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An S Corporation ("S
Corp.") is an ordinary business corporation that has
elected to be taxed under Subchapter S of the Internal
Revenue Code. It is not taxed on its earnings as a
corporation, but instead its earnings are passed through
to its shareholders for tax purposes. However, an S
Corp. has certain limits on the number of shareholders
it may have and who may be shareholders, is limited to
one class of stock and has to operate under a group of
other rules.
Some
states such as New York and New Jersey require a
separate state-level S election in order for the
corporation to be treated, for state tax purposes, as an
S corporation.
If a
corporation meets the foregoing requirements and wishes
to be taxed under Subchapter S, its shareholders may
file Form 2553.
If a
corporation that has elected to be treated as an S
corporation ceases to meet the requirements (for
example, if as a result of stock transfers, the number
of shareholders exceeds 100 or an ineligible shareholder
such as a nonresident alien acquires a share), the
corporation will lose its S corporation status and
revert to being a regular C corporation
Form
1120S generally must be filed by March 15th of the year
immediately following the calendar year covered by the
return or, if a fiscal year (a year ending on the last
day of a month other than December) is used, by the 15th
day of the third month immediately following the last
day of the fiscal year. The corporation must complete a
Schedule K-1 for each person who was a shareholder at
any time during the tax year and file it with the IRS
along with Form 1120S. The second copy of the Schedule
K-1 must be mailed to the shareholder.
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