Convert S-Corp to LLC

Technical topics regarding tax preparation.
#1
Bell  
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Is a new EIN required if you change from S Corp to LLC? Name will stay the same, except to add LLC.
 

#2
Pitch78  
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But, will it remain an S corp? If so, then same EIN. If not, then new EIN.
 

#3
jon  
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Is this a tax free reorganization??
 

#4
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Keep in mind, nowhere in tax law does the term "convert" come up when changing entities or reorganizing.
You will find, however, the terms liquidation and reorganization.

The legal name change you describe does represent a completely new entity. The fact that the rest of the name is the same except for substituting INC for LLC doesn't bear on the tax result.
Some good questions above.
~Captcook
 

#5
JR1  
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Always love when folks want to convert out of a corp.
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/
 

#6
Nilodop  
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Bell, are you noticing here some hints that there may be a bigger issue than EIN?
 

#7
juro  
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Why would anyone want to do this? Being a disregarded entity is not for me.
 

#8
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juro wrote:Why would anyone want to do this? Being a disregarded entity is not for me.


There are a number of very good reasons for such a switch or maintaining such a status. There is no blanket right/wrong answer.
I'm very slow to go s-corp anymore. There are some great benefits to staying unincorporated.
~Captcook
 

#9
juro  
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Seems to me, Schedule C is a big audit magnet.
 

#10
sjrcpa  
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Number of owners has not been mentioned. The LLC may be a multi member LLC.
 

#11
Pitch78  
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JR1 wrote:Always love when folks want to convert out of a corp.



Our state has a franchise tax on corporations, which can be up to $25,000 per year. It does not apply to LLCs. The LLCs pay a $25 annual fee. It is common to convert a corporation that is an S corporation to an LLC that is taxed as an S corporation. Doing one right now.
 

#12
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From above:
It is common to convert a corporation that is an S corporation to an LLC that is taxed as an S corporation.
Is that done with a *taxable* conversion, or a *non-taxable* conversion? And does it require an new EIN?
 

#13
JR1  
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OK, let me expand. There is no such thing on the IRS level of converting a corp. What your state allows has NOTHING to do with tax law. You MUST liquidate the corp, recognize gains...and then start over.
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/
 

#14
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JR1 wrote:OK, let me expand. There is no such thing on the IRS level of converting a corp. What your state allows has NOTHING to do with tax law. You MUST liquidate the corp, recognize gains...and then start over.


That is true if you're going from S Corp to Sch C filing.

That is not necessarily true if you're going from an S Corp to a LLC electing S Corp. §368 is your friend here.
 

#15
MWPXYZ  
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unless To expand on Missing Donut: the LLC elects under 301.7701-3 to be taxed as an association and makes the "S" election (or, perhaps, merely makes the S election). Then the entity would have a F reorganization that would be nontaxable (Rev Rul 64-250).

See PLR 118659-08 and PLR 163028-04 for more details.

As Pitch mentioned, remaining as an "S" corporation allows the entity to retain the old EIN (Rev Rul 73-526)


As an aside, if you have NH "S" corporations with NH stockholders, you may find that a statutory conversion will result in substantial tax savings due to the 80% pass through rule combined with NH quirky Interest and Dividends Tax rules.
 

#16
jon  
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I am not sure why you would go to 368 to go from a S Corp to an LLC who has already elected S Corp treatment accomplishes anything tax wise. Attorneys have said they do not even like LLCs electing S unless you rewrite the LLC articles and other items to make sure they reflect you ARE an S Corp and not a LLC. As they say required terminology that fits for one does not fit the other!!
 

#17
Pitch78  
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JR1 wrote:OK, let me expand. There is no such thing on the IRS level of converting a corp. What your state allows has NOTHING to do with tax law. You MUST liquidate the corp, recognize gains...and then start over.



Not true. It is an f reorg if you convert from a state corporation taxed as an S corporation to a state LLC taxed as an S corporation. No new EIN required in that instance.
 

#18
Pitch78  
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jon wrote:I am not sure why you would go to 368 to go from a S Corp to an LLC who has already elected S Corp treatment accomplishes anything tax wise. Attorneys have said they do not even like LLCs electing S unless you rewrite the LLC articles and other items to make sure they reflect you ARE an S Corp and not a LLC. As they say required terminology that fits for one does not fit the other!!


You have to redo the operating agreement because (if it has 2 or more members) it has all the partnership tax provisions in it. But, it is not that big of a deal. As for the articles (which you file with the state), you can add that to the articles but it is not required.
 

#19
JR1  
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Red herrings and strawmen...OP never said a thing about an LLC electing S status! Too many 'pros' still believe that you can 'convert' from a corp to something else. In short, you can't. For tax law purposes. An LLC electing to be a corp isn't really a change anyway, that's NOT what we're talking about here.
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/
 

#20
Nilodop  
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Keep in mind, nowhere in tax law does the term "convert" come up when changing entities or reorganizing.. Well, if by tax law you include only the Code, ok, but it's there quite a few times in reg. 1.368-2 and I'm sure in cases and rulings. And the reg. has an example that pretty well matches OP's facts.
 

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