S corporations are a type of business entity that files their taxes similar to a partnership. The S corporation will file their tax return and then send its shareholders Schedule K-1 to show the shareholders how much money they owe the S corporation. Filing Form 2553 allows a business entity to file as an S corporation.
Form 2553 allows a business entity to file their taxes as an S corporation and be treated as an S corporation for tax purposes.
When the Internal Revenue Service treats a company as an S corporation, taxes are paid on the shareholder level instead at the corporate level. This makes the taxation of an S corporation more similar to a partnership than a corporation. There are some instances, as in a partnership, where an S corporation must pay taxes on the corporate level.
When Form 2553 Is Filed
General, the business entity should file the elect either by the fifteenth day after the second month of the start of the entity's tax year or during the preceding tax year. Any later and the election for the S corporation status will be revoked for the year unless the entity files for relief for their late election. The entity must provide a reasonable cause to explain the late election and meet specific criteria to allow the election.
Ending the Election
An election is valid until the election is terminated or revoked. An S corporation generally can terminate their election at any time. The Internal Revenue Service will revoke and election if the S corporation no longer meet the criteria to file as such.
Read More: How to Obtain a Copy of a Filed Sub S Corp Election
Information Disclosed on Form 2553
Part 1 of Form 2553 includes the election information. This information is the name, address and employer identification number of the company. The company must also decide the effective date of the election, the new S corporation's calendar year and representative of the S corporation to the Internal Revenue Service. The S corporation must list all shareholders with their signature of consent to the election and how much stock they own. S corporations use Part II if they are using a fiscal tax year. Part III on Form 2553 is for qualified subchapter S trust (QSST) elections.
Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.