Form 2553: Election by a Small Business Corporation
Used by a qualifying corporation or other entity to elect S corporation status, allowing income to pass through to shareholders and be taxed at the individual level.
Overview
IRS Form 2553, Election by a Small Business Corporation, is the document a qualifying corporation (or eligible LLC) uses to elect S corporation status under Subchapter S of the Internal Revenue Code (IRC §1362). Once the election is accepted, the entity's income, losses, deductions, and credits flow through to its shareholders and are reported on their individual tax returns, avoiding the double taxation that applies to C corporations. The IRS does not charge a separate fee to process Form 2553, and there is no formal "approval" letter in most cases — rather, the IRS acknowledges receipt and will notify the entity if the election is rejected.
The S corporation election is one of the most consequential structural decisions a small business owner can make. Pass-through taxation can reduce the overall tax burden significantly, particularly when shareholders pay themselves reasonable compensation and take additional distributions that are not subject to self-employment tax. However, the election comes with strict eligibility requirements: the corporation must be a domestic entity, have no more than 100 shareholders, have only allowable shareholders (individuals, certain trusts, and estates — not partnerships or most corporations), have only one class of stock, and not be an ineligible corporation such as certain financial institutions or insurance companies.
Form 2553 is tightly linked to Form 1120-S, the annual income tax return S corporations must file each year the election is in effect, and to Schedule K-1 (Form 1120-S), which reports each shareholder's allocable share of the corporation's income and deductions. CPAs frequently prepare Form 2553 in conjunction with entity formation or during a tax planning engagement when a C corporation conversion makes sense. Timing the election correctly — and ensuring all shareholders sign — is critical to making the election effective for the intended tax year.
Who Files This Form?
Any eligible domestic corporation that wants to be treated as an S corporation for federal income tax purposes must file Form 2553. Eligible LLCs that have already elected (or are simultaneously electing) to be treated as corporations can also file Form 2553 to then elect S corporation status, in effect making a "check-the-box" and S election simultaneously.
To qualify, the corporation must meet all of the following criteria on the date the election is filed and continue to meet them: (1) it must be a domestic corporation or domestic eligible entity; (2) it can have no more than 100 shareholders — though members of the same family can elect to be treated as a single shareholder; (3) shareholders must be individuals who are U.S. citizens or resident aliens, certain qualifying trusts (such as grantor trusts, QSSTs, or ESBTs), or estates — nonresident aliens, partnerships, and most corporations cannot be shareholders; (4) the corporation can have only one class of stock (differences in voting rights are permitted, but economic rights must be identical); and (5) the corporation cannot be an ineligible entity, including certain financial institutions, insurance companies, and domestic international sales corporations.
All persons who were shareholders at any point during the portion of the tax year before the election is filed must consent to the election on Part II of Form 2553. Shareholders who are no longer shareholders on the date of filing must still sign if they held stock during the pre-election period of the tax year. Failure to obtain all required consents is a leading cause of rejected elections.
Certain trusts and estates that are shareholders must provide additional information in Part III of the form. Corporations using a fiscal year rather than the calendar year must also complete Part IV and meet specific business-purpose or ownership-tax-year requirements to obtain IRS approval for that fiscal year.
Key Fields
Part I, Line A: Corporation Name and EIN
Enter the exact legal name of the corporation as it appears on its Articles of Incorporation and its Employer Identification Number. The EIN must already be obtained before filing — submitting Form 2553 without an EIN will cause the IRS to reject or delay processing. If the EIN was recently issued, allow sufficient time for IRS records to update before filing electronically.
Part I, Line E: Effective Date of Election
This is the date from which S corporation status will apply — typically the first day of the tax year for which the election is intended. The IRS strictly enforces the rule that the election must be filed no later than 2 months and 15 days after this date (for a mid-year election) or by the same deadline measured from the start of the intended tax year. Entering the wrong effective date is a common and consequential error.
Part I, Line F: Selected Tax Year
Most S corporations use a calendar year (December 31 year-end), which requires no additional justification. If the corporation wants to use a fiscal year, it must qualify under the natural business year test, the ownership tax year test, or obtain a Section 444 election. A fiscal year election requires completion of Part IV and may require filing Form 8716 separately.
Part I, Line G: Number of Shares Issued and Outstanding
Report the total number of shares issued and outstanding on the date of election. This number should match the corporation's stock ledger. Discrepancies between this figure and what is reflected in the shareholder consent table (Part II) can trigger IRS questions or cause processing delays.
Part II: Shareholder Consent Statement
Every person or entity that was a shareholder at any point from the beginning of the tax year through the date of filing must sign and date the consent. Each shareholder must provide their name, address, Social Security Number (or EIN for trusts), number of shares owned, and the dates shares were acquired. Missing even one required consent voids the election — there are no partial elections.
Part II: Shareholder Tax Year
Each shareholder must indicate their own tax year-end in Part II. The IRS uses this information to determine whether the corporation's proposed tax year creates an unacceptable deferral of income for shareholders. This is particularly relevant when a corporation wants to use a non-calendar fiscal year.
Part III: Qualified Subchapter S Trust (QSST) and ESBT Elections
If any shareholder is a trust, Part III must be completed with the trust's name, EIN, and the trustee's information. Certain trusts must make separate QSST or ESBT elections to qualify as S corporation shareholders. Failure to complete Part III for trust shareholders is a common oversight that can invalidate the election.
Officer Signature Block (Part I)
The form must be signed by an officer authorized to sign the corporation's tax return — typically the president, treasurer, or chief financial officer. The title and date of signature must be included. Electronic signatures are accepted in limited circumstances; most CPA firms file by mail or fax to the applicable IRS service center.
Filing Deadlines
No later than 2 months and 15 days after the beginning of the tax year the election is to take effect
Late elections may be accepted with reasonable cause; otherwise, the election is effective for the following tax year.
Step-by-Step Instructions
- 1
Confirm eligibility before drafting the form: verify the entity is a domestic corporation or eligible LLC, has 100 or fewer shareholders, all shareholders are permissible (individuals who are U.S. citizens or residents, qualifying trusts, or estates), and the corporation has only one class of stock. Resolve any eligibility issues — such as an inadvertent dual-class stock structure — before proceeding.
- 2
Obtain or verify the corporation's EIN. If the entity was just formed, apply for an EIN via IRS Form SS-4 or the IRS online portal and wait for the EIN to be fully activated in IRS systems before filing Form 2553.
- 3
Determine the intended effective date of the election and calculate the filing deadline: the election must be received by the IRS no later than 2 months and 15 days after the first day of the tax year for which S status is intended. For a new corporation, the 2-month-15-day window begins on the date of incorporation or the date it first had assets, shareholders, or began doing business — whichever is earliest.
- 4
Complete Part I of Form 2553: enter the corporation's legal name, EIN, mailing address, state of incorporation, date incorporated, and the desired effective date. Select the tax year (usually calendar year) in Line F and confirm the number of shares outstanding.
- 5
Collect completed and signed shareholder consents for Part II. Contact every person or entity that was a shareholder at any point from the start of the tax year through the filing date. Each shareholder must provide their name, address, taxpayer identification number, number of shares owned, dates shares were acquired, and their own tax year-end. Obtain original or scanned wet signatures — the IRS requires consent from 100% of shareholders, not a majority.
- 6
Complete Part III for any trust shareholders. Work with the trustee to determine whether the trust qualifies as a grantor trust, QSST, or ESBT, and ensure the appropriate separate trust election is made concurrently if required.
- 7
If the corporation intends to use a fiscal year other than the calendar year, complete Part IV (or attach the required statements) and prepare any associated Form 8716 if a Section 444 election applies.
- 8
File the completed Form 2553 by mailing or faxing it to the appropriate IRS Service Center based on the corporation's principal state of business, as listed in the current Form 2553 instructions. The IRS does not accept Form 2553 electronically through standard e-file channels. Retain proof of mailing (certified mail return receipt or fax confirmation) in the permanent file.
- 9
Follow up with the IRS if no acknowledgment or CP261 notice is received within 60 days. If the election may have been late, consider attaching a reasonable-cause statement at the time of filing or filing under the late election relief procedures outlined in Rev. Proc. 2013-30, which allows late elections under certain circumstances without a private letter ruling.
Common Mistakes to Avoid
Missing shareholder signatures — even for former shareholders who held stock earlier in the tax year.
Before filing, reconstruct the complete stock ownership history from the beginning of the tax year through the filing date and obtain written consents from every shareholder in that chain, including those who have already transferred their shares.
Filing too late and not attaching a reasonable-cause explanation.
If the deadline has passed, attach a detailed statement explaining why the election was not timely filed and reference the late election relief procedures under Rev. Proc. 2013-30. Many late elections are accepted when the corporation meets the criteria (all shareholders reported income consistently with S status, the failure was inadvertent, etc.).
Using an incorrect or unactivated EIN on the form.
Confirm the EIN is properly activated by calling the IRS Business & Specialty Tax Line or attempting to e-file a related return before submitting Form 2553. A mismatched or unrecognized EIN will cause the IRS to either reject or lose track of the filing.
Entering the wrong effective date, resulting in the election applying to an unintended tax year.
Double-check the effective date against the corporation's actual formation date and intended start of operations. For a new entity, the effective date is typically the date of incorporation; for an existing C corporation converting, it is the first day of the intended S year.
Failing to complete Part III for trust shareholders, which can disqualify the election.
Any time a trust is listed as a shareholder in Part II, verify whether Part III is required and complete it fully. Also confirm the trust itself has made, or simultaneously makes, any required QSST or ESBT election with the IRS.
Assuming the IRS will automatically acknowledge acceptance and not following up.
The IRS issues CP261 notices to confirm accepted elections, but processing times can be lengthy. If a CP261 is not received within 60 days, proactively contact the IRS — do not assume the election was accepted based on silence.
Frequently Asked Questions
The election must be filed no later than 2 months and 15 days after the beginning of the tax year for which S status is intended. For a calendar-year corporation, that means the deadline to elect S status effective January 1 is March 15. For a new corporation, the clock starts on the earliest of the date of incorporation, the date it first had assets, or the date it first had shareholders — not necessarily the formal state filing date.
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