Knowing which type of corporation your business is classified as might not be that important for day-to-day operations, but it can be important, particularly during tax season. A C corporation pays tax on its net income, while an S corporation itself does not. Instead, the net income of an S corporation is passed through to its shareholders and each shareholder pays income tax on the company’s earnings based on his individual income tax rate and the percentage of the company he owns. Determining your classification can take as little as a few minutes.
IRS Form 2553
Did you file IRS Form 2553 Election by a Small Business Corporation, which you must submit for an S classification? If you don't have the IRS confirmation letter or can't recall reading and completing 10 pages of paperwork, your corporation doesn't have an S classification.
Businesses seeking S classification must file IRS Form 2553, which includes six pages of instructions and four pages of data entry. After the IRS processes the form, you receive a letter confirming the business's election to seek S classification.
Review Your Returns
You'll find your corporation classification on your business returns. You can review previously filed tax returns or ask your accountant to review the returns. All corporations must file an annual income tax return. C corporations file IRS Form 1120 and S corporations file Form 1120S.
The form number your business uses is displayed in the upper right corner of the first page of your company’s income tax return. You should have copies of prior-year returns to review, but if they aren’t handy and you use an accountant, your accountant should have the information as well.
Check with the IRS
Call the IRS Business Assistance Line at 800-829-4933. The IRS can review your business file to see if your company is a C corporation or S corporation based on any elections you may have made and the type of income tax returns you file. Any officer of the corporation, such as a secretary, chief financial officer or president, can receive information about the business.
You must provide your company’s employer identification number (EIN) when you call, and you may be asked to provide other information to confirm your standing with the business, such as the mailing address on record, your name and your corporate title. The IRS Business Assistance line is open from Monday through Friday from 7 a.m. to 7 p.m. local time.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.