S corporation elections guide.

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. …