Completing the Election by a Small Business Corporation for Form 2553

Completing the Election by a Small Business Corporation for Form 2553

Beginning with the 2009 filing season for 2008 S Corporation Income Tax Returns, the IRS has just made the process easier for those who inadvertently the election late. For years the S Corporation Election, or Form 2553, was to be file within seventy five days of the first day or beginning of the tax year to which a electing corporation desires to make it effective. For example, if you are a brand new corporation who just incorporated on June 1, 2008, then you would have seventy five days from 6-1-08 to make the election. Similarly if you were a corporation that had been a C Corporation for years and would like to be an S Corporation for the 2008 tax year, then under the old rules you would have had to made the election by March 15th or seventy-five days after 1-1-08.

Starting 1-1-08, if you qualify, corporations who neglect to have satisfied the old 75 day requirement can still do so if they qualify. To be an S Corporation you have to:
-Have only Resident Aliens or U.S. citizens as shareholders.
-Generally have a calendar year-end.
-Have less than one hundred shareholders.
-Have one class of stock.

Under the new rules a company desiring to be a S Corporation can elect to do so with the filing of their Corporate Return, Form 1120S, as long as:
-They attach a properly Form 2553, Election by a Small Business Election including the effective date of the election, signed approval of all of the company's shareholders.
-They attach a reasonable cause for the late election.
-Form 1120S is filed either by the original due date or plus the automatic six month extension, if timely elected.
-None of the shareholders have filed their personal returns showing reflecting that the company is not an S Corporation.

Please note that similar relief is available for an entity eligible electing to be treated as a corporation, such as an LLC converting from a partnership to a corporation for tax purposes.

Generally speaking the IRS will respond to S Election request within sixty days of their original filing. For those not receiving their acceptance on a timely basis you can call the IRS at 800.829.4933. If a company fails to meet the new relaxed filing requirements for S Corporation status, they can still request a Private Letter Ruling and pay a user fee.

John Dillard is a Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life's 9/11's: Job's Journey visit http://www.john-dillard.com/