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Who may elect to be an S-Corporation?

S-Corporation Election Filing Service

Generally, you must have already incorporated and obtained a Federal Tax ID. Both of these filings are also services provided by SimpleFilings if you request them. After that, you are responsible for ensuring that you meet the following S-Corporation requirements before you file for the election:

(From the instructions for IRS Form 2553, Who May Elect section, revised December 2007)

A corporation or other entity eligible to elect to be treated as a corporation may elect to be an S corporation only if it meets all the following tests.

• It is (a) a domestic corporation, or (b) a domestic entity eligible to elect to be treated as a corporation, that timely files Form 2553 and meets all the other tests listed below. If Form 2553 is not timely filed, see Relief for Late Elections on page 2.

• It has no more than 100 shareholders. You can treat a husband and wife (and their estates) as one shareholder for this test. You can also treat all members of a family (as defined in section 1361(c)(1)(B)) and their estates as one shareholder for this test. For additional situations in which certain entities will be treated as members of a family, see Notice 2005-91, 2005-51 I.R.B. 1164. All others are treated as separate shareholders. For details, see section 1361(c)(1).

• Its only shareholders are individuals, estates, exempt organizations described in section 401(a) or 501(c)(3), or certain trusts described in section 1361(c)(2)(A).

For information about the section 1361(d)(2) election to be a qualified subchapter S trust (QSST), see the instructions for Part III. For information about the section 1361(e)(3) election to be an electing small business trust (ESBT), see Regulations section 1.1361-1(m). For guidance on how to convert a QSST to an ESBT, see Regulations section 1.1361-1(j)(12). If these elections were not timely made, see Rev. Proc. 2003-43, 2003-23 I.R.B. 998.

• It has no nonresident alien shareholders.

• It has only one class of stock (disregarding differences in voting rights). Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation's stock confer identical rights to distribution and liquidation proceeds. See Regulations section 1.1361-1(l) for details.

• It is not one of the following ineligible corporations.
a. A bank or thrift institution that uses the reserve method of accounting for bad debts under section 585.
b. An insurance company subject to tax under subchapter L of the Code.
c. A corporation that has elected to be treated as a possessions corporation under section 936.
d. A domestic international sales corporation (DISC) or former DISC.

• It has or will adopt or change to one of the following tax years.
a. A tax year ending December 31.
b. A natural business year.
c. An ownership tax year.
d. A tax year elected under section 444.
e. A 52-53-week tax year ending with reference to a year listed above.
f. Any other tax year (including a 52-53-week tax year) for which the corporation establishes a business purpose.

For details on making a section 444 election or requesting a natural business, ownership, or other business purpose tax year, see the instructions for Part II.

• Each shareholder consents as explained in the instructions for column K.

See section 1361, 1362, and 1378, and their related regulations for additional information on the above tests.

A parent S corporation can elect to treat an eligible wholly-owned subsidiary as a qualified subchapter S subsidiary. If the election is made, the subsidiary's assets, liabilities, and items of income, deduction, and credit generally are treated as those of the parent. For details, see Form 8869, Qualified Subchapter S Subsidiary Election.

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