Subchapter S of the Internal Revenue Code requires all shareholders to consent to an S corporation election in writing. If even one shareholder disagrees, the corporation cannot make the election. The IRS Subchapter S election form contains a consent statement section for all shareholders to sign. However, a separate statement of consent can be attached from each shareholder if the space provided by the form is inadequate. To terminate the S election, shareholders holding at least 50 percent of the outstanding stock in the corporation must consent to the termination. The termination of consent should also be in writing.
A corporation must file IRS Form 2553, Election by a Small Business Corporation, to make an S corporation election. This form enables a corporation to prove that it meets the qualification for S corporation status. It requires the corporation to identify its shareholders and establish that they are eligible shareholders under the law. Filing the form does not guarantee that the IRS will approve the election. A corporation must wait for an approval letter from the IRS, indicating if and when the election will go into effect before it can start operating as an S corporation.
S corporations are required to file an annual federal informational tax return on IRS Form 1120S. This form mirrors a corporate tax return, but does not require the S corporation to pay taxes on its income. It must be submitted in a timely fashion, however, so the IRS knows how much corporate income should be distributed to shareholders. An S corporation is also required to complete an IRS Schedule K-1 for each shareholder. This forms notifies the shareholder of his pass-through amounts of profits and loss from the business. Copies of the K-1 schedules are also sent to the IRS.
The IRS does not publish an S corporation termination form. An S corporation can terminate its election with a majority vote by notifying the IRS of the intent to terminate in writing and the effective date. The same IRS center that accepted the corporation's election form can accept a letter to terminate it. It is advisable to attach a copy of the written consent to terminate by the shareholders to the letter.