Forming an S corporation?
Here’s your step-by-step guide to the timely and proper filing of Form 2553 for a new corporation.
(Click here for our Corporate Formation Checklist.)
When forming a corporation, you must complete Form 2553 “Election by a Small Business Corporation,” and send it to the IRS. The purpose of this form is to state that the entity wishes to be an S corporation.
Note that the form must be filed in a “timely” manner, which means, for a new corporation within 75 days of formation.
You can find the form here: www.irs.gov/pub/irs-pdf/f2553.pdf
Instructions from the IRS are here: https://www.irs.gov/pub/irs-pdf/i2553.pdf
If you would like to speak to an attorney to answer questions about the process, or need help seeking relief for a late filing, please contact me.
Name: This is the name of the corporation. Choosing a name can be complicated, so you’ll want to read my article about it if you haven’t already registered your corporation’s name.
Address: The mailing address of the corporation. It doesn’t necessarily have to be the address where you do business.
Employer Identification Number: If you don’t already have an Employer Identification Number, you’ll need to apply for one. If you do it online at www.irs.gov/businesses/small, you will be issued an EIN on the spot.
Date incorporated and State of incorporation: If you don’t know the date of incorporation, you can find it on your articles of incorporation, or in California on the secretary of state’s website?
Item D: If you have changed your corporation’s name and/or address after you applied for an EIN, you’ll need to mark this box. If not, you can just leave it blank.
Item E: For a new corporation, this will be the date of incorporation. Remember, for new corporations, you need to file Form 2553 no later than 75 days after the formation of your corporation.
Item F: With a few exceptions, you’ll usually want to select option 1, “Calendar Year.” Again, you may want to speak with an attorney or tax professional about whether another option is right for you.
Item G: Generally, an S corporation should not have more than 100 shareholders, so you’ll almost always leave this section blank. There is an exception to the 100-shareholders rule if several of the shareholders belong to the same family. Below are the ways to count family members as one shareholder:
- An individual and his or her spouse (and their estates) can be counted as one shareholder.
- All members of a family (and their estates) can be counted as one shareholder. The term “members of a family” means a common ancestor, any lineal descendant of such common ancestor, and any spouse or former spouse of such common ancestor or any such lineal descendant.
For example, if a corporation has 101 shareholders, but two of them are married to each other, you can count them as a single shareholder, giving you 100. Similarly, if you have 101 shareholders, but three of them are sisters, you can claim to have only 99 shareholders for the purposes of this item.
Items H and I: Enter the name and title of one of the corporation’s officers, such as the president, vice president, treasurer, assistant treasurers, chief accounting officer, or any other officer authorized to sign. This person must sign and date the bottom of page 1.
Part I continued: Election Information
Column J: Generally for a new corporation, everyone who is a stockholder needs to be listed in one of the rows on column J. However, if you’re filing before the effective date, this section only needs to include the current shareholders, who will own stock on the day the election is made. If you’re filing on or after the election date, you will also need to include any former shareholders who owned stock in the interim. For example, if your effective date is January 1, and you are filing January 31, you need to include everyone who held stock between January 1 and January 31.
Column K: Each shareholder needs to sign and date in column K. If a shareholder and his or her spouse have a community property interest, both must sign. Each shareholder’s signature represents his or her consent to elect S corporation status.
Column L: Enter the number of shares, or the percentage owned and the date they were acquired.
Column M: List the social security number or EIN of the person named in column J.
Column N: Generally, taxpayer’s tax years end on December 31; check with each person or entity in column J, or their accountant to confirm.
Large Number of Shareholders
If you have too many shareholders to list on this page, you can attach a separate document with their information. Make sure it contains the following columns:
- Name and address
- Consent statement (signature and date)
- Number of shares (or percentage)
- Date acquired
- Social security number (or EIN)
- Tax year
List the number of shares (or percentage) that each shareholder has on the date of the filing, and the date they were acquired in column L. If any former shareholders are listed, enter their number of shares as 0.
Skipping Part II
You don’t need to complete this section if you checked option 1 “Calendar Year” for your Selected Tax Year in Item F (on page 1). You can also skip it if you selected option 3: 52-53-week year ending with reference to the month of December.
Skipping Part III
Part III can be skipped unless you are a QSST.
Skipping Part IV
If you are new corporation filing in a timely manner, that is, within 75 days of formation, you don’t need to complete Part IV.
The bottom line
All though these instructions generally hold true, you may want to talk to an attorney to make sure you have properly filled out the form, or have an attorney do it for you. Once the form is complete it can be mailed or faxed to the IRS. Be sure to use the appropriate address or fax number.