What is an "S" Corporation?

The United States’ Internal Revenue Code outlines a tax-treatment election in Subchapter “S”.  This was a tax-election carved out by Congress to cater to the needs of small businesses by eliminating the double taxation which the shareholders of the traditional (“C”) corporation face.

How does one create an "S" Corporation?

An “S” Corporation is created in much the same fashion as a traditional “C” Corporation and has, fundamentally, the same filing and formation requirements.  However, upon formation, every corporation is presumed to be a “C” Corporation.  In order to obtain the special tax treatment afforded “S” Corporations, the directors of the business must affirmatively elect to treat the business as an “S” Corporation.  This requires the filing of IRS Form 2553 within seventy-five (75) days of the business beginning operations.

What happens if the Directors of the "S" Corporation miss the 75-day deadline for filing the S-election?

In the event that the Directors fail to make the Subchapter “S” election for the business within the prescribed seventy-five (75) day window, the business will remain a “C” Corporation for tax purposes for the balance of the calendar year (the prescribed fiscal year for “S” Corporations).  At the start of the following, calendar year, however, the business may make the Subchapter “S” election thereby converting the “C” Corporation to an “S” Corporation.

Can an "S" Corporation change back to a "C" Corporation?

Yes. Once a Subchapter “S” election has been made, the Directors of an “S” Corporation can revoke the Subchapter “S” election by filing a “Notice of Revocation” by March 15 of the subsequent calendar year.