Changing of Partnership to a Corporation

[RP]

My client wants to convert his partnership (Formed in 2022) No income for  23 and 22 and only 10k in basis to an S corp I trying to get some advice as to how we can do that > My understanding is that we have to do a 351 election of which I am not familiar with...Can I file a form  8832 to make this election and DO i have to get a new EIN number  for the corporation ... any thoughts  will be appreciated 

[sjrcpa]

Is this "partnership" actually an LLC?

[RP]

yes two partners 

[Jim-from-Ohio]

2553, no new EIN (edited)

[TaxGuyBill]

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@RP wrote:

My client wants to convert 

... any thoughts  will be appreciated 

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Make sure that it is an 'informed' want.

Have you discussed the pros and cons of the election with him, as well as the changes/additional things that need to be done for a corporation?

[RP]

Yes I did and he wants to convert

[RP]

Thanks Jim so just to clarify the LLC filed two years using form  1065 ..No income for noth Years I can make the change using form  2553 

[Jim-from-Ohio]

correct

[qbteachmt]

If they're not making money, it's going to be hard to comply with the payroll requirement.

[Accountant-Man]

Do you mean "yes, and LLC with two members" who filed as a partnership?

"Yes, a partnership can convert to a corporation. The process can involve changing the partnership's tax status or merging the partnership into a corporation. 

How to convert a partnership to a corporation

• File IRS Form 8832: This form changes the tax status of an LLC from a partnership to a C corporation. 
• File IRS Form 2553: This form changes the tax status of an LLC from a partnership to an S corporation. 
• Merge with a corporation: The partnership can merge with a newly formed corporation. 
• Contribute assets to a corporation: The partnership can contribute its assets to a newly formed corporation. 
• Elect to be taxed as a corporation: The partnership can elect to be taxed as a corporation for income tax purposes. 

Factors to consider

• The method chosen can affect the corporation's and stockholders' tax basis, holding period, and other collateral tax aspects. 
• The change in tax status requires the recognition of deferred tax assets and liabilities. 
• The initial recognition is recorded in income from continuing operations. 

[Accountant-Man]

There are differences between a partnership filing a 1065 and a multi-member LLC filing as a partnership filing a 1065. They are not the same.

A muti-member LLC chooses or elects to file a 1065. They could elect to file 1120 or 1120S. A partnership must file a 1065.

[Accountant-Man]

"Yes, an LLC filing as a partnership can convert to a corporation by filing IRS Form 8832. This change in tax status allows the LLC to be taxed as a corporation without changing its legal form. 

How to convert an LLC to a corporation

1. File IRS Form 8832 to elect to be taxed as a corporation 
2. Approve a plan of conversion that includes the terms and conditions of the conversion 
3. Obtain the approval of the members of the LLC 
4. File a certificate of merger and any other required documents with the state 

Why convert an LLC to a corporation?

• Tax status: Converting to a corporation can change the tax status of the LLC 
• Raising venture capital: Venture capital funds often prefer to invest in corporations over LLCs 
• Corporate law: Corporate law provides a well-established framework for management and fiduciary duties 

What to consider when converting an LLC to a corporation? 

• The rules for converting an LLC to a corporation vary by state
• The conversion can have significant tax implications
• It's a good idea to consult with a business professional

[RP]

thanks so much