N.J. Admin. Code § 18:7-20.1

Current through Register Vol. 56, No. 24, December 18, 2024

Section 18:7-20.1 - S corporations

(a) The following words and terms, when used in this subchapter, shall have the following meanings:

1. "Federal S corporation" means a corporation making a valid election under Federal law (I.R.C. § 1361), to be an S corporation. For the definition of "S corporation" as used in this section, see N.J.A.C. 18:7-1.18.

2. "New Jersey S corporation" means an S corporation that has made a valid election under N.J.S.A. 54:10A-5.22, and that has been an S corporation since such election. For a definition of "New Jersey S corporation" see N.J.A.C. 18:7-1.19. For purposes of this section, a New Jersey S corporation also refers to a parent of a New Jersey Qualified Subchapter S Subsidiary.

3. "S corporation shareholder" means an individual, an estate, or a trust owning a share(s) in an S corporation.

(b) A New Jersey S corporation is subject to New Jersey corporation business tax as provided under P.L. 2002, c. 40 (N.J.S.A. 54:10A-5(c)(2)). S corporation shareholders are subject to gross income tax, pursuant to N.J.S.A. 54A:5-1 et seq.

(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 N.J.S.A. 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 N.J.S.A. 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 N.J.S.A. 54:10A-5.22, N.J.S.A. 54:10A-5.23, and N.J.A.C. 18:7-20.1(c), are subject to the provisions of the New Jersey Corporation Business Tax Act, N.J.S.A. 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 N.J.S.A. 54:10A-5.23.

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.

(d) The reporting requirements for S corporations are as follows:

1. An S corporation making an election to be treated as an S corporation in New Jersey shall file an S corporation Corporation Business Tax Return (Form CBT-100S) along with a Schedule NJ-K-1 for each shareholder.

i. Foreign corporations that meet the filing requirements and whose income is immune from New Jersey tax pursuant to Public Law 86-272, 15 U.S.C. § 381 et seq., must obtain and complete Schedule N, Nexus-Immune Activity Declaration, and remit the minimum tax with the Form CBT-100S.

2. For New Jersey corporation business tax purposes, a Federal S corporation that fails to elect New Jersey S corporation status, or has not been approved for New Jersey S corporation status files its tax return as a C corporation on Form CBT-100 and calculates its New Jersey allocation factor in order to determine its net income or loss allocated to New Jersey.

(e) If a corporation that has elected New Jersey S corporation status loses its Federal S corporation status during the taxable year, and, therefore, ceases to be a New Jersey S corporation, but continues its corporate existence, the corporation must file a New Jersey S corporation return (Form CBT-100S) for the short period ending on the day before the disqualifying event and a C corporation short period return (Form CBT-100) for the remainder of the year.

1. The due date for the return for the short period is the 15th day of the fourth month after the close of the period. An automatic six-month extension of time to file the Form CBT-100S is available by making a tentative return and paying the tentative tax on Form CBT-200 T on or before the due date of the return.

(f) In general, once an election is made and accepted, a corporation remains a New Jersey S corporation as long as it is a Federal S corporation unless the election is revoked pursuant to N.J.S.A. 54:10A-5.22 (d).

1. To revoke an election, a letter of revocation signed by all shareholders holding more than 50 percent of the outstanding shares of stock on the day of the revocation must be filed. A copy of the original election form must accompany the letter of revocation.

2. Subject to (f)1 above, an election may be revoked on or before the last day of the accounting or privilege period in which the election would otherwise apply.

(g) A foreign business entity that is not required to be authorized to transact business in New Jersey in accordance with N.J.S.A. 14A:13-3 but that wishes to elect a New Jersey S Corporation status must submit to the Division of Revenue and Enterprise Services a completed New Jersey S Corporation Certification form (Form CBT-2553-Cert), along with a completed Form CBT-2553. A properly executed certification form affirms that the corporation has not engaged in any activities within New Jersey that would require the corporation to obtain a Certificate of Authority as required by N.J.S.A. 14A:13-3.

N.J. Admin. Code § 18:7-20.1

Amended by 49 N.J.R. 1694(a), effective 6/19/2017