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

S-CORPORATION ELECTION PACKAGE (FORM 2553 + WEST VIRGINIA 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.

Why a West Virginia owner should read the state overlay:

• West Virginia recognizes the federal S election automatically — there is no separate West Virginia S election. See Part 5.
• West Virginia is a pass-through state for S corporations: there is no general entity-level income tax on the S corporation's net income (unless it elects the PTE tax below). The S corporation files an informational/withholding return on Form PTE-100 (formerly designated SPF-100).
• The S corporation must withhold West Virginia income tax on the West Virginia-source income of nonresident shareholders (W. Va. Code § 11-21-71a).

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.
• West Virginia note: an LLC taxed as an S corporation is a pass-through entity for West Virginia purposes and files the same Form PTE-100 as any other S corporation; an LLC treated like a partnership for federal purposes is likewise treated as such for West Virginia. West Virginia follows the federal classification.

PART 5 — WEST VIRGINIA STATE S-CORP OVERLAY

Recognition rule — AUTOMATIC (no separate West Virginia election)

West Virginia conforms to the federal S election. Every corporation electing to be taxed under Subchapter S that does business in West Virginia or derives income from West Virginia sources is treated as an S corporation / pass-through entity for West Virginia purposes automatically — there is no separate West Virginia S-corporation election form. The federal classification governs.

No general entity-level income tax — Form PTE-100

• West Virginia does not impose a general entity-level income tax on the S corporation's net income, and there is no West Virginia minimum-tax equivalent of California's $800. Income passes through to the shareholders, who report their West Virginia-source shares on their individual returns (items flow via Schedule K-1).
• The S corporation files the West Virginia Income Tax Return for S Corporations and Partnerships — Form PTE-100 (the current designation; this return was formerly named SPF-100). Multistate S corporations apportion income using a single sales factor with market-based sourcing (for tax years 2022 and later).
• Due date: generally the 15th day of the 3rd month after the close of the tax year (March 15 for calendar-year filers). A federal extension (Form 7004) extends the West Virginia filing deadline; an extension to file does not extend time to pay. Form PTE-100EXT may be used for a state extension.

Nonresident shareholder withholding (W. Va. Code § 11-21-71a)

• The S corporation must withhold West Virginia income tax on each nonresident shareholder's share of West Virginia-source income and remit it with Form PTE-100, unless the nonresident shareholder has furnished a West Virginia Nonresident Income Tax Agreement (Form NRW-4).
• Shareholder/withholding detail is reported on Schedule SP and the West Virginia Schedule K-1.

Optional pass-through entity (PTE) elective tax — W. Va. Code § 11-21-3a (SB 151 (2023))

• SB 151 (2023 Regular Session) created an elective pass-through entity tax, codified at W. Va. Code § 11-21-3a, retroactive to tax years beginning on or after January 1, 2022. It is designed as a federal SALT-cap workaround under IRS Notice 2020-75.
• A qualifying PTE (including an S corporation) may elect to pay West Virginia income tax at the entity level on the resident owners' income plus the apportioned nonresident owners' income; electing owners receive a corresponding credit (and a credit for taxes paid to other states).
• Election mechanics: effective September 1, 2023 and forward, filing the entity-level return itself indicates the election, and once made by filing it is irrevocable for that tax year. For calendar-year taxpayers the election/return is due on or before March 15 (extension to September 15). An entity that elects the PTE tax is no longer obligated to file the PTE-100 — the PTE tax is filed and paid instead of the nonresident withholding due with PTE-100.
• [Verify current PTE-tax rate, estimated-payment schedule, and any later amendments before relying on this election.]

Other West Virginia items to confirm

☐ Maintain good standing with the West Virginia Secretary of State and file the annual report.
☐ Register with the West Virginia Tax Division for a business registration certificate and employer withholding account, and with WorkForce West Virginia for unemployment insurance, before paying shareholder-employee wages.
☐ Register for West Virginia consumers sales and service tax if selling taxable goods/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 West Virginia income tax and FICA, file Forms 941/940, and file West Virginia employer withholding returns.
☐ Distributions. Distributions to shareholders are generally tax-free 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 for federal purposes.
☐ 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 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 West Virginia Form PTE-100 with West Virginia Schedules K-1 (or the entity-level PTE return if the § 11-21-3a election is made); remit nonresident withholding under § 11-21-71a.
☐ 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.

West Virginia effect

West Virginia S/pass-through treatment follows the federal classification. A federal revocation/termination ends West Virginia S treatment for the same period; the entity then files as a C corporation on the West Virginia Corporation Net Income Tax return (Form CIT-120) and is subject to the West Virginia corporate net income tax instead of pass-through reporting on Form PTE-100.

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)
• W. Va. Code § 11-21-3 et seq. (pass-through entities); § 11-21-71a (nonresident withholding); § 11-21-3a (elective PTE tax — SB 151 (2023))
• West Virginia Tax Division, Pass Through Entity — https://tax.wv.gov/business/passthroughentity/pages/passthroughentity.aspx
• West Virginia Tax Division, Pass-Through Entity Tax (SB 151) — https://tax.wv.gov/Business/PassThroughEntity/Pages/PassThroughEntityElectiveTax.aspx
• West Virginia Form PTE-100, Schedule SP, Schedule K-1, Form NRW-4 — https://tax.wv.gov