Instructions For Form 2553 - Election By A Small Business Corporation

Department of the Treasury

Instructions for Form 2553

Internal Revenue Service

(Rev. March 2005)

Election by a Small Business Corporation

Section references are to the Internal Revenue Code unless otherwise noted.

a. A bank or thrift institution that uses the reserve

General Instructions

method of accounting for bad debts under section 585.

b. An insurance company subject to tax under

Purpose

subchapter L of the Code.

A corporation or other entity eligible to elect to be treated

c. A corporation that has elected to be treated as a

possessions corporation under section 936.

as a corporation must use Form 2553 to make an

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

d. A domestic international sales corporation (DISC) or

entity eligible to elect to be treated as a corporation that

former DISC.

meets certain tests discussed below will be treated as a

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

corporation as of the effective date of the S corporation

tax years.

election and does not need to file Form 8832, Entity

a. A tax year ending December 31.

Classification Election.

b. A natural business year.

c. An ownership tax year.

The income of an S corporation generally is taxed to

d. A tax year elected under section 444.

the shareholders of the corporation rather than to the

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

corporation itself. However, an S corporation may still

year listed above.

owe tax on certain income. For details, see Tax and

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

Payments in the Instructions for Form 1120S, U.S.

year) for which the corporation establishes a business

Income Tax Return for an S Corporation.

purpose.

For details on making a section 444 election or

Who May Elect

requesting a natural business, ownership, or other

A corporation or other entity eligible to elect to be treated

business purpose tax year, see Part II of Form 2553.

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

8. Each shareholder consents as explained in the

it meets all the following tests.

instructions for column K.

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

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

entity eligible to elect to be treated as a corporation that

regulations for additional information on the above tests.

timely files Form 2553 and meets all the other tests listed

A parent S corporation can elect to treat an eligible

below. If Form 2553 is not timely filed, see Rev. Proc.

wholly-owned subsidiary as a qualified subchapter S

2004-48, 2004-32 I.R.B. 172.

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

2. It has no more than 100 shareholders. A husband

assets, liabilities, and items of income, deduction, and

and wife (and their estates) are treated as one

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

shareholder for this test. A member of a family can elect

Form 8869, Qualified Subchapter S Subsidiary Election.

under section 1361(c)(1) to treat all members of the

family as one shareholder for this test. All other persons

When To Make the Election

are treated as separate shareholders.

Complete and file Form 2553 (a) at any time before the

3. Its only shareholders are individuals, estates,

16th day of the 3rd month of the tax year the election is

exempt organizations described in section 401(a) or

to take effect, or (b) at any time during the tax year

501(c)(3), or certain trusts described in section

preceding the tax year it is to take effect. An election

1361(c)(2)(A).

made no later than 2 months and 15 days after the

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

beginning of a tax year that is less than 2

months long

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

is treated as timely made for that tax year.

instructions for Part III. For information about the section

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

An election made after the 15th day of the 3rd month

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

but before the end of the tax year generally is effective

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

for the next tax year. However, an election made after the

Regulations section 1.1361-1(j)(12). If these elections

15th day of the 3rd month will be accepted as timely filed

were not timely made, see Rev. Proc. 2003-43, 2003-23

if the corporation can show that the failure to file on time

I.R.B. 998.

was due to reasonable cause.

4. It has no nonresident alien shareholders.

To request relief for a late election, the corporation

5. It has only one class of stock (disregarding

generally must request a private letter ruling and pay a

differences in voting rights). Generally, a corporation is

user fee in accordance with Rev. Proc. 2005-1, 2005-1

treated as having only one class of stock if all

I.R.B. 1 (or its successor). However, the ruling and user

outstanding shares of the corporation’s stock confer

fee requirements may not apply if the following revenue

identical rights to distribution and liquidation proceeds.

procedures apply.

•

See Regulations section 1.1361-1(l) for details.

If an entity eligible to elect to be treated as a

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

corporation (a) failed to timely file Form 2553, and (b) has

Cat. No. 49978N

Instructions For Form 2553 - Election By A Small Business Corporation - 2005

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