Checking your S-corp election status

What the acceptance letter looks like

The CP261 is a plain three-page notice headed "We've accepted your S Corporation election", and its first useful line is the date: "You will be treated as an S Corporation starting" followed by the effective date the IRS applied. It goes on to remind you that you now file Form 1120-S with a Schedule K-1 for each shareholder, that owner-employees have to be paid a reasonable salary through payroll, and that shareholders need to track their stock basis. The IRS's own instruction is to keep it in your permanent records.

Do that literally. Your CPA will want a copy before preparing the first 1120-S, a payroll provider may ask for it when setting you up as an S-corp, and a bank or a buyer doing diligence years later will ask whether the election was ever accepted. It's the one document that answers the question without a phone call, and the IRS doesn't reissue the original.

It also tells you when something isn't what you asked for. A late Form 2553 accepted without relief comes back with a line saying that because you filed late, the later date is the earliest you can be treated as an S corporation. If you think that's wrong, the notice tells you what to send: a copy of Form 2553 with the IRS received stamp, a certified mail receipt, or a prior notice of acceptance.

How long S-corp election acceptance takes

The IRS's instructions for Form 2553 say the company should generally receive a determination within 60 days of filing. They also give you a trigger for chasing it: if you've heard nothing within two months of the date you faxed or mailed the form — five months if you asked for a fiscal tax year in Part II — call the IRS. Two months is the working number to put in your calendar the day the fax goes.

Allow for it to run longer in busy periods; the 60 days is the IRS's own expectation rather than a promise, and a form that needs a human to look at a relief statement can sit longer than a clean one. What doesn't help is refiling at week seven because you're nervous — a second Form 2553 for the same company and the same year confuses the file rather than speeding it up.

Filing by fax gives you the one thing that matters if this drags on: a transmission report with a date on it. That's your evidence of when the election was made if the IRS's records show a later date or nothing at all. Keep it with the signed form.

If it never came: what to do, in order

First, check where the IRS would have sent it. The CP261 goes to the company's address on Form 2553. If you moved between filing and now, mail may have gone to an address you no longer watch, and the fix for the record is Form 8822-B. If the company has an IRS Business Tax Account, look there too — it can show notices and letters the IRS has sent, though it doesn't offer a status lookup for the election as such.

Second, call the IRS Business and Specialty Tax Line on 800-829-4933, Monday to Friday, 7 a.m. to 7 p.m. your local time, and have three things in front of you: the company's EIN, its legal name exactly as it appears on the EIN letter, and the address on file. Ask two questions — is there an S corporation election on file for this EIN, and what is its effective date. The caller has to be an owner or officer; an accountant generally needs a signed authorisation (Form 2848 or 8821) on file before the IRS will discuss the account.

Third, if the election is on file, ask them to send written confirmation. The IRS won't reissue the CP261 itself, but it can mail — or fax, if you ask — a letter confirming the S election and its effective date. Practitioners call it the 385C, and banks and CPAs accept it in place of the original.

Fourth, if nothing is on file, the form didn't land or was never processed. Refile it. If the original deadline has now passed, the refiled form is a late election, and it goes in with a Rev. Proc. 2013-30 relief statement explaining what happened — which is exactly the situation the relief was written for.

The CP264: when the IRS says no

A rejected election comes back as a CP264, and the useful thing about it is that it explains why. The reasons are mostly mechanical: a shareholder consent missing or unsigned, no EIN on the form, an owner who isn't allowed to hold S-corp shares, an effective date outside the window with no relief statement attached, or a tax-year request that didn't qualify. The notice's own instruction for most of these is to file a new and complete Form 2553.

The timing is the catch. By the time a CP264 arrives, the deadline for the year you wanted has usually gone, so the corrected form is now a late election and needs the relief statement with it. That is still fixable in most cases; it's just a different filing than the first one. If you don't have your copy of what you sent, the notice mentions Form 4506 to request a copy of the rejected form for a fee — cheaper to keep your own.

If the CP264 says the company isn't eligible at all — a nonresident alien owner, a corporate member, more than 100 shareholders — no amount of refiling fixes it, and the conversation moves to a CPA.

Form 8832 and Form 2553 are different letters

Some of the "I never got my letter" calls we take turn out to be about the wrong form. An LLC that wants S-corp treatment files Form 2553 and nothing else; the election to be taxed as a corporation is deemed made along with it. Form 8832 is the entity classification election — the form for an LLC that wants to be taxed as a C corporation, or wants to move between partnership and disregarded status.

If you filed Form 8832 alone, you didn't elect S-corp status, and no CP261 is coming, because the IRS has you down as something else. That's worth confirming on the same phone call: ask what classification the IRS has on file for the EIN, not just whether an S election exists. If the answer is C corporation and you meant S, the way back is Form 2553 — and given the time that's passed, probably a late one with a relief statement.

What to do with the letter once you have it

Give a copy to whoever prepares the company's return, and note the effective date, because the first Form 1120-S covers the tax year that starts on that date and every year after it until the election ends. Give one to payroll if an outside provider runs it. File the original with the formation documents and the EIN letter, and scan it.

The IRS is federal. A few states want their own S-corp election or acknowledgement before they'll follow the federal treatment, and some don't follow it at all — a question with no national answer and one to put to your CPA in the state you file in. The CP261 settles the federal side; it doesn't promise anything about the state one.

Common questions