S Corp to C Corp Coversion

My client needs to convert an S corp to a C corp due to the 2nd class of stock. I'm in a process of preparing a last S corp tax return. Do I need to mark it "final"? Not sure since the FEIN will stay the same, and the company is not liquidated.. just converted. Also, the S corp has some losses that are in excess of partners' basis. What do I do with them for the last S corp tax return?
Thank you for your advice.

S-corps have shareholders, when they have losses in excess of basis they are suspended on the shareholder return - not mentioned on the s-corp return.

Is there a tax free organization to go from a S to a C?? I thought there is a forced liquidation of the S with FMVs used to record distributions to S Corp stockholders and then you elect 754 for tax free incorporation as a C Corp? If there is a second class of stock that does terminate the S(to C??) - does it cause a liquidation??

Is there a tax free organization to go from a S to a C?? I thought there is a forced liquidation of the S with FMVs used to record distributions to S Corp stockholders and then you elect 754 for tax free incorporation as a C Corp? If there is a second class of stock that does terminate the S(to C??) - does it cause a liquidation??

With all due respect, there are so many mixed concepts in this post, I'd suggest the OP to disregard.

Don't mark this return final. As you note, the company will be continuing with the same EIN.

The suspnded losses remain suspended until the shareholders sell their stock or the corp elects S again.

Know that you can have a second 'class' of stock that differs only in voting rights. Often, this aids moving the corp to the next generation/buyers where new voting shares are issued to maintain control....just in case that helps. A c corp is a woeful thing to me!

Also, the S corp has some losses that are in excess of partners' basis.. The first source of confusion. Is the legal entity an LLC or a corporation? It really matters.

... and then you elect 754 for tax free incorporation as a C Corp?. Implies an LLC. Is it?

The suspnded losses remain suspended until the shareholders sell their stock or the corp elects S again..

Suspended shareholder losses at the time of revocation
In the case of losses disallowed to an S corporation shareholder in the last S corporation year because of insufficient basis, an additional opportunity may exist. The shareholder can use the suspended losses on the last day of the PTTP under Sec. 1366(d)(3)(A) to the extent of the shareholder's basis in the corporation's stock (but not the basis in debt) on that date. To generate that additional basis, the shareholder would need to make a capital infusion, e.g., through an acquisition of shares or a contribution of capital to the corporation.

. https://www.thetaxadviser.com/issues/20 ... -corp.html

Also, the S corp has some losses that are in excess of partners' basis.. The first source of confusion. Is the legal entity an LLC or a corporation? It really matters.

... and then you elect 754 for tax free incorporation as a C Corp?. Implies an LLC. Is it?

The suspnded losses remain suspended until the shareholders sell their stock or the corp elects S again..

Suspended shareholder losses at the time of revocation
In the case of losses disallowed to an S corporation shareholder in the last S corporation year because of insufficient basis, an additional opportunity may exist. The shareholder can use the suspended losses on the last day of the PTTP under Sec. 1366(d)(3)(A) to the extent of the shareholder's basis in the corporation's stock (but not the basis in debt) on that date. To generate that additional basis, the shareholder would need to make a capital infusion, e.g., through an acquisition of shares or a contribution of capital to the corporation.

. https://www.thetaxadviser.com/issues/20 ... -corp.html

Nilodop, the legal entity is a SMLLC. Thanks!

A SMLLC doesn't have partners. Section 754 is a partnership section. I'm still confused.

The shareholder in the S corp is the SMLLC? Seeing that you are in CA, is the SMLLC a husband/wife ownership?

Did this entity check the box, or legally incorporate when moving from sole prop to S corp? When you mention second class of stock, I am thinking that your client incorporated his business.

Since we're guessing, here's mine. The LLC is a MMLLC, not a SMLLC. It elected S corp. treatment, either from the start or later. Now it will terminate, either involuntarily because it has a second class of membership interest ("stock") or voluntarily because it expects to have that situation. Either way, the "conversion" to C status does not get treated as a liquidation followed by an incorporation. S ends, C begins. Voila!

How/why does a SMLLC or a H/W MMLLC have a second class of stock?

Remember, it checked the box at some point to be a corporation, so what stops it from having a second class of membership interest treated as stock? The why could be any of the reasons any corp. might have a second class, for example, a preferred paying a dividend. Unusual? Yes.