Filing a timely S election.

Author:Vance, M. Andrew
 
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The deadline for filing Form 2553, Election by a Small Business Corporation, differs depending on whether the corporation is already in existence (i.e., operating as a C corporation) or newly formed.

Electing S status for an existing C corporation

When a C corporation elects to become an S corporation, S status begins on the day following the last day of the electing C corporation's tax year. For an existing C corporation that is converting to S status, the S election may be filed:

  1. During the year preceding the first tax year the S election is to be effective; or

  2. On or before the 15th day of the third month of the initial S corporation year (Sec. 1362(b)(1); Regs. Sec. 1.1362-6(a)(2)(ii)).

    Thus, the S election can be retroactive to the first day of the tax year if the election is filed within 2 1/2 months after the beginning of the tax year. However, the S election is retroactive to the first day of the tax year only if the electing corporation qualifies as a small business corporation on the first day of the tax year and on each day until the election is filed (Regs. Sec. 1.1362-6(a)(2)).

    Example 1. Determining when the election becomes effective when C corporation elects S status: An existing calendar-year C corporation decides to elect S status effective for its tax year beginning on Jan. 1, 2019. The election must be made during 2018 or on or before March 15, 2019. An election filed on March 20, 2019, for example, cannot be effective retroactively and would be effective for the tax year beginning on Jan. 1, 2020.

    Electing S status for a newly formed corporation

    For a newly formed corporation, the election must be filed on or before the 15th day of the third month of the first tax year. An S corporation's initial tax year does not begin until the earliest to occur of the following three events: the corporation has shareholders, acquires assets, or begins doing business. The term "month" is defined as the period starting on the day within the calendar month that is numerically equal to the first day of the tax year and ending on the day before the same numerical day in the next calendar month (Regs. Sec. 1.1362-6(a)(2)(ii)(C)). Since most newly formed corporations do not begin their first tax year on the first day of a calendar month, the election deadline may not fall on the 15th of a given month.

    Example 2. Determining when the election becomes effective when a newly formed corporation elects S status: A newly formed corporation begins business on June 15, 2018, and decides to immediately elect S status. For the election timing rule, the company's first month ends on July 14, and the company's second month ends on Aug. 14...

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