S-Corporation Election Package (Form 2553 + State S-Election) — Delaware

S-CORPORATION ELECTION PACKAGE (FORM 2553 + DELAWARE STATE OVERLAY)

OVERVIEW

This package guides a corporation or eligible LLC through the FEDERAL S-corporation election (IRS Form 2553 under 26 U.S.C. § 1362) and the DELAWARE state overlay. An S-corporation passes income, losses, deductions, and credits through to its shareholders, generally avoiding entity-level federal income tax.

Delaware S-corporation rule, in brief: Delaware recognizes the federal S-election automatically. There is NO separate Delaware S-election. A Delaware S-corporation files an informational reconciliation return, Form 1100S (S Corporation Reconciliation and Shareholders Information Return). Resident shareholders are taxed on their distributive share on their Delaware personal income tax returns; for nonresident shareholders, the S-corporation must pay/withhold an amount tied to the highest Delaware personal income tax rate (30 Del. C. § 1158(a)). See Part 5.

How to use this package. Work through Parts 1–4 to confirm federal eligibility and complete Form 2553. Work through Part 5 for the Delaware overlay. Use Parts 6–7 for ongoing compliance and revocation.

PART 1 — FEDERAL ELIGIBILITY CHECKLIST (26 U.S.C. § 1361)

Every box must be satisfied at all times for the election to be valid. A single failure can terminate S status (see Part 6).

Entity-Level Requirements

☐ The entity is a domestic corporation (or a domestic eligible entity electing corporate treatment — see Part 4)
☐ The entity has no more than 100 shareholders (26 U.S.C. § 1361(b)(1)(A); family members may be treated as one shareholder under § 1361(c)(1))
☐ The entity has only one class of stock (differences in voting rights alone are permitted) (§ 1361(b)(1)(D), (c)(4))
☐ The entity is not an ineligible corporation — not a bank using the reserve method of accounting, not an insurance company taxed under subchapter L, not a § 936 possessions corporation, and not a current/former DISC (§ 1361(b)(2))

Shareholder-Level Requirements (§ 1361(b)(1)(B)–(C))

☐ All shareholders are eligible shareholders only — U.S. citizens or U.S. resident-alien individuals, certain estates, certain trusts, and certain tax-exempt organizations
☐ No shareholder is a nonresident alien
☐ No shareholder is a partnership
☐ No shareholder is a corporation (a parent S-corporation owning a QSub is the limited exception)
☐ Any trust shareholder is a permitted trust only: grantor trust, testamentary trust (2-year limit), voting trust, QSST (§ 1361(d)), or ESBT (§ 1361(e))

PART 2 — FORM 2553 LINE-BY-LINE

Part I — Election Information

Timing of the Election (26 U.S.C. § 1362(b))

☐ General deadline: File on or before the 15th day of the 3rd month of the tax year the election is to take effect (for a calendar-year entity electing for 2026, the deadline is March 16, 2026, because March 15 falls on a Sunday — § 7503)
☐ Alternative: File any time during the preceding tax year
☐ Newly formed entity: The 2-month-and-15-day period runs from the activation date — the earliest date the entity has shareholders, acquires assets, or begins doing business

Late-Election Relief — Rev. Proc. 2013-30

If the deadline has passed, relief may be available under Rev. Proc. 2013-30:

☐ The entity intended to be an S-corporation as of the intended effective date
☐ The failure to file timely was due to reasonable cause
☐ The request is filed within 3 years and 75 days of the intended effective date
☐ The entity (and shareholders) reported consistently with S status (or has filed no returns yet)
☐ Write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553
☐ Attach a reasonable-cause statement; all shareholders sign under penalties of perjury

Filing Method

☐ Mail or fax to the IRS service center listed in the Form 2553 Instructions (confirm the current Delaware service center/fax)
☐ Electronic filing of Form 2553 is not available as a standalone filing
☐ Retain proof of mailing/fax confirmation; expect IRS acceptance letter CP261 within ~60 days

PART 3 — SHAREHOLDER CONSENT STATEMENT (FORM 2553, PART I, COLUMN K)

ALL shareholders must consent. Each shareholder (and each spouse with a community-property interest in the stock) signs below. Consent is binding.

Officer execution: Under penalties of perjury, I declare the corporation has elected S status and that the statements herein are true, correct, and complete.

Signature: _________________________________________
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

PART 4 — ENTITY INTERPLAY (LLC / CORPORATION)

An LLC may elect S status without first filing Form 8832. Under Treas. Reg. § 301.7701-3(c)(1)(v)(C), a domestic eligible entity (e.g., an LLC) that is eligible for S status and timely files Form 2553 is deemed to have elected corporate classification — no separate Form 8832 is required. File only Form 2553, and make sure its effective date satisfies both the Form 8832 timing rule (not more than 75 days before, nor 12 months after, filing) and the § 1362(b) S-election deadline. In Delaware, "S-corporation" is a tax status, not a separate entity type; an LLC may hold S status.

☐ Existing C-corporation electing S status — file Form 2553 only; watch built-in gains exposure (Part 6)
☐ LLC electing S status — file Form 2553 only (deemed 8832); confirm operating agreement does not create a prohibited second class of "stock"
☐ Newly formed corporation — file Form 2553 within 2 months 15 days of the activation date
☐ 60-month rule: after changing classification, the entity generally cannot change again for 60 months without IRS consent (Treas. Reg. § 301.7701-3(c)(1)(iv))

PART 5 — DELAWARE STATE S-CORP OVERLAY

KEY POINT: Delaware recognizes the federal S-election automatically. There is NO separate Delaware S-election form. Once the federal election is in effect, the entity is treated as an S-corporation for Delaware purposes. Income passes through to the shareholders.

Form 1100S — Delaware S-Corporation Reconciliation and Shareholders Information Return

☐ A Delaware S-corporation files Form 1100S, S Corporation Reconciliation and Shareholders Information Return
☐ Delaware Schedule A-1 must be filed for each resident and nonresident shareholder — the federal Schedule K-1 cannot be substituted
☐ Attach a copy of the federal return (Form 1120-S)

Resident vs. Nonresident Shareholders

☐ Overpayments of the nonresident estimated tax are not refunded to the S-corporation — each nonresident claims its proportional share on the nonresident Delaware return
☐ Composite return option: a Form 200-C (Composite Personal Income Tax Return) may be filed for qualifying nonresident shareholders in lieu of individual nonresident returns, if: (1) each was a Delaware nonresident for the full year; (2) each had no Delaware-source income other than the S-corporation distributive share; and (3) all included nonresidents have the same tax year end

Delaware Returns and Filings

The Delaware annual franchise tax to the Secretary of State is a separate obligation owed by all Delaware corporations/LLCs and is not affected by the S-election. Confirm current rates and the franchise-tax due date (corporations: March 1) on the Delaware Division of Corporations site.

PART 6 — POST-ELECTION COMPLIANCE

Reasonable Compensation

☐ Shareholder-employees must receive reasonable compensation (W-2 wages) for services before taking distributions; the IRS recharacterizes inadequate wages as wages subject to employment tax
☐ Document the basis for the compensation figure (comparable wages, duties, time devoted)

Built-In Gains Tax — 26 U.S.C. § 1374

☐ Applies when a former C-corporation elects S status and disposes of appreciated assets held at conversion within the 5-year recognition period
☐ Tax is imposed at the entity level at the highest corporate rate on the recognized built-in gain
☐ Delaware: gain flows through to shareholders via Form 1100S/Schedule A-1

Excess Net Passive Income Tax — 26 U.S.C. § 1375

☐ Applies if the S-corporation has accumulated C-corporation E&P AND passive investment income exceeds 25% of gross receipts
☐ Entity-level tax at the highest corporate rate on excess net passive income
☐ Termination trap: if both conditions persist for 3 consecutive years, S status terminates under § 1362(d)(3)

Ongoing Federal/State Filings

☐ File federal Form 1120-S annually; issue Schedule K-1 to each shareholder
☐ File Delaware Form 1100S with Schedule A-1 for each shareholder; remit nonresident payments
☐ Pay the Delaware annual franchise tax to the Secretary of State
☐ Maintain single class of stock and shareholder eligibility at all times
☐ Retain the IRS CP261 acceptance notice permanently

PART 7 — REVOCATION (26 U.S.C. § 1362(d))

Voluntary Revocation — § 1362(d)(1)

☐ Shareholders holding more than 50% of the outstanding shares (voting and nonvoting) must consent
☐ File a revocation statement with the IRS service center (no official form); state the effective date
☐ Timing: if filed on or before the 15th day of the 3rd month of the tax year, the revocation is effective for that entire year; otherwise it takes effect the following tax year (a prospective date may be specified)
☐ Attach the consent of the requisite shareholders
☐ Delaware S status ends automatically when the federal election ends — no separate state revocation

Automatic Termination — § 1362(d)(2)–(3)

☐ Entity ceases to qualify (e.g., >100 shareholders, second class of stock, ineligible shareholder acquires stock) — terminates on the date of the disqualifying event
☐ Passive income termination — excess net passive income > 25% of gross receipts with C-corp E&P for 3 consecutive years
☐ Five-year wait: after termination/revocation, a new S-election generally requires waiting 5 tax years absent IRS consent (§ 1362(g))

FILLABLE FIELDS SUMMARY

• Entity name: [________________________________]
• EIN: [________________________________]
• State of incorporation: Delaware
• Date incorporated / organized: [__/__/____]
• Federal election effective date: [__/__/____]
• Selected tax year end: [__/__]
• Number of shareholders: [____] (resident: [____] / nonresident: [____])
• Contact officer / title: [________________________________] / [________________________________]
• Nonresident composite (Form 200-C) elected: ☐ Yes ☐ No
• Delaware Division of Revenue account: [________________________________]
• Preparer / advisor: [________________________________]
• Date package completed: [__/__/____]

SOURCES AND REFERENCES

• 26 U.S.C. §§ 1361–1362 (S-corporation definition, election, revocation, termination)
• 26 U.S.C. §§ 1374, 1375 (built-in gains; excess net passive income)
• Treas. Reg. § 301.7701-3(c)(1)(v)(C) (LLC deemed corporate election via Form 2553)
• IRS Form 2553 and Instructions; IRS S-Corporations overview (irs.gov)
• Rev. Proc. 2013-30 (late S-election relief)
• 30 Del. C. § 1158 (S corporations; payment on behalf of nonresident shareholders)
• 30 Del. C. § 1102 (Delaware personal income tax rates)
• Delaware Division of Revenue, Form 1100S — S Corporation Reconciliation and Shareholders Information Return, and Instructions (Schedule A-1; composite Form 200-C)
• Delaware Division of Corporations — annual franchise tax (separate obligation)