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

S-CORPORATION ELECTION PACKAGE (FORM 2553 + UTAH STATE OVERLAY)

OVERVIEW

An S corporation is not a separate kind of entity. It is a federal tax classification, under Subchapter S of the Internal Revenue Code, available to a qualifying corporation or LLC that timely files IRS Form 2553. When the election is in effect, the entity generally pays no federal income tax; instead, items of income, loss, deduction, and credit pass through to the shareholders, who report them on their personal returns. This avoids the "double taxation" of a C corporation.

Why elect S status:

• Pass-through taxation — no entity-level federal income tax (26 U.S.C. § 1363).
• Potential self-employment / payroll tax savings: only a shareholder-employee's reasonable compensation (W-2 wages) is subject to FICA; distributions beyond reasonable compensation are not.
• Limited liability of the underlying corporation or LLC is retained.

What a Utah owner should know up front:

• Utah recognizes the federal S election; an S corporation is treated as a pass-through entity for Utah income-tax purposes and files Form TC-20S. See Part 5.
• Utah imposes a $100 minimum tax (privilege tax) on every corporation that files in the TC-20 series, including S corporations (Utah Code § 59-7-104). Confirm the current amount before filing.
• A Utah S corporation must generally pay or withhold tax for nonresident owners (Utah Code § 59-10-1403.2), and may make an optional pass-through entity (PTE) "SALT cap" election (HB 444, 2022).

Entity / filing fields (complete before filing):

PART 1 — FEDERAL ELIGIBILITY CHECKLIST (IRC § 1361)

Confirm EVERY item below before filing Form 2553. A single failure makes the entity ineligible and any election invalid.

Entity-level requirements

☐ The entity is a domestic corporation or an eligible domestic entity (e.g., an LLC) electing to be treated as a corporation (26 U.S.C. § 1361(b)(1)).
☐ The entity has no more than 100 shareholders (§ 1361(b)(1)(A)). Members of a family (a common ancestor, lineal descendants, and their spouses/former spouses) may be counted 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; differences in distribution or liquidation rights are not.
☐ The entity is not an ineligible corporation under § 1361(b)(2) (e.g., a financial institution using the reserve method of accounting for bad debts, an insurance company taxed under subchapter L, a possessions-tax-credit corporation, or a current/former DISC).

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

☐ Every shareholder is an eligible shareholder: an individual (U.S. citizen or resident), an estate, a qualifying trust, or a § 401(a) / § 501(c)(3) tax-exempt organization.
☐ No shareholder is a nonresident alien (§ 1361(b)(1)(C)).
☐ No shareholder is a partnership or a corporation.
☐ Any trust shareholder is a permitted trust: a grantor trust, a former-grantor trust (2-year window), a testamentary trust (2-year window), a voting trust, a Qualified Subchapter S Trust (QSST) (§ 1361(d)), or an Electing Small Business Trust (ESBT) (§ 1361(e)).

PART 2 — FEDERAL FORM 2553, LINE BY LINE

Part I — Election Information

Part II — Selection of Fiscal Tax Year

Complete only if the entity wants a tax year other than the required year (generally the calendar year). State the business-purpose basis (e.g., § 444 election, natural business year under Rev. Proc. 2006-46, or ownership tax year).

Part III — QSST Election

A Qualified Subchapter S Trust beneficiary uses Part III (or a separate statement under § 1361(d)(2)) to elect QSST treatment so the trust qualifies as an eligible shareholder.

Part IV — Late Corporate Classification Election Representations

Used when the entity also seeks late S-election relief (and, for an LLC, a deemed entity classification election). See timing and relief below.

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

• Timely election: file by the 15th day of the 3rd month of the tax year the election is to take effect, or at any time during the immediately preceding tax year.
• New entities: the first tax year begins on the earliest of when the corporation has shareholders, acquires assets, or begins doing business; file within 2 months and 15 days of that date.
• Late-election relief — Rev. Proc. 2013-30: if the deadline is missed, relief is generally available if (1) the entity intended to be an S corp as of the intended effective date, (2) the only reason it is not an S corp is the missed/defective filing, (3) there is reasonable cause and the entity acted diligently, and (4) the relief request is filed within 3 years and 75 days of the intended effective date. Write "FILED PURSUANT TO REV. PROC. 2013-30" across the top of Form 2553 and attach a reasonable-cause statement signed by all shareholders.

Filing method

Form 2553 is filed by mail or fax to the IRS service center designated in the current instructions for the entity's state. Electronic filing of a standalone Form 2553 is not generally available; it may be attached to a timely filed Form 1120-S for certain late elections. Retain the IRS acceptance notice (CP261) permanently.

PART 3 — SHAREHOLDER CONSENT STATEMENT (ALL SHAREHOLDERS MUST CONSENT)

Every shareholder on the effective date (and, for a preceding-year election, those who held stock during that prior period) must consent. Reproduce and attach extra rows as needed.

By signing, each shareholder consents to the S corporation election under 26 U.S.C. § 1362(a) and represents that the information provided is true and correct.

PART 4 — ENTITY INTERPLAY (LLC ELECTING S STATUS)

An LLC is, by default, a disregarded entity (single member) or a partnership (multi-member). To be taxed as an S corporation it must first be classified as an association taxable as a corporation.

• A single Form 2553, filed on time, lets an eligible LLC elect S status without separately filing Form 8832 (Entity Classification Election). A timely, properly completed Form 2553 is treated as a deemed Form 8832 corporate-classification election effective on the same date (Treas. Reg. § 301.7701-3(c)(1)(v)(C)).
• If the LLC wants corporate (C) classification effective on a different date than the S election, file Form 8832 separately.
• Confirm the LLC operating agreement does not create a second class of stock (e.g., disproportionate distribution/liquidation rights or preferred returns), which would void S eligibility.
• Utah note: an LLC that has elected to be taxed as an S corporation files Utah Form TC-20S and is subject to the same $100 minimum tax and pass-through withholding obligations as any other Utah S corporation. A disregarded single-member LLC, by contrast, generally reports through its owner and is not eligible to make the Utah PTE/SALT election in its own right.

PART 5 — UTAH STATE S-CORP OVERLAY

Recognition rule — UTAH RECOGNIZES THE FEDERAL S ELECTION

Utah conforms to the federal S election. An entity that is an S corporation for federal purposes is treated as a pass-through entity for Utah income-tax purposes; income, loss, deduction, and credit flow through to the shareholders, who report their Utah-source share on their Utah individual returns. There is no separate stand-alone Utah S-election form — the federal Form 2553 controls — but the S corporation must register with the Utah State Tax Commission and file Form TC-20S.

>>> FLAG: UTAH $100 MINIMUM (PRIVILEGE) TAX <<<

Every corporation that files in the Utah TC-20 series — including an S corporation filing Form TC-20S — must pay a minimum tax (privilege tax) of $100, regardless of whether it exercised its right to do business in Utah (Utah Code § 59-7-104(2); Utah State Tax Commission TC-20/TC-20S instructions). The $100 minimum is owed even in a loss or inactive year.

Pass-through entity withholding for nonresident owners

• A Utah pass-through entity must pay or withhold Utah tax on the business income and Utah-source nonbusiness income attributable to its pass-through entity taxpayers (Utah Code § 59-10-1403.2). The S corporation generally withholds 5% of Utah income distributable to a pass-through entity taxpayer (per the TC-20S instructions).
• Exceptions apply, including for a final pass-through entity taxpayer who is a Utah resident individual, certain exempt organizations, and certain qualified plans (§ 59-10-1403.2(1)(b)).
• Report the withholding on Schedule TC-20S / Schedule K-1 issued to each shareholder.

Optional pass-through entity (PTE) "SALT cap" election (HB 444, 2022)

• For tax years beginning on or after January 1, 2022, a Utah pass-through entity (including an S corporation) may make an annual election to pay Utah income tax on behalf of its final pass-through entity taxpayers (resident and nonresident individuals) on their "voluntary taxable income," as a federal SALT-deduction-cap workaround (Utah Code § 59-10-1403.2; HB 444). The entity files the SALT Report (Form TC-75).
• Payment of the PTE tax on or before the last day of the entity's taxable year is treated as an irrevocable election for that year; the electing owners receive a corresponding nonrefundable Utah credit.
• The election is not available to entities disregarded for federal income tax purposes. Consult a tax advisor; the workaround is not beneficial in every case.

Return / form and due date

• The Utah S corporation files Form TC-20S with the Utah State Tax Commission.
• Due date: the 15th day of the 4th month after the close of the tax year (April 15 for calendar-year filers), matching the federal due date; a federal extension extends the Utah filing date.

Other Utah items to confirm

☐ Maintain good standing and file the annual renewal with the Utah Division of Corporations & Commercial Code.
☐ Register for Utah withholding and unemployment insurance accounts before paying shareholder-employee wages.
☐ Register for sales and use tax if selling taxable goods or services.

PART 6 — POST-ELECTION COMPLIANCE

☐ Reasonable compensation. A shareholder who performs services must be paid reasonable compensation as W-2 wages before taking distributions; the IRS may recharacterize disguised wages and assess back FICA, penalties, and interest.
☐ Payroll setup. Run payroll, withhold and deposit federal and Utah income tax and FICA, file Forms 941/940, and file Utah withholding returns (Form TC-941 series).
☐ Distributions. Distributions to shareholders are generally tax-free for federal purposes to the extent of stock basis and the accumulated adjustments account (AAA); track basis carefully (§ 1367).
☐ Built-in gains tax (§ 1374). If the entity converted from C-corporation status, gain on pre-conversion appreciated assets sold within the 5-year recognition period is taxed at the entity level federally.
☐ Passive investment income (§ 1375). If the entity has accumulated C-corporation earnings and profits and passive investment income exceeds 25% of gross receipts, an entity-level federal tax applies; exceeding 25% for 3 consecutive years terminates the S election (§ 1362(d)(3)).
☐ One class of stock maintained. Avoid side agreements, disproportionate distributions, or debt that could be reclassified as a second class of stock.
☐ Annual federal/state returns. File Form 1120-S with Schedules K-1 federally and Utah Form TC-20S with Schedules K-1, paying the $100 minimum tax and any nonresident pass-through withholding or elective PTE tax.
☐ Recordkeeping. Retain Form 2553, the CP261 acceptance notice, shareholder consents, stock/ownership records, and minutes permanently.

PART 7 — REVOCATION / TERMINATION (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 (no official form; a signed letter identifying the entity, EIN, and effective date, with shareholder consents).
☐ Effective date: if filed by the 15th day of the 3rd month of the tax year, it is effective the first day of that year; otherwise the first day of the following tax year. A prospective date may be specified.

Automatic termination (§ 1362(d)(2)–(3))

Termination is automatic if:
☐ The entity ceases to qualify as a small business corporation (e.g., exceeds 100 shareholders, an ineligible shareholder acquires stock, or a second class of stock is created) — effective on the date of the disqualifying event.
☐ The entity has C-corporation E&P and passive investment income exceeds 25% of gross receipts for 3 consecutive tax years — terminating at the start of the next year.

Five-year re-election bar (§ 1362(g))

After revocation or termination, the entity generally may not re-elect S status for 5 tax years without IRS consent.

Utah effect

Utah S treatment follows the federal classification. A federal revocation or termination ends Utah S treatment for the same period; the entity then files as a C corporation on Utah Form TC-20 and is subject to the Utah corporate franchise/income tax (currently a flat rate) instead of pass-through treatment. The $100 minimum (privilege) tax continues to apply to the C-corporation return.

SIGNATURE BLOCK

Authorized Officer

Signature: _________________________________________
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

SOURCES AND REFERENCES

• 26 U.S.C. §§ 1361–1368, 1374, 1375 (Subchapter S)
• 26 U.S.C. § 1362 (election, revocation, termination)
• IRS Form 2553 and Instructions; IRS Notice CP261
• Rev. Proc. 2013-30 (late election relief); Treas. Reg. § 1.1362-6; Treas. Reg. § 301.7701-3 (entity classification)
• Utah Code § 59-7-104 (corporate franchise/income tax — $100 minimum tax); § 59-7-701 et seq. (S corporations)
• Utah Code § 59-10-1403.2 (pass-through entity withholding; PTE/SALT election); HB 444 (2022 General Session)
• Utah State Tax Commission, Form TC-20S and Instructions — https://tax.utah.gov/forms
• Utah State Tax Commission, SALT Report & Tax FAQ (HB 444) — https://tax.utah.gov/business/pass-through/salt-faq/
• Utah State Tax Commission, Pass-Through Entities — https://tax.utah.gov/business/pass-through