makes the S election. The form has remained relatively straightforward over the years, but the consequences of filing it incorrectly; or filing it late — can be severe and expensive to remedy.
Any domestic corporation (or eligible entity that has elected to be treated as a corporation) that meets the S corporation requirements can file Form 2553. The requirements are:
The critical element is timing. The election must be filed:
Form 2553 must be filed within 75 days of formation or by March 15 of the tax year in which the election is to take effect. If you miss the deadline, you can request late election relief by filing Form 2553 with a reasonable cause explanation, provided you can demonstrate you intended to elect S status from the start.
The corporation must be a domestic corporation with no more than 100 shareholders, all of whom must be U.S. citizens or residents (or certain trusts and estates). The corporation can have only one class of stock and cannot be a bank, insurance company, or certain other financial institutions.
S corporations avoid double taxation. A C corporation pays corporate tax on its income, and shareholders pay tax again when they receive dividends. An S corporation passes income through to shareholders who report it on their personal returns, so income is taxed only once. S corp owners who are active in the business can also split income between salary and distributions to reduce self-employment tax.
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All shareholders must consent. Every person who was a shareholder at any time during the period from the beginning of the tax year through the date of the election must sign the form or provide a separate consent statement. Missing a single shareholder's consent invalidates the election.
This section identifies the corporation: name, EIN, address, date incorporated, state of incorporation, and the tax year for which the election is effective. You also indicate the corporation's fiscal year end and whether you are requesting a fiscal year different from the calendar year (which requires additional justification in Part II).
The form includes a consent section where each shareholder provides their name, SSN, address, number of shares owned, date acquired, and social security number. Each shareholder (or their authorized representative) must sign. For community property states, both spouses may need to consent even if only one is the record shareholder.
S corporations are generally required to use a calendar year (ending December 31). If the corporation wants a different fiscal year, it must demonstrate a business purpose under Section 444 or make a required payment under Section 7519. Part II handles these alternative fiscal year elections.
If any shareholder is a trust that qualifies as a QSST, the trust beneficiary must make an election to be treated as the shareholder. Part III of Form 2553 accommodates this election.
The IRS has significantly expanded late election relief through Revenue Procedure 2013-30. This procedure allows corporations that missed the filing deadline to request relief if they can show reasonable cause and meet certain requirements, including filing within 3 years and 75 days of the intended effective date. The corporation must have intended to be an S corporation from the beginning and must have filed returns consistent with S corporation status.
Revenue Procedure 2013-30 has been a lifeline for thousands of businesses. Before its issuance, obtaining late election relief required a private letter ruling — an expensive process costing $10,000 or more in IRS user fees alone, plus professional fees. The revenue procedure allows many late elections to be resolved through a simple filing with the return.
The IRS has also updated the form to accommodate electronic filing through certain tax preparation software, though many practitioners still file Form 2553 by mail or fax due to the critical importance of confirming receipt.
For complete instructions, visit the official IRS page for Form 2553.
This article is educational and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.