To revoke a Subchapter S election/small business election that was made on Form 2553, submit a statement of revocation to the service center where you file your annual return.The statement should state:The corporation revokes the election made under Section 1362(a)Name of the shareholder(s),Address of the shareholder(s),Taxpayer identification number of the shareholder(s),The number of shares of stock owned by the shareholder(s),The date (or dates) on which the stock was acquiredThe date on which the shareholder's taxable year endsThe name of the S corporationThe S corporation's EINThe election to which the shareholder(s) revokesThe statement must be signed by the shareholder(s) under penalties of perjurySignature and consent of shareholder(s) who collectively own more than 50% of the number of issued and outstanding stock of the corporation, (whether voting or non-voting)Indication of the effective date of the revocation (or prospective date)Signature of person authorized to sign returnDue Date of Revocation:If revoking effective the first day of the tax year, the revocation is due by the 16th day of the third month of the tax year,If revoking effective any day other than the first day of the tax year, the revocation must be received by IRS by the requested effective date.For example, the S corporation is on a December 31 tax year ending and requests a revocation effective Jan. 1st, the revocation is due March 15th.The S corporation is on a December 31 tax year ending and requests a revocation effective Feb. 14th, the revocation is due Feb. 14th. https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-electionIf you don't want to kill the corporation. Sometimes there is a good reason for C being better than S. For example, a client wanted to keep his AGI lower so that less of his Social Security would be taxed. That was before corporate rates on lower incomes were raised.

Level 2

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Client is sole member of Sub S Corp (1120S) wishes to change to Schedule C (1040), what are the steps.

Forum|Forum|6 years ago
May 11, 2020
8 replies
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Best answer by sjrcpa

Liquidate and Dissolve the corporation. Taxwise, all assets are deemed distributed at FMV. S Corp reports the gain, which flows through on the K-1.

sjrcpaAnswer

Level 15

Liquidate and Dissolve the corporation. Taxwise, all assets are deemed distributed at FMV. S Corp reports the gain, which flows through on the K-1.

The more I know the more I don’t know.

dkh

Level 15

Me again. If this was originally a single member LLC that elected S-Corp treatment then wouldn't @BobKamman method be the best? Assets would move from SCorp to LLC without reporting any gain - correct.

sjrcpa

Level 15

When you revoke the S election, you are a C Corporation for tax purposes. The LLC originally made an election to be taxed as a corporation and as an S corporation.

The more I know the more I don’t know.

BobKamman

Level 15

To revoke a Subchapter S election/small business election that was made on Form 2553, submit a statement of revocation to the service center where you file your annual return.

The statement should state:

The corporation revokes the election made under Section 1362(a)
Name of the shareholder(s),
Address of the shareholder(s),
Taxpayer identification number of the shareholder(s),
The number of shares of stock owned by the shareholder(s),
The date (or dates) on which the stock was acquired
The date on which the shareholder's taxable year ends
The name of the S corporation
The S corporation's EIN
The election to which the shareholder(s) revokes
The statement must be signed by the shareholder(s) under penalties of perjury
Signature and consent of shareholder(s) who collectively own more than 50% of the number of issued and outstanding stock of the corporation, (whether voting or non-voting)
Indication of the effective date of the revocation (or prospective date)
Signature of person authorized to sign return

Due Date of Revocation:

If revoking effective the first day of the tax year, the revocation is due by the 16th day of the third month of the tax year,
If revoking effective any day other than the first day of the tax year, the revocation must be received by IRS by the requested effective date.
- For example, the S corporation is on a December 31 tax year ending and requests a revocation effective Jan. 1st, the revocation is due March 15th.
- The S corporation is on a December 31 tax year ending and requests a revocation effective Feb. 14th, the revocation is due Feb. 14th.

https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-election

If you don't want to kill the corporation. Sometimes there is a good reason for C being better than S. For example, a client wanted to keep his AGI lower so that less of his Social Security would be taxed. That was before corporate rates on lower incomes were raised.

dkh

Level 15

So of the two answers from @sjrcpa and @BobKamman which is the best course to take. @sjrcpa method creates gain from dissolving corporation and liquidating assets. How are assets treated when revoking S-corp election per @BobKamman instructions? I'm curious to further my knowledge base. I have limited experience with S-corps and so far any that have ceased were sales.

sjrcpa

Level 15

Best is relative. Bob's results in a C corporation with the assets and liabilities of the former S Corporation.

Mine results in no corporation and assets and liabilities in the hands of the former owner who can report on Sch C which is what OP thinks he wants.

The more I know the more I don’t know.

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