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Federal Subchapter S Corporations are no longer required to file the Pennsylvania S Corporation Election and Shareholders’ Consent (REV-1640) in order to be granted Pennsylvania S Corporation status. Effective for tax years beginning after Dec. 31, 2005, any corporation with a valid Federal Subchapter S Corporation election will automatically be a Pennsylvania S Corporation. Any Federal Subchapter S Corporation that does not desire to be a Pennsylvania S Corporation must file an Election Not To Be Taxed As A Pennsylvania S Corporation (REV-976) on or before the due date, or extended due date, of the report for the first tax period in which the election is to be in effect. This election must be signed by 100 percent of the shareholders of the S Corporation and once made cannot be revoked for five years.
In the case of a Federal Subchapter S Corporation that is not required to file a PA Corporate Tax Report, RCT-101 (does not do business in PA and is not registered to do business in PA), the Election Not To Be Taxed As A Pennsylvania S Corporation (REV-976) must be filed on or before the 15th day of the fourth month following the end of the first tax period for which the election is to be in effect (the due date of the PA Corporate Tax Report, RCT-101, if the corporation had been required to file this report).
Any Federal Subchapter S Corporation doing business in Pennsylvania, or registered to do business in PA, that does not make this election will be taxed as a Pennsylvania S Corporation and will be required to file both PA Corporate Tax Report (RCT-101) and PA S Corporation/Partnership Information Return (PA-20S/PA-65). In addition, each resident shareholder is subject to Pennsylvania Personal Income Tax on each shareholder’s pro rata share of the S Corporation income, whether distributed or not. Each nonresident shareholder is subject to tax on the shareholder’s personal income from sources within PA.
A Pennsylvania S Corporation with taxable income from sources within PA is jointly liable with its nonresident shareholders for Personal Income Tax on this income and is authorized and required to collect this tax from its nonresident shareholders and remit the tax to the PA Department of Revenue. Use PA-40ESR (F/C) to make the first nonresident withholding payment. Thereafter, the Department will provide pre-printed PA-40ES (P/S) forms. The PA-40ESR (F/C) form can be downloaded from Revenue’s Web site at www.revenue.state.pa.us or ordered over the telephone at 1-888-PATAXES (1-888-728-2937).
Qualified Subchapter S Subsidiaries
A Qualified Subchapter S Subsidiary may not be a Pennsylvania S Corporation, or elect not to be a Pennsylvania S Corporation, separate from the parent corporation. If a Qualified Subchapter S Subsidiary and/or parent of a Qualified Subchapter S Subsidiary, does not desire to be taxed as a Pennsylvania S Corporation, the parent must file an Election Not to be Taxed as a Pennsylvania S Corporation for itself and all Qualified Subchapter S Subsidiaries. The corporation shall attach a schedule to the election, identifying the name, address, PA Corporation Tax Account ID and federal employer identification number of each Qualified Subchapter S Subsidiary owned by the corporation and doing business in Pennsylvania.
PA Resident Shareholders of Subchapter S Corporations in Another State
Any Federal Subchapter S Corporation that does not make this election, and which does not do business in PA and is not registered to do business in PA but has a PA resident shareholder, will be taxed as a Pennsylvania S Corporation and will be required to file a PA S Corporation/Partnership Information Return (PA-20S/PA-65). In addition, each resident shareholder will be subject to Pennsylvania Personal Income Tax on each shareholder’s pro rata share of the S Corporation income, whether distributed or not.
Filing the Election
The Election Not To Be Taxed As A Pennsylvania S Corporation (REV-976) must be filed on or before the due date, or the extended due date, of the PA Corporate Tax Report for the first period for which the election is to be in effect (e.g., taxpayer without an approved extension for the tax period ending Dec. 31, 2006, is required to file the election on or before April 15, 2007, for the election to be effective for that period). The Election Not To Be Taxed As A Pennsylvania S Corporation (REV-976) must be signed by all shareholders on the date of the election and sent Certified Mail to:
PA DEPARTMENT OF REVENUE
BUREAU OF CORPORATION TAXES
PA “S” UNIT
PO BOX 280705
HARRISBURG, PA 17128-0705
DO NOT SEND AS AN ATTACHMENT TO THE PA CORPORATE TAX REPORT.
Acknowledgment of Receipt of Election
Approximately 90 days from the receipt of this election, the Department of Revenue will issue a confirmation of approval of the election. The confirmation will be mailed to the taxpayer at the address shown on the election. If the confirmation is not received within this time, the taxpayer should call the Bureau of Corporation Taxes at (717) 787-8353 to verify that the election was received. It is the sole responsibility of the taxpayer to provide timely proof of mailing (i.e., a CERTIFIED MAIL RECEIPT).