S corporation elections guide.

• Author: MacDonough, Laura M.

An S corporation is a popular business entity choice. Only certain corporations, however, are eligible for S status. To qualify, a corporation must be a domestic corporation, have 75 or Fewer shareholders, have only individuals (but not nonresident aliens), estates, certain trusts and tax-exempt organizations as shareholders and have only one class of stock. Certain corporations (e.g., financial institutions that account for bad debts using the reserve method) do not qualify for S status.

An eligible corporation elects S status by filing Form 2553, Election by a Small Business Corporation (Under section 1362 of the Internal Revenue Code).The form must be signed by a corporate officer; all shareholders at the time of the election must consent.

Once a corporation has successfully achieved S stares, additional election may be made; for example, the corporation may elect to revoke its S status The guide identifies the major elections, who makes them and who must consent, how to make the elections the dates for making them and the legal authority.

Election How to make election 1. Election of S status. Form 2553, signed by a corporate officer and consented to by each shareholder. 2. Election to treat a wholly Form 8869, Qualified Subchapter S owned subsidiary as a qualified Subsidiary Election (Under subchapter S subsidiary (QSub). section 1361(b)(3) of the Internal Revenue Code), signed by officer of parent S corporation. 3. Election to specify the order Separate election statement. of deemed liquidations when Election is made by the parent S QSub elections are made for a corporation by attaching tiered group of subsidiaries. election statement to Form 8869. 4. Election to treat a trust as a Form 2553 or separate statement. qualified subchapter S trust Election is made by beneficiary. (QSST). 5. Election to treat a trust as an Separate election statement. electing small business trust Election is made by trustee(s). (ESBT). 6. Election to convert a QSST Separate election statement. to an ESBT. Consent of current income beneficiary and trustee required. 7. Election to convert an ESBT Separate election statement. to a QSST. Consent of current income beneficiary and trustee required. 8. Successive income beneficiary Separate election statement. affirmative refusal to consent Affirmative refusal to consent of to QSST election. successive income beneficiary required. 9. Revocation of QSST election. Letter ruling request filed with IRS National Office. 10. Revocation of ESBT election. Letter ruling request filed with IRS National Office...