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

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

OVERVIEW

This package walks a corporation (or an LLC electing corporate then S treatment) through:

1. Confirming federal S-corporation eligibility under IRC § 1361;
2. Completing and filing IRS Form 2553 on time (or under late-relief procedures);
3. Collecting the required shareholder consents;
4. Understanding the entity-classification interplay for LLCs; and
5. Handling the Maine state overlay.

MAINE FLAG. Maine recognizes federal S-corporation status and requires no separate state S-election. An S corporation is treated as a pass-through entity for Maine income-tax purposes. The S corporation files an informational return (Form 1120ME) and, where it has nonresident shareholders, must address pass-through entity withholding on Form 941P-ME (or elect to file a composite return for eligible nonresident owners).

PART 1 — FEDERAL ELIGIBILITY CHECKLIST (IRC § 1361)

Entity Eligibility (26 U.S.C. § 1361(b))

☐ Entity is a domestic corporation, or a domestic LLC that will elect corporate tax treatment
☐ Entity has no more than 100 shareholders (family members may be counted as one under § 1361(c)(1))
☐ Entity has only one class of stock (differences in voting rights alone are permitted — § 1361(c)(4))
☐ Entity is not an ineligible corporation (a bank/thrift using the reserve method, an insurance company taxed under subchapter L, a possessions-tax-credit corporation, or a current/former DISC)

Shareholder Eligibility (26 U.S.C. § 1361(b)(1)(B)–(C))

☐ All shareholders are U.S. citizens or resident aliens — no nonresident-alien shareholders
☐ No shareholder is a partnership or a corporation
☐ Any trust shareholder is a permitted trust: grantor trust, testamentary trust (2-year limit), QSST, ESBT, or voting trust
☐ Estates and certain § 401(a) / § 501(c)(3) tax-exempt organizations are permitted shareholders
☐ Each shareholder will provide a valid SSN or ITIN for the consent statement

Pre-Filing Housekeeping

☐ Entity is properly formed and in good standing with the Maine Secretary of State
☐ EIN obtained from the IRS
☐ Bylaws / operating agreement in place; stock or membership interests issued
☐ Only one class of stock / equity is outstanding as of the intended effective date

PART 2 — IRS FORM 2553, LINE BY LINE

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

Part I — Election Information

Part II — Fiscal Year (Complete only if a non-calendar tax year is requested)

☐ Natural business year under Rev. Proc. 2006-46 (§ 444 election or business-purpose request)
☐ Ownership tax year
☐ Section 444 election (file Form 8716)

Part III — QSST Election (Complete only if a QSST holds stock)

☐ QSST beneficiary income-deemed-owner election attached

Part IV — Late Corporate Classification Election Representations

☐ Complete only if a late entity-classification election is requested together with the S election (see Part 4)

PART 3 — SHAREHOLDER CONSENT STATEMENT

ALL shareholders who own stock on the election effective date — or at any time during the portion of the tax year before the election is filed — must consent (26 U.S.C. § 1362(a)(2); Treas. Reg. § 1.1362-6).

The undersigned shareholders consent to the entity's election to be treated as an S corporation under 26 U.S.C. § 1362(a), effective [__/__/____].

PART 4 — ENTITY INTERPLAY (LLC ELECTING S STATUS)

A Maine LLC that wants to be taxed as an S corporation does not have to file Form 8832 first. Under Treas. Reg. § 301.7701-3(c)(1)(v)(C), an eligible entity that timely files Form 2553 alone is deemed to have elected to be classified as an association (corporation) under Form 8832 as of the same effective date. Key points:

☐ LLC files Form 2553 with the effective date desired for S status
☐ No separate Form 8832 is required when Form 2553 is timely (deemed corporate election)
☐ If the corporate-classification election is itself late, complete Part IV of Form 2553 with the late-classification representations
☐ Confirm the LLC's operating agreement does not create a second class of equity (disproportionate distribution/liquidation rights can violate the one-class-of-stock rule)

PART 5 — MAINE STATE S-CORP OVERLAY (KEY SECTION)

VERIFY current treatment with a Maine CPA before filing.

A. Recognition — No Separate State Election

Maine conforms to and recognizes federal Subchapter S status. There is no separate Maine S-election: an entity that is an S corporation for federal purposes is an S corporation for Maine purposes and is treated as a pass-through entity. Income, deductions, and credits flow through to shareholders, who report their distributive shares on their Maine individual returns (Form 1040ME) or applicable returns.

B. Returns

☐ The S corporation files Form 1120ME (Maine's corporate income-tax return is used by S corporations as an information / reconciliation return; verify the current filing posture)
☐ If the entity has any nonresident shareholders, it files Form 941P-ME (Pass-Through Entity Withholding Return) for the year (36 M.R.S. § 5250-B)
☐ Resident shareholders report their shares on individual Maine returns

C. Nonresident-Shareholder Withholding and Composite Filing

A pass-through entity with Maine-source income and any non-Maine-resident member must generally withhold Maine income tax from each nonresident's quarterly distributive share and file Form 941P-ME (36 M.R.S. § 5250-B; MRS Rule 803). Alternatives:

☐ Composite return — the entity may elect to file a composite return on behalf of eligible nonresident shareholders, reporting their Maine-source income on a single return. Each participating nonresident must complete a Nonresident Member Affidavit (Form 941CF-ME) annually; the entity must retain it for at least six years.
☐ An entity filing a composite return must also file the annual Form 941P-ME with a completed Schedule 3P identifying composite participants.
☐ Exemption from withholding may be available for a nonresident who agrees to file individually (verify current exemption procedures).

D. Return, Tax, and Filing Snapshot

PART 6 — POST-ELECTION COMPLIANCE

IRS Confirmation

☐ Retain the IRS acceptance letter (CP261) permanently
☐ If no response within ~60 days, call the IRS Business & Specialty Tax Line: (800) 829-4933

Federal Ongoing Obligations

☐ File Form 1120-S annually; issue Schedule K-1 to each shareholder
☐ Reasonable compensation — pay shareholder-employees a reasonable W-2 salary before distributions (Rev. Rul. 74-44; recurring IRS audit issue)
☐ Built-in gains tax (§ 1374) — if the entity converted from C-corp status, monitor the 5-year recognition period for net built-in gains
☐ Passive investment income tax (§ 1375) — if the entity has C-corp earnings & profits and passive investment income exceeds 25% of gross receipts, an entity-level tax applies; 3 consecutive years of excess passive income terminates the S election (§ 1362(d)(3))
☐ Maintain a single class of stock and only eligible shareholders

Maine Ongoing Obligations

☐ File Form 1120ME for each tax year
☐ File Form 941P-ME (and remit nonresident withholding) or file the composite return where applicable
☐ Collect annual Form 941CF-ME affidavits from composite participants and retain six years
☐ File the Annual Report with the Maine Secretary of State to maintain good standing

PART 7 — REVOCATION AND TERMINATION

Voluntary Federal Revocation (26 U.S.C. § 1362(d)(1))

☐ Shareholders holding more than 50% of the shares (voting and nonvoting) consent
☐ File a revocation statement with the IRS (no official form — letter format citing § 1362(a)) signed by an authorized officer, with shareholder consents attached
☐ Effective date: if filed on or before the 15th day of the 3rd month, retroactive to the first day of that tax year; otherwise the first day of the following tax year; or a stated prospective date

Automatic Federal Termination (26 U.S.C. § 1362(d)(2)–(3))

☐ Entity ceases to qualify (exceeds 100 shareholders, ineligible shareholder acquires stock, or a second class of stock is created) — effective on the date of the disqualifying event
☐ Passive investment income exceeds 25% of gross receipts for 3 consecutive years while the entity has C-corp E&P

Maine Side

☐ Because Maine follows the federal classification, a federal revocation/termination automatically ends Maine S treatment for the affected year — coordinate Form 1120ME / withholding filings accordingly

FILLABLE SUMMARY FIELDS

Authorized Officer Signature: ____________________________________
Name: [____________________] Title: [____________________] Date: [__/__/____]

SOURCES AND REFERENCES

• 26 U.S.C. §§ 1361–1368, 1374, 1375 (Subchapter S)
• IRS Form 2553 and Instructions; Rev. Proc. 2013-30 (late election relief)
• Treas. Reg. § 1.1362-6 (election procedures); Treas. Reg. § 301.7701-3 (deemed Form 8832)
• 36 M.R.S. § 5250-B (pass-through entity withholding); MRS Rule 803 (18-125 C.M.R. ch. 803); MRS Rule 805 (18-125 C.M.R. ch. 805, composite returns)
• Maine Revenue Services — Form 1120ME (Corporate Income Tax) and instructions
• Maine Revenue Services — Form 941P-ME (Pass-Through Entity Withholding) and Form 941CF-ME (Nonresident Member Affidavit)