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Department of the Treasury

Instructions for Form 2553

Internal Revenue Service

(Rev. December 2007)

Election by a Small Business Corporation

Section references are to the Internal Revenue Code unless

4. It has no nonresident alien shareholders.

5. It has only one class of stock (disregarding differences

otherwise noted.

in voting rights). Generally, a corporation is treated as

What’s New

having only one class of stock if all outstanding shares of

the corporation’s stock confer identical rights to distribution

For tax years ending on or after December 31, 2007, certain

and liquidation proceeds. See Regulations section

corporations (entities) with reasonable cause for not timely

1.1361-1(l) for details.

filing Form 2553 can request to have the form treated as

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

timely filed by filing Form 2553 as an attachment to Form

1120S, U.S. Income Tax Return for an S Corporation. An

a. A bank or thrift institution that uses the reserve method

entry space for an explanation of reasonable cause was

of accounting for bad debts under section 585.

added to page 1 of the form. See Relief for Late Elections.

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.

General Instructions

d. A domestic international sales corporation (DISC) or

former DISC.

Purpose of Form

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

tax years.

A corporation or other entity eligible to elect to be treated as

a corporation must use Form 2553 to make an election

a. A tax year ending December 31.

under section 1362(a) to be an S corporation. An entity

b. A natural business year.

eligible to elect to be treated as a corporation that meets

c. An ownership tax year.

certain tests discussed below will be treated as a

d. A tax year elected under section 444.

corporation as of the effective date of the S corporation

e. A 52-53-week tax year ending with reference to a year

election and does not need to file Form 8832, Entity

listed above.

Classification Election.

f. Any other tax year (including a 52-53-week tax year)

for which the corporation establishes a business purpose.

The income of an S corporation generally is taxed to the

For details on making a section 444 election or

shareholders of the corporation rather than to the

requesting a natural business, ownership, or other business

corporation itself. However, an S corporation may still owe

purpose tax year, see the instructions for Part II.

tax on certain income. For details, see Tax and Payments in

8. Each shareholder consents as explained in the

the Instructions for Form 1120S.

instructions for column K.

Who May Elect

See sections 1361, 1362, and 1378, and their related

regulations for additional information on the above tests.

A corporation or other entity eligible to elect to be treated as

a corporation may elect to be an S corporation only if it

A parent S corporation can elect to treat an eligible

meets all the following tests.

wholly-owned subsidiary as a qualified subchapter S

1. It is (a) a domestic corporation, or (b) a domestic

subsidiary. If the election is made, the subsidiary’s assets,

entity eligible to elect to be treated as a corporation, that

liabilities, and items of income, deduction, and credit

timely files Form 2553 and meets all the other tests listed

generally are treated as those of the parent. For details, see

below. If Form 2553 is not timely filed, see Relief for Late

Form 8869, Qualified Subchapter S Subsidiary Election.

Elections on page 2.

2. It has no more than 100 shareholders. You can treat a

When To Make the Election

husband and wife (and their estates) as one shareholder for

this test. You can also treat all members of a family (as

Complete and file Form 2553:

•

defined in section 1361(c)(1)(B)) and their estates as one

No more than two months and 15 days after the beginning

shareholder for this test. For additional situations in which

of the tax year the election is to take effect, or

•

certain entities will be treated as members of a family, see

At any time during the tax year preceding the tax year it is

Notice 2005-91, 2005-51 I.R.B. 1164. All others are treated

to take effect.

as separate shareholders. For details, see section

For this purpose, the 2 month period begins on the day of

1361(c)(1).

the month the tax year begins and ends with the close of the

3. Its only shareholders are individuals, estates, exempt

day before the numerically corresponding day of the second

organizations described in section 401(a) or 501(c)(3), or

calendar month following that month. If there is no

certain trusts described in section 1361(c)(2)(A).

corresponding day, use the close of the last day of the

For information about the section 1361(d)(2) election to

calendar month.

be a qualified subchapter S trust (QSST), see the

instructions for Part III. For information about the section

Example 1. No prior tax year. A calendar year small

1361(e)(3) election to be an electing small business trust

business corporation begins its first tax year on January 7.

(ESBT), see Regulations section 1.1361-1(m). For guidance

The two month period ends March 6 and 15 days after that

on how to convert a QSST to an ESBT, see Regulations

is March 21. To be an S corporation beginning with its first

section 1.1361-1(j)(12). If these elections were not timely

tax year, the corporation must file Form 2553 during the

made, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.

period that begins January 7 and ends March 21. Because

Cat. No. 49978N

Instructions For Form 2553 (Rev. December 2007) - Election By A Small Business Corporation

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