Business Entities · S corporations

Election procedure

The election is simple to make and easy to get wrong in two specific ways. The first is timing, where the statute’s answer is counter-intuitive: an election filed too late is not invalid, it is an election for the following year. The second is the starting point of the period, which for a new corporation is not the date on the certificate of incorporation but the date the corporation first has shareholders, acquires assets, or begins doing business.

The rule

The election. a small business corporation makes the IRC § 1362(a) election by filing a completed Form 2553 with the service center designated in the instructions; the election statement must identify the election, give the corporation's name, address and taxpayer identification number, and be signed by a person authorised to sign the return required under IRC § 6037 (Reg. § 1.1362-6(a)(1), (2)(i))^TY2026

Everyone must consent. an election is valid only if all persons who are shareholders on the day the election is made consent to it, and the corporation's election is not valid if any required consent is not filed. Once a valid election is made, new shareholders need not consent (IRC § 1362(a)(2); Reg. § 1.1362-6(a)(2)(i))^TY2026

What a consent must say. a shareholder's consent must be a written statement giving the shareholder's name, address and taxpayer identification number, the number of shares owned, the date or dates the stock was acquired, the date the shareholder's taxable year ends, the corporation's name and taxpayer identification number, and the election consented to — signed by the shareholder under penalties of perjury (Reg. § 1.1362-6(b)(1))^TY2026

When it may be made. at any time during the preceding taxable year, or during the taxable year on or before the 15th day of the third month of it — an election made after that date in the year is treated as made for the following taxable year (IRC § 1362(b))^TY2026

When the clock starts for a new corporation. the taxable year of a new corporation begins on the date it has shareholders, acquires assets, or begins doing business, whichever occurs first — and the existence of incorporators does not necessarily begin the taxable year, so the date of incorporation is not automatically the date the election period starts running (Reg. § 1.1362-6(a)(2)(ii))^TY2026

And if the first year is very short. for a taxable year of 2½ months or less, an election made before the 16th day of the third month after the first day of that taxable year is treated as made during that year — so a corporation whose first year is very short still has the full period (Reg. § 1.1362-6(a)(2)(ii)(A))^TY2026

Relief for a late election. where an election is made after the prescribed date, or no election is made, and the Secretary determines that there was reasonable cause for the failure to make it timely, the Secretary may treat the election as timely made for that taxable year — and the rule treating a late election as made for the following year does not then apply (IRC § 1362(b)(5))^TY2026

No separate classification election needed. an eligible entity that timely elects to be an S corporation under IRC § 1362(a)(1) is treated as having elected to be classified as an association, provided it meets the other IRC § 1361(b) requirements as of the effective date — so no separate Form 8832 is needed (Reg. § 301.7701-3(c)(1)(v)(C))^TY2026

Current figures

How it works in practice

There are two windows and they are alternatives. An election may be made at any time during the preceding taxable year, or during the year for which it is to be effective provided it is made on or before the fifteenth day of the third month of that year. An election made in the second half of a year is therefore perfectly valid — it simply takes effect for the following year.

That reframing matters commercially. There is no such thing as a late S election in the sense of an invalid one. What the client has is an election for a year later than they wanted, and the question is whether relief is available to pull it back. IRC § 1362(b)(5) gives the Secretary authority to treat a late election as timely where there was reasonable cause for the failure, and administrative procedures set out how that relief is claimed. Those procedures are not in the Code or the regulation and should be checked against current guidance rather than remembered.

For a new corporation the arithmetic is done from the start of its first taxable year, and Reg. § 1.1362-6(a)(2)(ii) is explicit that this is the date the corporation first has shareholders, acquires assets, or begins doing business — whichever comes first. The regulation adds that the existence of incorporators does not necessarily begin the taxable year. So a corporation chartered in March that issues no shares and does nothing until June begins its first taxable year in June, and the election window runs from there. A practitioner who counts from the charter date will file early rather than late, which is a different problem: the same regulation’s first example makes clear that an election made before the first taxable year begins is not valid, because there is no preceding taxable year to make it in.

The consent requirement is strict and mechanical. Every person who is a shareholder on the day the election is made must consent, and the election is not valid if any required consent is missing. The consent is a signed statement under penalties of perjury containing seven specified items — the shareholder’s identifying details, share count, acquisition dates, year end, the corporation’s details, and the election consented to. Form 2553 collects all of this, which is why the form is signed by every shareholder rather than by the corporation alone.

Two points about consent are worth holding. New shareholders arriving after a valid election need not consent to it — the election is the corporation’s and it continues. But where the election is made in the first window, during the preceding taxable year, anyone who held stock during that preceding year and no longer holds it must also consent, which can mean chasing a departed shareholder.

Finally, an entity that is not already a corporation does not need to elect classification separately. Reg. § 301.7701-3(c)(1)(v)(C) treats a timely S election by an eligible entity as an election to be classified as an association, provided the entity meets the IRC § 1361(b) requirements on the effective date. Filing a Form 8832 first is unnecessary and can start the sixty-month re-election bar for no reason.

Scenarios

How this has changed

The election mechanics have been stable. What has changed is the availability of relief.

IRC § 1362(b)(5) gives the Secretary authority to treat a late election as timely where there was reasonable cause, and the administrative machinery built on it has been consolidated and broadened over time — from a series of separate procedures addressing particular failures into a single set of relief provisions covering late S elections, late entity classification elections intended to accompany them, and late elections for qualified subchapter S subsidiaries and electing small business trusts. The direction has consistently been toward making relief simpler to claim without a private letter ruling.

Two consequences follow for practice. A late election is a routine problem with a routine answer, not a disaster. And the specific conditions for relief — how late is too late, what the corporation must have done in the interval, what statements must accompany the filing — are administrative and change, so they must be checked against current guidance rather than recalled. This page deliberately states the statutory authority and not the conditions, because the conditions are not in the Code or the regulation.

The deemed classification election in Reg. § 301.7701-3(c)(1)(v)(C) removed what used to be a genuine two-form trap for LLCs and other eligible entities. Material advising an eligible entity to file Form 8832 before Form 2553 is describing a step that has not been necessary for a long time and that carries a cost.

Exam focus

The timing computation is the reliable question. Identify the first day of the taxable year, count the third month from there, and the deadline is its fifteenth day. For a new corporation, read the facts for when it first had shareholders, acquired assets or began business — the incorporation date is often given as a distractor.

Expect at least one question where the election is filed after the deadline. The answer is that it is effective for the following taxable year, not that it is void.

Where a question describes a shareholder who sold during the preceding year, it is testing the consent rule for elections made in the first window.

Check yourself

1. A calendar-year corporation wants S status for 2027. What is the last day to file Form 2553?

Answer: 15 March 2027 — the fifteenth day of the third month of the year for which the election is to be effective (IRC § 1362(b)(1)(B)). It could alternatively have filed at any time during 2026, the preceding taxable year, under IRC § 1362(b)(1)(A).

2. A new corporation first has shareholders and begins business on 1 June. By when must it elect for its first taxable year?

Answer: 15 August. The first taxable year begins 1 June under Reg. § 1.1362-6(a)(2)(ii), and IRC § 1362(b)(1)(B) allows the election on or before the fifteenth day of the third month of that year — June, July, August — so 15 August.

3. A corporation files Form 2553 on 20 September for a calendar year beginning the previous 1 January. Is the election valid?

Answer: yes, but for the following taxable year. IRC § 1362(b)(3) provides that an election made after the fifteenth day of the third month of the taxable year is treated as made for the following taxable year. Relief to pull it back into the current year requires reasonable cause under IRC § 1362(b)(5) and the administrative procedures built on it.

4. A corporation elects during the preceding taxable year. One person held shares for part of that preceding year and sold before the election was filed. Is their consent needed?

Answer: yes. Where the election is made in the preceding taxable year, consent is required from those who held stock during that year as well as from the shareholders on the day of the election. Without it the election is not valid, since IRC § 1362(a)(2) and Reg. § 1.1362-6(a)(2)(i) make the election invalid if any required consent is missing.

5. A multi-member LLC files a timely Form 2553 and meets all the IRC § 1361(b) requirements. Must it also file Form 8832?

Answer: no. Reg. § 301.7701-3(c)(1)(v)(C) treats an eligible entity that timely elects S corporation status as having elected to be classified as an association. Filing Form 8832 as well is unnecessary and starts the sixty-month bar on a further classification election under Reg. § 301.7701-3(c)(1)(iv).