S-Corp LLC to Single Member LLC

[judys3]

I have a client, husband and wife.  A cpa friend of theirs a long time ago set them up and LLC and filed them as an S-Corp.  They now want to simplify things and convert this to just a single member.  How is this accomplished?  

[Jim-from-Ohio]

There may be other steps but main one is to Revoke S Corp status

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

[qbteachmt]

SMLLC with one employee on payroll? Because the S Corp should have them both on payroll, and that also means Social Security credits. When you go to a SMLLC, if they are only filing Sched C, the "other" spouse usually gets shortchanged. Are you sure they don't want Form 1065 partnership?

[judys3]

They have never paid payroll to themselves through the LLC and as a part of my discussion with them I had let them know that needed to have been done.  Neither have gotten social security credits.  I think to help them it would be easiest to and what they want to do is to not have the S-corp going forward.  Most of the income for the S-Corp is oil royalties

[IRonMaN]

A previous post on the issue:

https://accountants.intuit.com/community/proseries-tax-discussions/discussion/converting-an-s-corp-b...

[judys3]

Thanks IronMan.  I had searched before I made the post but did not see this one.

My question in addition to this would be............there are no assets to liquidate in the S-Corp.  Could they still make the election to revoke the S-Corp and become a single-member LLC?  File only on Schedule E and Schedule C?

[IRonMaN]

If there are no assets to liquidate, the dissolution of the S corp would be rather easy.

[judys3]

How do you suggest I do this?  Revoke the s-corp status?  They still have the oil royalties and have some self employment income that will be paid to the LLC name.  Can they keep the same EIN?  

sorry for the questions.  

[IRonMaN · Accepted solution]

Sounds like revoking the S status makes you a C corp.  If there aren't any significant assets recorded in the entity, the cleanest way is to file a final S corp return and start from scratch with new entities with new EINs.

[judys3]

Yes I did read that too and they do not want to become a C-Corp.  I will visit with them today to see how they want to proceed.  The only issue I see is the companies they are paid royalties from might not make the switch to the new EIN. 

Thanks and Happy New Year.

[IRonMaN]

You betcha!

[sjrcpa]

If they receive royalties, there must be (intangible?) assets generating those royalties.

[IRonMaN]

That's why I chose my words "recorded in the entity" carefully 😁

[TaxGuyBill]

If they want to keep the existing LLC, Form 8832 (assuming they are beyond the 60-month/initial return rule).