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

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

OVERVIEW

This package guides a Nebraska corporation or LLC through the two layers of an S-corporation election:

1. Federal layer — electing S-corporation status with the IRS by filing Form 2553 under 26 U.S.C. § 1362(a). A valid election causes income, loss, deductions, and credits to pass through to shareholders, avoiding entity-level federal income tax.
2. State layer (Nebraska overlay) — Nebraska automatically conforms to the federal S-election. No separate Nebraska S-election is filed. The S-corporation files the Nebraska S-corporation return (Form 1120-SN) and addresses nonresident shareholders through the Form 12N agreement or withholding, and may make a pass-through entity tax (PTET) election.

Use this package as a working checklist. Confirm every citation and current-year form against the IRS and the Nebraska Department of Revenue before filing.

PART 1 — FEDERAL ELIGIBILITY CHECKLIST (IRC § 1361)

An entity must satisfy every requirement below to be eligible to elect S-corporation status.

Entity Eligibility — § 1361(b)(1)

☐ Entity is a domestic corporation or an LLC eligible to elect corporate treatment
☐ Entity has no more than 100 shareholders (§ 1361(b)(1)(A); family members may be treated as one under § 1361(c)(1))
☐ Entity has only one class of stock (§ 1361(b)(1)(D); differences in voting rights alone are permitted)
☐ Entity is not an ineligible corporation under § 1361(b)(2) (e.g., certain banks using the reserve method, insurance companies subject to subchapter L, possessions corporations, or former DISCs)

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

☐ All shareholders are individuals, estates, certain trusts, or qualifying tax-exempt organizations
☐ No shareholder is a partnership, corporation, or nonresident alien (§ 1361(b)(1)(B)–(C))
☐ Any trust shareholder qualifies (grantor trust, testamentary trust within the 2-year window, QSST under § 1361(d), ESBT under § 1361(e), or voting trust)
☐ Each shareholder will consent to the election (Part 3 below)

Pre-Filing Confirmations

☐ Entity is properly formed and in good standing with the Nebraska Secretary of State
☐ EIN obtained from the IRS
☐ A reasonable-compensation plan for shareholder-employees has been considered
☐ A CPA or tax attorney has confirmed S-status is advantageous given Nebraska taxes

PART 2 — FORM 2553 LINE-BY-LINE

Part I — Election Information

Timing of the Election — § 1362(b)

The election is timely if filed:

☐ At any time during the tax year preceding the tax year it is to take effect; OR
☐ On or before the 15th day of the 3rd month of the tax year it is to take effect (for a calendar-year entity electing for the current year, that is March 15; March 16 in 2026 because March 15, 2026 falls on a Sunday)

For a newly formed entity, the first tax year begins on the earliest of: first having shareholders, first acquiring assets, or first beginning to do business. The 2-month-and-15-day clock runs from that date.

Late Election Relief — Rev. Proc. 2013-30

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

☐ The entity intended to be an S-corporation as of the intended effective date
☐ The failure to qualify was solely because Form 2553 was not filed timely
☐ The entity has reasonable cause and acted diligently to correct
☐ The request is filed within 3 years and 75 days of the intended effective date
☐ All returns filed are consistent with S-status (or none were due yet)

To request relief: write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553, attach a reasonable-cause statement, and have all shareholders sign the consent.

Filing Method

☐ Fax or mail Form 2553 to the IRS service center listed in the current instructions (no e-file for Form 2553)
☐ Retain the IRS CP261 acceptance notice permanently

PART 3 — SHAREHOLDER CONSENT STATEMENT

All shareholders on the election effective date (and, for a retroactive election, anyone who held stock during the year) must consent. Consent is made in column K of Form 2553 or by attached statement under Treas. Reg. § 1.1362-6.

Consent language: Each shareholder, by signing above, consents to the corporation's election to be treated as an S-corporation under 26 U.S.C. § 1362(a) and represents that the information provided is true and correct. For shares held by spouses or by a trust, each person with a community-property or beneficial interest must also consent.

PART 4 — ENTITY INTERPLAY (LLC ELECTING S-STATUS)

An LLC may elect S-status. The interaction with the entity-classification rules is critical:

☐ LLC filing Form 2553 alone — Under Treas. Reg. § 301.7701-3(c)(1)(v)(C), an eligible entity that timely files Form 2553 is deemed to have elected to be classified as an association (corporation) under § 301.7701-3, so a separate Form 8832 is not required. The Form 2553 does double duty.
☐ LLC already taxed as a C-corporation (previously filed Form 8832) — file only Form 2553 to layer the S-election on top.
☐ Confirm Nebraska formation documents and operating agreement do not create a second class of equity (e.g., preferred distribution/liquidation rights) that would break the single-class-of-stock rule.
☐ Reasonable compensation — once taxed as an S-corp, member-managers who work in the business become shareholder-employees who must be paid a reasonable W-2 salary before distributions.

PART 5 — NEBRASKA STATE S-CORP OVERLAY

Nebraska recognizes the federal S-election automatically. There is NO separate Nebraska S-election to file. Once the IRS accepts the federal election, the entity is an S-corporation for Nebraska purposes and files as a pass-through entity.

5.1 — Return Form

☐ File the Nebraska S Corporation Income Tax Return (Form 1120-SN) by the 15th day of the 3rd month after the close of the taxable year (matching the federal Form 1120-S due date).
☐ Complete Schedule II (nonresident shareholder information) and furnish each shareholder a Nebraska Schedule K-1N.

5.2 — Entity-Level Tax Status

☐ Nebraska imposes no separate corporate-level income tax on a properly electing S-corporation; ordinary income passes through to shareholders, who report Nebraska-source income on their own returns. (Income tax rates were reduced under L.B. 754 (2023); confirm the current individual and corporate rates.) [verify current rates]

5.3 — Nonresident Shareholders — Form 12N or Withholding

Nebraska requires the S-corporation to account for nonresident individual shareholders:

☐ Form 12N (Nebraska Nonresident Income Tax Agreement). A nonresident individual shareholder may sign Form 12N, agreeing to file a Nebraska Individual Income Tax Return (Form 1040N), pay the tax due, and submit to Nebraska jurisdiction. All signed Forms 12N are attached to Form 1120-SN.
☐ Withholding if no Form 12N. If a nonresident individual does not sign a Form 12N, the S-corporation must withhold Nebraska income tax on that shareholder's share of Nebraska-source income and remit it with the Statement of Nebraska Income Tax Withheld for Nonresident Individual (Form 14N) and Form 1120-SN.
☐ Confirm the current nonresident withholding rate on the current Nebraska S Corporation Income Tax Booklet before filing. [verify withholding rate for filing year]

5.4 — Optional Pass-Through Entity Tax (PTET) Election — § 77-2734.01(8)

☐ Nebraska allows an S-corporation to elect to be subject to income tax at the entity level (a SALT-cap workaround) under Neb. Rev. Stat. § 77-2734.01(8). The election is made on Form 1120-SN (check the PTET box) and reported on Schedule PTET.
☐ If electing PTET, the entity pays Nebraska tax on income reported to Nebraska, and shareholders take a corresponding refundable credit for their share. The election can be made retroactively for tax years 2018 forward under the statute.
☐ Evaluate the PTET election with a tax advisor — it interacts with the federal SALT deduction and with the Form 12N/withholding mechanics above. [verify current PTET rate and procedure]

PART 6 — POST-ELECTION COMPLIANCE

Federal

☐ File Form 1120-S annually; issue Schedule K-1 to each shareholder
☐ Pay shareholder-employees reasonable compensation via W-2 before taking distributions (IRS scrutinizes under § 3121 / employment-tax rules; recharacterization of distributions as wages is a common audit adjustment)
☐ Built-in gains tax (§ 1374) — if the entity converted from C-corp status, gain on pre-conversion appreciated assets sold within the 5-year recognition period is taxed at the corporate level
☐ Excess net passive income tax (§ 1375) — if the entity has accumulated C-corp earnings and profits and passive investment income exceeds 25% of gross receipts, an entity-level tax applies; three consecutive years also terminates the election under § 1362(d)(3)
☐ Maintain single class of stock and shareholder eligibility continuously

Nebraska

☐ File Form 1120-SN annually; deliver Nebraska Schedule K-1N to each shareholder
☐ Attach all Forms 12N and file Form 14N withholding for nonresidents who did not sign
☐ If PTET-elected, file Schedule PTET and remit the entity-level tax (§ 77-2734.01(8))
☐ Keep the Nebraska Secretary of State biennial report current and the entity in good standing
☐ Register for any applicable Nebraska withholding/employer accounts for shareholder-employee wages

PART 7 — REVOCATION (§ 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 (no official form; a signed letter citing § 1362(a) and § 1362(d)(1) with shareholder consents)
☐ Effective date: if filed on or before the 15th day of the 3rd month of the tax year, revocation is effective the first day of that year; otherwise the first day of the following year. A prospective effective date may be specified.
☐ A 5-year waiting period generally applies before a new S-election may be made (§ 1362(g)), absent IRS consent

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

☐ Ceasing to meet any § 1361(b) requirement (e.g., exceeding 100 shareholders, a second class of stock, an ineligible shareholder) terminates the election as of the disqualifying event
☐ Passive investment income exceeding 25% of gross receipts for 3 consecutive years while holding C-corp E&P terminates the election (§ 1362(d)(3))

Nebraska Effect of Revocation/Termination

☐ When the federal S-election ends, Nebraska pass-through treatment ends with it; the entity files as the resulting federal entity type (typically a C-corporation on the Nebraska Corporation Income Tax Return, Form 1120N). Confirm the transition-year filing with a tax advisor.

FILLABLE FIELDS SUMMARY

SOURCES AND REFERENCES

• 26 U.S.C. §§ 1361–1379 (Subchapter S); §§ 1374, 1375 (entity-level taxes)
• IRS Form 2553 and Instructions; Form 1120-S and Instructions
• Rev. Proc. 2013-30 (late S-election relief)
• Treas. Reg. § 1.1362-6 (election/consent); § 301.7701-3 (entity classification; Form 2553 = deemed Form 8832)
• Neb. Rev. Stat. § 77-2734.01 (Nebraska corporate/PTE income tax; PTET election at subsec. (8))
• Neb. L.B. 754 (2023) — income tax rate reductions
• Nebraska Department of Revenue — Form 1120-SN (S Corporation Income Tax Return), S Corporation Income Tax Booklet, Form 12N (Nonresident Income Tax Agreement), Form 14N, Schedule PTET (revenue.nebraska.gov)