(c) A Federal S corporation must file a New Jersey Subchapter S Election form (CBT-2553) to elect treatment as a New Jersey Subchapter S corporation, to treat its subsidiary as a New Jersey Qualified Subchapter S Subsidiary (see N.J.A.C. 18:7-20.2 ), or to report a change in shareholders.
1. A Federal S corporation may make an election to be treated as a New Jersey S corporation if it meets all of the following criteria:
i. The corporation is or has applied to be an S corporation pursuant to I.R.C. § 1361;
ii. Each initial shareholder (holding shares on the day of the election) and the corporation must consent to the election, and the jurisdictional requirements that provide New Jersey with the right and jurisdiction to tax and collect the tax on each shareholder's pro rata share of S corporation income. Such right and jurisdiction shall not be affected by change of a shareholder's residency, except as provided in 54A:1-1 et seq.;
iii. With respect to nonconsenting shareholders, the corporation and consenting shareholders consent to the corporation assuming any tax liabilities of a nonconsenting shareholder as may be required pursuant to 54:10A-5.2 2b;
iv. The beneficiary of a qualified Subchapter S trust must make an election to be treated as the owner of the trust so that the trust will be eligible to hold stock and the beneficiary will be treated as the stockholder. If the trust is a shareholder at the time the S corporation election is made, the beneficiary's election may be made on the New Jersey Form CBT-2553 or on a separate consent statement to be attached to the Form CBT-2553. If the stock is acquired after the S corporation election is made, the beneficiary's election is made on a separate statement;
v. Those eligible to consent and sign an S election include:
(1) Adult shareholders who are not under disability;
(2) A shareholder and, if under disability and not a minor, the shareholder's representative;
(3) Each person having community interest in stock (or stock income), each tenant in common, joint tenant or tenant by the entirety; and
(4) An executor or administrator of an estate or any other fiduciary appointed by a testamentary instrument or court having jurisdiction over the estate's administration;
vi. Shareholder elections may be made on Form CBT-2553 or on separate consent statements which may be attached to Form CBT-2553;
vii. For S corporations having shareholders that are trusts, the trust beneficiaries or trust owners must join in the filing of the New Jersey Form CBT-2553. Both the trusts and the trust beneficiaries and/or owners must sign and consent to New Jersey's jurisdiction and right to tax, on the Form CBT-2553. (See (c)1iii above.)
(1) If an initial shareholder were to transfer stock to a trust which qualifies as a grantor trust of which the shareholder is a grantor, a new Form CBT-2553 shall be signed and filed by the Trustee;
viii. For an electing small business trust (ESBT) that is a shareholder of a Federal S corporation seeking to elect New Jersey S corporation status, shareholder consent must be signed by the trustee of the ESBT; and
ix. An Employee Stock Ownership Plan (ESOP) may be a shareholder of a New Jersey S corporation.
2. The fully completed and duly executed Form CBT-2553 shall be filed within one-calendar month of the time at which a Federal S corporation election would be required. Specifically, this form must be filed at any time before the 16th day of the fourth month of the first tax year the election is to take effect. If the tax year has 3 1/2 months or less remaining, and the election is made not later than three months and 15 days after the first day of the tax year, it shall be treated as timely made during such year. An election made by a small business corporation after the 15th day of the fourth month but before the end of the tax year is treated as having been made for the following year. A small business corporation is one that is defined in I.R.C. § 1361(b).
i. No filing extensions are available.
3. Federal S corporations that have neither made the election nor have been approved as New Jersey S corporations, in accordance with 54:10A-5.2 2, 54:10A-5.2 3, and 18:7-20.1(c), are subject to the provisions of the New Jersey Corporation Business Tax Act, 54:10A-1 et seq., and must continue to file the New Jersey Corporation Business Tax Return, Form CBT-100.
i. Failure to consent to the initial S corporation election will cause the election to be invalid.
ii. If a new shareholder (acquired either existing shares or shares issued at a later date subsequent to the initial New Jersey S corporation election) fails to sign a consent statement and objects to New Jersey's right and jurisdiction to tax, the S corporation is required to fulfill the tax requirements on behalf of such shareholder as stated under 54:10A-5.2 3.
4. Corporations that are void must be reinstated before an S election can be granted. Failure to reinstate by the S election due date precludes the New Jersey S election from being effective for that tax year.