An S corporation is a qualifying corporation that elects to have its income taxed to the shareholders rather than to the corporation itself, except as noted next under Taxes. Its shareholders include in income their share of the corporation's nonseparately stated income or loss and separately stated items of income, deduction, loss, and credit.

To make this election, a corporation, in addition to other requirements, must not have more than 75 shareholders. Each of its shareholders must also consent to the election.

Taxes. Although it is generally not liable for federal income tax itself, an S corporation may have to pay the following taxes.

1. A tax on the items listed below.
   1. Excess net passive income.
   2. Certain capital gains or built-in gains.
2. The tax from the recapture of a prior year's investment credit.
3. LIFO recapture tax.

An S corporation may have to make quarterly estimated tax payments for these taxes.

Form 1120S. An S corporation files its return on Form 1120S.

More information. For more information on S corporations, see the instructions for Form 1120S.

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