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

S-CORPORATION ELECTION PACKAGE — NEW MEXICO

OVERVIEW

This package guides a New Mexico corporation or LLC through electing federal S-corporation status on IRS Form 2553 and addresses the New Mexico 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 Mexico treatment (Part 5 below).

NEW MEXICO — NO SEPARATE STATE ELECTION. New Mexico recognizes the federal S election automatically. There is no separate New Mexico S-corporation election form. The federal return the entity is required (or elects) to file determines the New Mexico return — an S corporation files Form S-Corp. The principal state issues are nonresident-owner withholding and the optional pass-through entity (PTE) entity-level tax election.

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 Mexico 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 Mexico 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 such as New Mexico, the shareholder's spouse if the stock is community property) 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 Mexico 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 Mexico 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.
☐ Note: a New Mexico single-member LLC that is a disregarded entity is treated as a QSSS/disregarded entity for New Mexico PTE purposes — see Part 5.

PART 5 — NEW MEXICO STATE S-CORP OVERLAY

NO SEPARATE NEW MEXICO ELECTION. New Mexico recognizes the federal S election; there is no separate state S-corporation election form. The S corporation files Form S-Corp (New Mexico Sub-Chapter S Corporate Income and Franchise Tax Return). The federal return the entity is required or elects to file determines the New Mexico return filed.

A. Recognition Rule — New Mexico

☐ Automatic recognition of federal S status — no separate New Mexico election
☐ S corporation files Form S-Corp on or before the due date of the federal return
☐ A QSSS or single-member LLC treated as a disregarded entity for federal purposes is treated the same for New Mexico (no separate PTE filing for the disregarded entity)

B. Nonresident-Owner Withholding (Pass-Through Entity Withholding Tax Act)

☐ New Mexico requires the S corporation to deduct and withhold tax on each nonresident owner's allocable share of net income and remit it to the Department — N.M. Stat. Ann. § 7-3A-1 et seq.
☐ For tax years beginning in 2023 and later, withholding is reported and paid on the Form S-Corp return itself (using the S-Corp-D Detail of Owners schedule). For 2022 and earlier, withholding was reported on Form RPD-41367.
☐ Withholding is not required for owners the entity cannot pay tax for under § 7-3A-10 (e.g., the United States, the State or a political subdivision, federally recognized tribes/pueblos, § 501(c)(3) organizations, certain unitary corporate partners, and pass-through-entity owners)

C. Optional Entity-Level Tax / PTE Election

☐ A pass-through entity (including an S corporation) may elect annually to pay New Mexico income tax at the entity level (PTE / PTET election) — a SALT-cap workaround. See N.M. Stat. Ann. § 7-9J (and related § 7-3A provisions).
☐ The election is made by filing the required New Mexico return (Form S-Corp) and is binding on all owners of the electing entity
☐ For 2023 and later, New Mexico uses a credit method: the entity pays and deducts the tax, and owners report the income and claim the entity's payment as a credit
☐ Full payment is generally required by the federal return due date; quarterly estimates are not required
☐ The entity may not pay entity-level tax for the excluded owner categories listed in § 7-3A-10 (see B above)

D. Composite Return Option

☐ Under N.M. Stat. Ann. § 7-3-14, the entity may file a composite return for electing nonresident owners whose only New Mexico-source income is from pass-through entities, paying their tax at the highest marginal rate

E. New Mexico Return & Franchise 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 Mexico Compliance

☐ File IRS Form 1120-S and issue Schedule K-1 to each shareholder annually
☐ File New Mexico Form S-Corp annually; pay the franchise tax and any nonresident withholding / PTE tax
☐ Maintain single class of stock and monitor shareholder eligibility (an ineligible transfer terminates the election)
☐ Keep the CP261 acceptance letter permanently
☐ Re-evaluate the PTE / entity-level tax election each year (annual election)

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 Mexico

☐ Because New Mexico conforms to federal status, a federal revocation ends New Mexico S treatment; the entity would then file as a C corporation (Form CIT-1) for New Mexico
☐ No separate New Mexico revocation form is required, but verify current Form S-Corp / CIT-1 transition requirements

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.M. Stat. Ann. § 7-3A-1 through § 7-3A-10 (Pass-Through Entity Withholding Tax Act; excluded owners under § 7-3A-10)
• N.M. Stat. Ann. § 7-9J (pass-through entity / entity-level tax provisions)
• N.M. Stat. Ann. § 7-3-14 (composite return for nonresident owners)
• New Mexico Form S-Corp and instructions; S-Corp-D Detail of Owners
• NM Taxation & Revenue Department, "Pass-Through Entity" guidance (tax.newmexico.gov)