S-Corporation Election Package (Form 2553 + New Jersey S-Election)

S-CORPORATION ELECTION PACKAGE — NEW JERSEY

OVERVIEW

This package guides a New Jersey corporation or LLC through electing federal S-corporation status on IRS Form 2553 and addresses the New Jersey tax overlay. An S election allows income, losses, deductions, and credits to pass through to shareholders, avoiding entity-level federal income tax under 26 U.S.C. § 1363.

Two distinct steps:

1. Federal election — File IRS Form 2553 with the IRS (Parts 1–4 below).
2. State overlay — Address New Jersey treatment (Part 5 below).

NEW JERSEY — IMPORTANT RECENT CHANGE (P.L. 2022, c. 133): For privilege periods beginning on or after December 22, 2022, New Jersey automatically treats a federal S corporation as a New Jersey S corporation. The former separate New Jersey election (Form CBT-2553) is NO LONGER REQUIRED for these periods. A corporation may instead affirmatively elect OUT (hybrid / C-corporation status). See Part 5. Older guidance that still says "you must file CBT-2553" is outdated for current periods.

Package contents:

• Part 1 — Federal Eligibility Checklist (IRC § 1361)
• Part 2 — Form 2553 Line-by-Line
• Part 3 — Shareholder Consent Statement
• Part 4 — Entity Interplay (LLC electing S status)
• Part 5 — New Jersey State Overlay
• Part 6 — Post-Election Compliance
• Part 7 — Revocation
• Fillable Fields
• Sources & References

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

A corporation is eligible to elect S status only if it is a small business corporation meeting ALL of the following.

Entity Requirements (§ 1361(b)(1))

☐ Entity is a domestic corporation (or an LLC/eligible entity electing corporate treatment)
☐ Entity has no more than 100 shareholders (§ 1361(b)(1)(A)) — family members may be counted as one shareholder 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 (§ 1361(b)(2)) — not a financial institution using the reserve method, insurance company, or current/former DISC

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

☐ All shareholders are U.S. citizens or resident aliens — no nonresident aliens (§ 1361(b)(1)(C))
☐ No shareholder is a partnership or corporation (§ 1361(b)(1)(B))
☐ Any trust shareholders are permitted trusts only: grantor trusts, testamentary trusts (2-year limit), QSSTs (§ 1361(d)), ESBTs (§ 1361(e)), or voting trusts
☐ Estates and certain § 401(a)/§ 501(c)(3) tax-exempt organizations are permitted
☐ All shareholders consent to the election (Part 3)

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 Tax Year Election (§ 444 / business purpose)

☐ Complete only if Line F selects a tax year other than a permitted calendar year
☐ Box P / Q / R selected as applicable (natural business year, ownership tax year, § 444 election, or business-purpose request)

Part III — QSST Election

☐ Complete only if a Qualified Subchapter S Trust is a shareholder (§ 1361(d)(2))

Late Election Relief — Rev. Proc. 2013-30

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

☐ Entity intended to be an S corporation as of the intended effective date
☐ Reasonable cause existed for the failure to file timely, and the entity acted diligently to correct it
☐ Request filed within 3 years and 75 days of the intended effective date
☐ The entity (and shareholders) reported consistently with S status on all affected returns, or no returns were yet due
☐ Write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553
☐ Attach a reasonable cause statement, signed under penalties of perjury
☐ ALL shareholders for the relevant period sign the form

Filing Method (as of 2026)

☐ Mail or fax to the IRS Service Center designated in the Form 2553 instructions (determined by the entity's state — New Jersey routes to the applicable center listed in the current instructions)
☐ Electronic filing of Form 2553 is not available
☐ Retain proof of mailing/fax confirmation
☐ Await IRS acceptance letter CP261 (allow ~60 days)

PART 3 — SHAREHOLDER CONSENT STATEMENT

ALL shareholders (and, for community-property states, the shareholder's spouse if applicable) must consent. The consent is made in Column K of Form 2553 or on an attached statement. An incomplete consent invalidates the election.

Consent language: Under penalties of perjury, the undersigned shareholder consents to the election of the above-named corporation to be treated as an S corporation under 26 U.S.C. § 1362(a), and declares the information provided is true, correct, and complete.

PART 4 — ENTITY INTERPLAY (LLC ELECTING S STATUS)

A New Jersey LLC (or other eligible entity) may elect S status. Key mechanics:

☐ 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 corporate classification (Form 8832) as of the S-election effective date — a separate Form 8832 is generally NOT required.
☐ Corporation: A New Jersey corporation files only Form 2553.
☐ Confirm the operating agreement / bylaws do not create a second class of stock (e.g., disproportionate distribution/liquidation rights) — this would terminate the election.
☐ Confirm single class of stock is reflected in capital accounts and distribution provisions.
☐ Newly converted entities: verify EIN reflects the intended classification.

PART 5 — NEW JERSEY STATE S-CORP OVERLAY

AUTOMATIC CONFORMITY (P.L. 2022, c. 133; N.J.S.A. 54:10A-5.22). For privilege periods beginning on or after December 22, 2022, New Jersey automatically treats a federal S corporation (and QSSS) as a New Jersey S corporation. NO separate New Jersey S election (the former Form CBT-2553) is required. This is a change from prior law — historically New Jersey was one of the last states requiring a dual election. FLAG: Many older guides, articles, and CPA checklists still incorrectly state that CBT-2553 must be filed. Verify against current NJ Division of Taxation guidance (Technical Bulletin TB-105(R)) before relying on older material.

A. Recognition Rule — New Jersey

☐ No separate New Jersey S election required for privilege periods beginning on/after Dec. 22, 2022 (automatic conformity to federal S status)
☐ Entity must be registered with the NJ Division of Revenue and Enterprise Services (DORES)
☐ Entity must provide proof of federal S status (the IRS CP261 acceptance letter)
☐ Entity must file the Shareholder Jurisdictional Consent confirming each shareholder consents to New Jersey's authority to tax its share of S-corp income

B. Retroactive Election (Pre-Dec. 22, 2022 / Legacy Periods)

☐ Entities granted federal S status before Dec. 22, 2022 that never made the old New Jersey election were taxed as New Jersey C corporations; to be treated as a New Jersey S corporation for those earlier periods, file a retroactive election (Form CBT-2553-R) through the DORES online S-corp system

C. Electing OUT — Hybrid / C-Corporation Status

☐ A federal S corporation may elect out and be taxed as a New Jersey C corporation (a "hybrid corporation") under N.J.S.A. 54:10A-4(ff) / § 5.22(b)
☐ All shareholders must consent; record of consent is retained by the entity (not filed)
☐ Election made by the later of the original or extended due date of the return
☐ Revocation of the opt-out requires consent of shareholders holding more than 50% of shares

D. New Jersey Return & Tax

PART 6 — POST-ELECTION COMPLIANCE

Reasonable Compensation

☐ Shareholder-employees who perform services must receive reasonable compensation (wages subject to FICA) before taking distributions — the IRS may recharacterize distributions as wages where compensation is unreasonably low (see Rev. Rul. 74-44; reasonable-comp scrutiny)
☐ Document the basis for the compensation amount (comparable salaries, duties, time, profitability)

Built-In Gains Tax — § 1374

☐ If the entity converted from C-corp status, a corporate-level built-in gains (BIG) tax under 26 U.S.C. § 1374 may apply to net recognized built-in gains on assets held at conversion, generally during the 5-year recognition period
☐ Obtain a valuation of assets as of the S-election date to fix the net unrealized built-in gain

Excess Net Passive Income Tax — § 1375

☐ If the entity has C-corp accumulated E&P and passive investment income exceeds 25% of gross receipts, a corporate-level tax under 26 U.S.C. § 1375 applies
☐ Three consecutive years over the 25% threshold (with E&P) terminates the election under § 1362(d)(3)

Ongoing Federal & New Jersey Compliance

☐ File IRS Form 1120-S and issue Schedule K-1 to each shareholder annually
☐ File New Jersey Form CBT-100S annually; pay the New Jersey minimum tax
☐ Maintain single class of stock and monitor shareholder eligibility (an ineligible transfer terminates the election)
☐ Keep the CP261 acceptance letter permanently
☐ Re-evaluate BAIT election each year by the March 15 deadline

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

Voluntary Revocation — § 1362(d)(1)

☐ Shareholders holding more than 50% of issued and outstanding shares (voting and nonvoting) consent
☐ File a revocation statement with the IRS (no official form — letter format) signed by the corporation and consenting shareholders
☐ 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 tax year; or a prospective date may be specified
☐ Five-year rule: after revocation/termination, a new S election generally cannot be made for 5 tax years without IRS consent (§ 1362(g))

New Jersey

☐ Because New Jersey conforms automatically, a federal revocation generally ends New Jersey S treatment as well; verify whether a New Jersey filing/notice is required for the affected privilege period
☐ A revocation of a prior New Jersey opt-out (hybrid) election requires consent of shareholders holding more than 50% of shares

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

Termination occurs automatically if the entity ceases to qualify (e.g., exceeds 100 shareholders, issues a second class of stock, an ineligible shareholder acquires stock) or fails the passive-income test for 3 consecutive years (with C-corp E&P).

FILLABLE FIELDS — ENTITY SUMMARY

SOURCES & REFERENCES

• 26 U.S.C. §§ 1361–1368 (Subchapter S); §§ 1374, 1375 (corporate-level taxes)
• IRS Form 2553 and Instructions; Form 1120-S; Schedule K-1
• Rev. Proc. 2013-30 (late election relief); Rev. Rul. 74-44 (reasonable compensation)
• Treas. Reg. § 1.1362-6 (election procedures); § 301.7701-3 (entity classification / deemed Form 8832)
• N.J.S.A. 54:10A-5.22 (New Jersey S corporation; federal conformity)
• P.L. 2022, c. 133 (eliminated separate NJ S election for periods beginning on/after Dec. 22, 2022)
• New Jersey Division of Taxation Technical Bulletin TB-105(R) (S corp procedural changes)
• N.J.S.A. 54:10A-4(ff) (hybrid corporation election)
• N.J.S.A. 54A:12-1 et seq. (Pass-Through Business Alternative Income Tax / BAIT)
• New Jersey Form CBT-100S and instructions
• NJ Division of Taxation, "Electing S Corporation Status" and S-Corp procedural-changes FAQ (nj.gov/treasury/taxation)