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How to make an S-Corp Election

[1]A corporation informs the Internal Revenue Service of its choice to be taxed as an S-Corporation instead of as a C-Corporation using IRS Form 2553. It is extremely important for a newly formed corporation to make this decision early.

Forming an S-Corporation

In order to create an S-Corporation, the organizers of the business must take the following steps:

  1. Draw up articles of incorporation, by-laws, and various resolutions,
  2. Incorporate the business as a corporation in the state where the company will conduct the bulk of its business,
  3. Verify that the corporation meets the eligibility criteria for being an S-Corporation [2], and

Electing S-Corporation Status

Corporations elect S-Corporation status using IRS Form 2553. Each shareholder at the time the form is filed must sign the form.

When to Submit Form 2553

IRS Form 2553, Election by a Small Business Corporation (instructions [3], PDF form [4]) must be filed:

Normally, if a corporation that files Form 2553 after the 15th day of the third month of its tax year but before the 15th day of the third month of the following tax year, then the IRS considers the S-Corporation election to be valid for the following tax year and not valid for the preceding tax year.

However, a corporation can file Form 2553 late and still receive IRS approval to make the election retroactive to the beginning of the corporation’s tax year. Here’s the rules you need to follow.

Eligibility Criteria for Late S-Corporation Elections

To qualify for relief from the late filing of Form 2553, the corporation must meet all the following criteria:

If the company meets these requirements, then company should file IRS Form 2553 by writing at the very top of the form the following words: “FILED PURSUANT TO REV. PROC. 2003-43” and attaching a statement indicating that the corporation either had reasonable cause (and spell out the circumstances) or inadvertently failed to file Form 2553 in a timely manner.  For more information, or help with your S-Corporation election, please contact us [5]