A corporation is a regarded entity directly subject to income taxes on its taxable earnings and profits (E&P). The IRS Form 2553 (Election by a Small Business Corporation) is used by a domestic eligible entity to elect to be treated as an S corporation for federal tax purposes. An S corporation is a pass-through entity for federal tax purposes.

The S corporation files an annual Form 1120-S (US Income Tax Return for an S Corporation) and provides each shareholder with a Schedule K-1 (Form 1120S) which reports each shareholders’ allocable share of the income, expenses, credits, and other tax items.

For example, John Doe and Jane Doe are U.S. citizens and form an LLC on March 1, 2024. The multi-member LLC is by default a partnership for federal tax purposes. John and Jane file Form 2553 to elect S corporation tax treatment effective March 1, 2024. The company is now an S corporation and must file Form 1120-S instead of Form 1065.

Elements of the Form 2553

Eligibility Requirements. To elect S Corporation status, the entity must meet the following criteria under IRC Section 1361(b)(1)1:

  • The entity must be a domestic corporation or domestic eligible entity. There are many entities in the U.S. which are eligible for the S corporation election. These entities include a corporation, professional association (PA), professional corporation (PC), a professional limited liability company (PLLC), and a limited liability company (LLC).
  • The entity must have 100 or fewer shareholders.
  • All shareholders must be U.S. individuals, certain trusts, or estates. The S corporation CANNOT have any shareholders who are partnerships, corporations, or non-U.S. individuals.
  • The S corporation must issue only one class of stock.
    What is the Election Process
    • Filing the Form: Form 2553 must be filed with the IRS, providing necessary information about the corporation and its shareholders.
    • Information Required: The election must include the name of the entity, employer identification number (EIN), date of incorporation, state of incorporation, desired effective date for the S election, and the tax year of the corporation.
    • Timing of Election. The S corporation election must be filed within two months and 15 days of the desired effective date. If the entity files an election after the due date, the entity can file under the late election relief procedures.

    Video Tutorials on Form 2553 and S Corporations

    View our videos below for more information on S corporation elections and tax filings:

    Additional Information

    Taxpayers can find more information on the S corporation election in the Form 2553 Instructions and the IRS website.

    1. IRC Section 1361(b)(1) ↩︎