S Corporation Revocation

Technical topics regarding tax preparation.
#21
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Don't forget to file the 966 too.
 

#22
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warnickcpa wrote:I'm a little confused now. So electing to go back to DRE can cause tax implications? I thought it was as "simple" as filing the revocation letter and the 8832?


Nope...it's a FULL CORPORATE LIQUIDATION.
They elected to be a corporation. Now they're not.
It's not that simple. It's not overly onerous, but it's not a simple 'check the box'.
~Captcook
 

#23
JR1  
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Warnick, it's a one way road, like birthing a baby. They don't go back. Once you make that election to be treated as ANY kind of corp, there you are. You must have a funeral for the corp for anything different.
Go Blackhawks! Go Pack Go!
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#24
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JR1 wrote:Warnick, it's a one way road, like birthing a baby. They don't go back. Once you make that election to be treated as ANY kind of corp, there you are. You must have a funeral for the corp for anything different.


I appreciate your input. So what's the point of the 8832 then? It has the option that says "a domestic eligible entity with a single owner electing to be disregarded as a separate entity"
 

#25
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warnickcpa wrote:
JR1 wrote:Warnick, it's a one way road, like birthing a baby. They don't go back. Once you make that election to be treated as ANY kind of corp, there you are. You must have a funeral for the corp for anything different.


I appreciate your input. So what's the point of the 8832 then? It has the option that says "a domestic eligible entity with a single owner electing to be disregarded as a separate entity"


Generally...a "belt and suspenders" approach, in my experience. It also keeps those notices from coming about needing to file a 1065 if someone mistakenly selected LLC/Partnership when applying for the EIN.
~Captcook
 

#26
JR1  
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You're reading instructions? LOL....no idea. From the sounds of that, it's for the single member llc....he is disregarded and files Sch. C. Doesn't need an election...but clearly can file one if they want.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

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Not going to lie, this has confused me and makes me worried I did something wrong now. Tax Speaker in his S Corp A-Z makes it sound as straightforward filing the revocation letter then filing form 8832... Again this a SMLLC that elected s status that wants to go back to single member LLC/ DRE status for tax purposes.
 

#28
JR1  
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Perhaps misunderstanding Senor Jennings....but again, there is no easy way back. Once you elect S OR C...you cannot merely elect back. You've created a legal entity: a corp. You can't just uncreate it. A death must occur, i.e. a liquidation of that corp, you have a funeral, pay tax on gains....and then you can create something new. Another LLC, etc.

Sorry....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#29
Nilodop  
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warnickcpa, everyone is telling you the same thing, sometimes in slang. The revoked election makes the S corp a C corp. Not a Schedule C DRE. To get to that status, the corp liquidates, triggering gain at the corp. level. You do NOT want that gain inside a C corp. It's less painful inside an S corp., as there'd be a step-up in stock basis to offset the inside gain. Lots of previous threads about this. Got it? Hope so.
 

#30
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Nilodop wrote: Got it? Hope so.


Sir yessir
 

#31
Nilodop  
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At ease.
 

#32
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Hi, JR1,

I read your posts as saying the LLC must be formally dissolved. If that's what you're saying, I don't see a reason why you would say so.
Steve
 

#33
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Fortunately the only thing in the LLC is cash so no gain because FMV=basis, plus the client could take the $3,500 in remaining cash and treat it as post termination period distributions.

Why does everything online and in CPE classes (cough cough tax speaker) make is seem as easy as being able to elect back to DRE by simply filing the the 8832 and ignoring the deemed liquidation? I noticed the per Nilodop, there was a similiar thread back in 2016 where the individual had been practicing for " a long time" and thought this could be done...
 

#34
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I agree with gator.
 

#35
JR1  
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Well, go ahead and disagree, but when you elect corp status, for TAX PURPOSES you ARE a corp. So for TAX PURPOSES you have to liquidate that corp. That it happens to be legally an LLC matters not. You can't liquidate the corp and somehow not have that affect the electing LLC. They're the same for tax.

Warnick, there must be some misunderstanding is all I can figure....Jennings knows better....I can't imagine you'll find anyone to agree with that unless they just don't know, and there's plenty that most of us haven't known, so no shame in that...
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#36
Nilodop  
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Difference betwen liquidate and dissolve.
 

#37
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Hi, JR1,

I suspect we're saying the same thing. I interpreted your previous posts to mean you were saying a formal dissolution for state law purposes is necessary. But your last post is not consistent with my interpretation. Regardless of any misunderstanding, I'm merely saying it is not necessary to formally dissolve the LLC. And liquidation for tax purposes follows from electing DRE status.
Steve
 

#38
CP Hay  
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If the single member LLC just wanted to be treated as a disregarded entity in this case what would be wrong with 1) liquidating while S-corp status is in place 2) dissolving the corp 3) creating new EIN

Why the need for revocation if the corp is being dissolved?

Also wouldn’t keeping the same LLC be cleaner in regards to bank accounts and business name changes?
 

#39
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I think you answered your own question.

Opening new accounts and switching everything over can be very disruptive.
 

#40
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No notice to IRS is required if S status is terminated by reason of having an ineligible stockholder (e.g., transferring a share of stock to a partnership.)
Steve
 

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