Electing/Terminating the S-corporation election

If you wish to elect to become an S-corporation, you must file Form 2553, which requires signatures of the shareholders. If you file this form within two months and 15 days of the start of the tax year, it can be retroactive to the start of that current year. If it is filed after that point, it can be effective the following year.

Note that there are some restrictions in what corporations may be an S-corporation, and which corporations may remain as such. These are covered in the instructions for Form 2553.

An election to be treated as an S-corporation can be terminated on purpose, by filing a statement [in conformance with Internal Revenue Regulations 1.1362-6(a)], or inadvertently by some change in its organization, operation or shareholders that violates the guidelines explained on the election form. If an S-corporation terminates as of a certain date, the corporation has two reporting years in that one 12-month period: a short year as an S-corporation, followed by a short year as a regular corporation. Both types of returns need to be filed, covering their respective periods.

If you terminate an election to be an S-corporation, you cannot generally make the election again for five years.

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