Department of the Treasury
Instructions for Form 2553
Internal Revenue Service
(Rev. December 2006)
Election by a Small Business Corporation
c. A corporation that has elected to be treated as a
Section references are to the Internal Revenue Code unless
otherwise noted.
possessions corporation under section 936.
d. A domestic international sales corporation (DISC) or
General Instructions
former DISC.
7. It has or will adopt or change to one of the following
Purpose of Form
tax years.
a. A tax year ending December 31.
A corporation or other entity eligible to elect to be treated as
b. A natural business year.
a corporation must use Form 2553 to make an election
c. An ownership tax year.
under section 1362(a) to be an S corporation. An entity
d. A tax year elected under section 444.
eligible to elect to be treated as a corporation that meets
e. A 52-53-week tax year ending with reference to a year
certain tests discussed below will be treated as a
listed above.
corporation as of the effective date of the S corporation
f. Any other tax year (including a 52-53-week tax year)
election and does not need to file Form 8832, Entity
for which the corporation establishes a business purpose.
Classification Election.
For details on making a section 444 election or
The income of an S corporation generally is taxed to the
requesting a natural business, ownership, or other business
shareholders of the corporation rather than to the
purpose tax year, see Part II of Form 2553.
corporation itself. However, an S corporation may still owe
8. Each shareholder consents as explained in the
tax on certain income. For details, see Tax and Payments in
instructions for column K.
the instructions for Form 1120S, U.S. Income Tax Return for
See sections 1361, 1362, and 1378, and their related
an S Corporation.
regulations for additional information on the above tests.
A parent S corporation can elect to treat an eligible
Who May Elect
wholly-owned subsidiary as a qualified subchapter S
A corporation or other entity eligible to elect to be treated as
subsidiary. If the election is made, the subsidiary’s assets,
a corporation may elect to be an S corporation only if it
liabilities, and items of income, deduction, and credit are
meets all the following tests.
treated as those of the parent. For details, see Form 8869,
1. It is (a) a domestic corporation, or (b) a domestic
Qualified Subchapter S Subsidiary Election.
entity eligible to elect to be treated as a corporation, that
When To Make the Election
timely files Form 2553 and meets all the other tests listed
below. If Form 2553 is not timely filed, see Rev. Proc.
Complete and file Form 2553:
2004-48, 2004-32 I.R.B. 172.
•
No more than two months and 15 days after the beginning
2. It has no more than 100 shareholders. You can treat a
of the tax year the election is to take effect, or
husband and wife (and their estates) as one shareholder for
•
At any time during the tax year preceding the tax year it is
this test. You can also treat all members of a family (as
to take effect.
defined in section 1361(c)(1)(B)) and their estates as one
For this purpose, the 2 month period begins on the day of
shareholder for this test. All others are treated as separate
the month the tax year begins and ends with the close of the
shareholders. For details, see section 1361(c)(1).
day before the numerically corresponding day of the second
3. Its only shareholders are individuals, estates, exempt
calendar month following that month. If there is no
organizations described in section 401(a) or 501(c)(3), or
corresponding day, use the close of the last day of the
certain trusts described in section 1361(c)(2)(A).
calendar month.
For information about the section 1361(d)(2) election to
Example 1. No prior tax year. A calendar year small
be a qualified subchapter S trust (QSST), see the
business corporation begins its first tax year on January 7.
instructions for Part III. For information about the section
The two month period ends March 6 and 15 days after that
1361(e)(3) election to be an electing small business trust
is March 21. To be an S corporation beginning with its first
(ESBT), see Regulations section 1.1361-1(m). For guidance
tax year, the corporation must file Form 2553 during the
on how to convert a QSST to an ESBT, see Regulations
period that begins January 7 and ends March 21. Because
section 1.1361-1(j)(12). If these elections were not timely
the corporation had no prior tax year, an election made
made, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.
before January 7 will not be valid.
4. It has no nonresident alien shareholders.
Example 2. Prior tax year. A calendar year small business
5. It has only one class of stock (disregarding differences
corporation has been filing Form 1120 as a C corporation
in voting rights). Generally, a corporation is treated as
but wishes to make an S election for its next tax year
having only one class of stock if all outstanding shares of
beginning January 1. The two month period ends February
the corporation’s stock confer identical rights to distribution
28 (29 in leap years) and 15 days after that is March 15. To
and liquidation proceeds. See Regulations section
be an S corporation beginning with its next tax year, the
1.1361-1(l) for details.
corporation must file Form 2553 during the period that
6. It is not one of the following ineligible corporations.
begins the first day (January 1) of its last year as a C
a. A bank or thrift institution that uses the reserve method
corporation and ends March 15th of the year it wishes to be
of accounting for bad debts under section 585.
an S corporation. Because the corporation had a prior tax
b. An insurance company subject to tax under subchapter
year, it can make the election at any time during that prior
L of the Code.
tax year.
Cat. No. 49978N