What is the S corporation election date for a new corporation?
A corporation can generally make its election to be treated as an S corporation (1) at any time during the preceding taxable year, or (2) during the taxable year on or before the 15th day of the third month of the taxable year. There is a special rule for determining the running of the period for a new corporation, for which the taxable year begins on the date that the corporation has shareholders, acquires assets, or begins doing business, whichever happens first. Many people think that the date a new corporation files its articles of incorporation should be used as its S election date, but that is not necessarily the case. There are some older cases and other authorities indicating that a corporation has shareholders when it files its articles of incorporation, if the state’s corporation law treats stock subscribers as shareholders upon incorporation, even if the shares have not yet been issued. That was the law in California when some of the cases were decided, for example, but the law has since changed so that now a shareholder is only one who is a record holder of shares. As such, a California corporation has shareholders only when shares are actually issued, even if the corporation has subscribers when its articles of incorporation are filed. Therefore, we think that, depending on the law of the state of incorporation, a new corporation’s taxable year may begin after the date articles of incorporation are filed for purposes of determining the S corporation election date. For more information, see our article on S Corporation Election Date for New Corporations.