Who falls within the eligibility criteria for filing an S Corporation Election with the IRS?
To become an S corporation, a corporation must meet the following requirements.
- It is necessary for the corporation to be a domestic corporation that is organized under the laws of any state in U.S. territory.
- Ensure that only one category of stock is maintained.
- Make sure there are no more than 100 shareholders.
- Only individuals, estates, or certain qualified trusts are allowed to be shareholders.
- The minimum requirements for shareholders are either U.S. citizens or residents of the U.S.
What is the deadline for filing the election to elect an S Corporation?
- For existing businesses, the deadline is March 15, 2025. To be classified as an S Corporation for the 2025 tax year, it is necessary to file IRS Form 2553 by this date.
- If you are a new business, you must file for S Corporation tax treatment within 75 days from the start date of your business. If your business was established on January 1, 2025, you would need to file by March 17, 2025.
To take advantage of the tax benefits associated with S Corporation status, it is essential to file on time.
What is the timeline for restoring an S Corporation status after it is terminated?
The restoration of an S Corporation status is not possible for five years if it is terminated. In the case of an unexpected termination, the corporation can seek relief from the IRS. If the IRS approves, the S Corporation status can be restored back to the date of termination.
Termination of an S Corporation's status can occur in multiple circumstances:
- The S Corporation election is revoked by the shareholders of the corporation through a voluntary termination process that involves filing a statement with the IRS. The statement cannot be made without the approval of at least 50% of the shareholders.
- If the corporation fails to meet the eligibility requirements for S Corporation status, it will be terminated involuntary. For instance, if it possesses more than 100 shareholders, has shareholders who are not eligible, or has more than one class of stock.
- If the corporation has accumulated earnings and profits from when it was a C Corporation and has more than 25% of its gross receipts from passive income for three consecutive years. Termination of the S Corporation status is imminent.
