Form 2553: how a nonresident alien shareholder affects an S election
· 1 min read
The IRS lists the absence of nonresident alien shareholders among the general S corporation eligibility requirements. A domestic LLC considering Form 2553 should check the status of each actual shareholder before choosing the election and effective date.
What to check
The IRS instructions include a narrow rule for potential current beneficiaries of an electing small business trust (ESBT). Review that rule separately if a trust is involved. For a direct individual owner, determine U.S. tax residency using the applicable federal rules and document the ownership and consents relevant to the election.
Example
A domestic LLC has one direct individual owner who is a nonresident alien for U.S. tax purposes. The LLC identifies the shareholder restriction before filing Form 2553 and reviews the entity's existing tax classification.
Before you proceed
- Identify every direct shareholder
- Verify federal tax residency
- Check the election instructions and consents
Does having an EIN make an LLC eligible for S corporation status?
An EIN identifies the entity. Form 2553 has separate eligibility and consent requirements.
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