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

S-CORPORATION ELECTION PACKAGE (FORM 2553 + STATE S-ELECTION) — KANSAS

OVERVIEW

An S-corporation election lets a qualifying corporation (or an LLC that elects corporate treatment) pass income, losses, deductions, and credits through to its shareholders, avoiding entity-level federal income tax under Subchapter S (26 U.S.C. §§ 1361–1379). The election is made by filing IRS Form 2553 under 26 U.S.C. § 1362(a).

This package walks through:

• Part 1 — Federal eligibility checklist (IRC § 1361)
• Part 2 — Form 2553 line-by-line and timing rules
• Part 3 — Shareholder consent statement
• Part 4 — Entity interplay (LLCs, deemed corporate election)
• Part 5 — Kansas state S-corporation overlay
• Part 6 — Post-election compliance
• Part 7 — Revocation

Kansas in one line: Kansas automatically recognizes the federal S election — there is no separate Kansas S-election form. The S corporation files Form K-120S and may file a composite return for nonresident shareholders (K.A.R. § 92-12-106) or make the SALT Parity Act entity-level tax election directly on the K-120S (Box N) under K.S.A. § 79-32,287.

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

Confirm every item below before filing. A single failed requirement makes the corporation an "ineligible corporation" and voids the election.

Entity-Level Requirements (§ 1361(b)(1))

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

Shareholder Eligibility (§ 1361(b)(1)(B)–(C))

☐ Every shareholder is an individual, estate, eligible trust, or exempt organization — no partnerships, no C corporations, no nonresident aliens (§ 1361(b)(1)(B)–(C))
☐ Each individual shareholder is a U.S. citizen or resident alien
☐ Each trust shareholder qualifies as a grantor trust, testamentary trust (2-year window), QSST, ESBT, or voting trust (§ 1361(c)(2), (d), (e))
☐ Each exempt-organization shareholder qualifies under § 401(a) or § 501(c)(3) (§ 1361(c)(6))

Documentation Prerequisites

☐ Articles of Incorporation/Organization filed with the Kansas Secretary of State; entity in good standing
☐ EIN obtained from the IRS
☐ Bylaws (or LLC operating agreement) in place; single class of stock/economic-rights structure confirmed
☐ Each shareholder's SSN/ITIN, share count, percentage, and acquisition date collected for the consent statement

PART 2 — IRS FORM 2553 LINE-BY-LINE

Part I — Election Information

Timing — When to File (26 U.S.C. § 1362(b))

☐ General rule: File no later than two months and 15 days after the beginning of the tax year the election is to take effect (i.e., the 15th day of the 3rd month). For a calendar-year entity electing for 2026, the deadline is March 16, 2026 (March 15 falls on a Sunday).
☐ Preceding-year rule: The election may be filed at any time during the tax year preceding the first effective tax year.
☐ New entities: The 2-month-and-15-day period runs from the earliest of (a) the date the entity first had shareholders, (b) the date it first had assets, or (c) the date it began doing business.

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

If the deadline passed, relief is generally available under Rev. Proc. 2013-30:

☐ The entity intended to be an S corporation as of the intended effective date
☐ The only reason it is not an S corporation is the failure to file Form 2553 timely
☐ There is reasonable cause for the failure, and the entity acted diligently to correct it
☐ 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 no returns are yet due)
☐ Write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553
☐ Attach a reasonable-cause statement; all shareholders sign the consent (see Part 3)

PART 3 — SHAREHOLDER CONSENT STATEMENT

26 U.S.C. § 1362(a)(2) requires the consent of ALL shareholders who hold (or held) stock during the relevant period. Each shareholder signs Column K of Form 2553, or this consent statement is attached.

CONSENT TO S-CORPORATION ELECTION. The undersigned, being all of the shareholders of [____________________________________] (EIN [____________]), consent under 26 U.S.C. § 1362(a)(2) to the corporation's election to be treated as an S corporation effective [__/__/____], and each represents that the information below is true and correct.

PART 4 — ENTITY INTERPLAY (LLC AND DEEMED CORPORATE ELECTION)

LLC Electing S Status

An LLC is by default a disregarded entity (single member) or a partnership (multi-member). To be an S corporation it must first be treated as a corporation for federal tax purposes.

☐ Form 2553 alone (the deemed-8832 shortcut): Under Treas. Reg. § 301.7701-3(c)(1)(v)(C), an eligible entity that timely files Form 2553 is deemed to have also elected to be classified as an association taxable as a corporation (Form 8832) as of the same effective date. A separate Form 8832 is not required when Form 2553 is filed timely.
☐ Late filing: If the S election is late, follow Rev. Proc. 2013-30, which also provides the corporate-classification (deemed-8832) relief.

Corporation Already Taxed as a C Corporation

☐ A C corporation converting to S status should assess built-in gains tax exposure (§ 1374) and the disposition of any accumulated earnings and profits (E&P) — see Part 6.

PART 5 — KANSAS STATE S-CORPORATION OVERLAY

Does Kansas Recognize the Federal S Election?

Yes — automatically. Kansas conforms to federal Subchapter S treatment. A corporation that is an S corporation for federal purposes is treated as an S corporation for Kansas income tax purposes. There is NO separate Kansas S-election form — the federal Form 2553 (and the IRS acceptance, CP261) controls.

☐ Confirm the entity is registered with the Kansas Secretary of State and has a Kansas tax account with the Kansas Department of Revenue

Kansas Return — Form K-120S

☐ File Form K-120S, Kansas Partnership or S Corporation Income Tax Return, annually with the Kansas Department of Revenue
☐ Issue a Kansas K-1 (and, if the SALT Parity election is made, Schedule K-9) to each shareholder
☐ The K-120S is generally due the 15th day of the 4th month after the close of the tax year

Nonresident Shareholders — Composite Return (Kan. Admin. Regs. § 92-12-106)

☐ An S corporation may file a composite Kansas income tax return (Schedule K-40C) for nonresident shareholders that derive income only from the entity; included shareholders do not file separate Kansas returns (K.A.R. § 92-12-106)
☐ The composite return lists each nonresident's name, address, SSN, and ownership percentage; tax is due by the 15th day of the 4th month after year-end. Trusts may not be included in a composite return.
☐ Mark the K-40C box on the front of Form K-120S to indicate a composite schedule is filed

SALT Parity Act — Electing Pass-Through Entity Tax (K.S.A. § 79-32,287)

☐ Kansas allows an annual election under the SALT Parity Act (K.S.A. § 79-32,287) for an S corporation to be taxed at the entity level at 5.7% on electing owners' Kansas-attributable distributive shares (SALT-cap workaround)
☐ The election is made directly on Form K-120S by marking Box N ("electing to be subject to tax at the entity level") for the tax year of the election — no separate state election form is required
☐ The SALT Parity election is irrevocable once made for that tax year (it may be made annually); electing owners claim a credit (via Schedule K-9) on their Kansas individual/fiduciary returns

No general Kansas entity-level franchise/net-worth tax on S corps. Kansas does not impose a separate franchise or minimum entity tax on S corporations. The only Kansas entity-level income tax that may apply is the elective SALT Parity Act tax above, plus the optional composite remittance for nonresidents.

PART 6 — POST-ELECTION COMPLIANCE

IRS Confirmation

☐ Expect IRS CP261 acceptance notice within ~60 days; if none, call the IRS Business & Specialty Tax Line at (800) 829-4933
☐ Retain the CP261 notice permanently

Reasonable Compensation (Shareholder-Employees)

☐ Pay shareholder-employees reasonable compensation as W-2 wages before taking distributions. The IRS may recharacterize distributions as wages (subject to employment tax) where compensation is unreasonably low. Document the basis for the salary (duties, time, comparables).

Built-In Gains Tax — 26 U.S.C. § 1374

☐ If the entity converted from C corporation status, gains on assets held at conversion may trigger the corporate-level built-in gains tax if recognized during the 5-year recognition period. Track the net unrealized built-in gain and fair market values at the conversion date.

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

☐ If the S corporation has accumulated C corporation E&P and passive investment income exceeds 25% of gross receipts, a corporate-level tax under § 1375 applies; 3 consecutive years over 25% terminates the S election (§ 1362(d)(3)) — monitor annually

Ongoing Federal and Kansas Filings

☐ File federal Form 1120-S and issue Schedule K-1 to each shareholder annually
☐ File Kansas Form K-120S annually; file the K-40C composite or remit the SALT Parity tax (Box N) as applicable
☐ Monitor shareholder eligibility — an ineligible transfer (e.g., to a partnership or nonresident alien) terminates the election
☐ Maintain a single class of stock

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 where the original election was filed (no official form; letter format under Treas. Reg. § 1.1362-6(a)(3))
☐ Include the corporation's name, EIN, a statement that it revokes its § 1362(a) election, the number of shares outstanding, and consenting shareholders' signatures and share counts
☐ Effective date: if filed by the 15th day of the 3rd month of the tax year, effective the first day of that year; otherwise the first day of the following year. A prospective date may be specified.

Five-year re-election bar. After a termination or revocation, the corporation generally may not re-elect S status for 5 tax years without IRS consent (§ 1362(g)).

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

Termination occurs automatically if the corporation:

☐ Ceases to qualify as a small business corporation (e.g., exceeds 100 shareholders, issues a second class of stock, or admits an ineligible shareholder) — effective on the date of the disqualifying event (§ 1362(d)(2))
☐ Has C corporation E&P and passive investment income > 25% of gross receipts for 3 consecutive years (§ 1362(d)(3))

☐ Consider requesting inadvertent-termination relief under § 1362(f) where the disqualification was inadvertent and promptly corrected

FILLABLE FIELDS SUMMARY

SOURCES AND REFERENCES

• 26 U.S.C. §§ 1361–1379 (Subchapter S); §§ 1362, 1374, 1375
• IRS Form 2553 and Instructions; IRS Notice CP261
• Rev. Proc. 2013-30 (late election and entity-classification relief)
• Treas. Reg. §§ 1.1362-6, 301.7701-3(c)(1)(v)(C) (deemed corporate classification)
• K.S.A. § 79-32,287 (SALT Parity Act — electing pass-through entity tax)
• Kan. Admin. Regs. § 92-12-106 (composite returns for nonresident partners and shareholders)
• Kansas DOR Partnership or S Corporation Income Tax booklet; Form K-120S, Schedule K-40C, Schedule K-9
• Kansas DOR SALT Parity Act FAQs (K-120S Box N election)