S Corporation Revocation

Sorry I must not be being clear enough. They are a SMLLC that elected S Status. Now they want to go back to a disregarded entity as business activities are wrapping up and they don't want to pay for a minimal s return going forward.

Correct. You weren't clear.

I have a client revoking their s-election and will remain a c-corp. I mailed only the revocation letter.

I have another client liquidating their s-corp because it doesn't make sense to maintain their entity with very little activity. They are going to operate as a Sole Prop, not even an LLC. If they were going to maintain an LLC, I'd encourage them to create a new entity and liquidate the existing LLC. That isn't necessary, but it's cleaner. You definitely need a new EIN either way.
This client will also be selling (deemed sale) all their assets at FMV at the end of the year, which is required, prior to distributing those assets.

Why would it be cleaner this way? Seems like this would require a bank account change among other things.

I think you answered your own question.

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

What about the revocation request?

What about it?

If he files Form 966 why the need for revocation?

Because Form 966 is not revocation of an S election. It merely notifies the IRS that the entity has adopted a plan to liquidate.

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

If you're going from LLC taxed as an S Corp to LLC taxed as a DRE or pship, three things need to be filed.

Form 966

Statement of Revocation and Statement of Consent

Form 8832

Don’t file 966 per the form instructions

Do not file Form 966 for a deemed liquidation (such as a section 338 election or an election to be treated as a disregarded entity under Regulations section 301.7701-3).

Also, not sure I agree that a revocation is required - the s corporation is simply going through a “deemed liquidation”, not revoking S status

Isn’t there a regulation on entity conversion, and it might also indicate if the same EIN should continue to be used?

Good catch on the 966. Somehow I missed that, thanks.

In the past I've also wondered whether or not a revocation is required to go from S Corp to DRE. i.e. Whether the 8832 can just be filed without the revocation. The consensus seems to be that it is required.

Glad there’s a consensus, but not sure why - a liquidation for income tax purposes is not a revocation

Also, not sure I agree that a revocation is required - the s corporation is simply going through a “deemed liquidation”, not revoking S status

Isn’t there a regulation on entity conversion, and it might also indicate if the same EIN should continue to be used?

Guess i am not following this. In OP's scenario, they are wanting to go from an S corp to a disregarded entity taxed as a sole proprietorship. The reason it is a deemed liquidation is because it elected to be a disregarded entity. Are you saying the liquidation automatically terminates its status as an S corp. and, thus, no revocation is needed?

As for the EIN, Form 8832 instructions state:

Note. Any entity that has an EIN will retain that EIN even if its federal tax classification changes under Regulations section 301.7701-3.
If a disregarded entity’s classification changes so that it becomes recognized as a partnership or association for federal tax purposes, and that entity had an EIN, then the entity must continue to use that EIN. If the entity did not already have its own EIN, then the entity must apply for an EIN and not use the identifying number of the single owner.

The IRS Manual also says:

If an Entity reorganizes/converts at the state level and maintains the same structure (officers, employees, type of business), the entity may retain their EIN.

When an S corp revokes S election, they revert to C corp status. Hence, they must liquidate. And when they become a Sch. C...they can't use that corp #.

I am confused how an S Corp can go directly from S to a DRE no. When Biden's original bill had a clause in it allowing S corporations formed i think from after 1998 to go to LLC without taxation I was excited and did not make it into the bill. S Corporation I believe have always required it as a taxable event to have any transfer or liquidation(may be automatic). The size of the taxable event is adjustment to fair market value for all assets, and I believe related party rules prevent a loss on the exchange.

Reading the above posts made me more confused.
In my case, a client is an LLC that initially elected to file as an S corp.
Now they want to revoke the S election and file as a partnership (because of continuing unequal distributions and other reasons).
This would be a corporate liquidation, with the distributed assets recorded at FMV on the 1065 and starting over their depreciable lives?
The only forms to file are the S revocation statement and 8832?
Can the existing EIN be kept? Otherwise what's the point of the 8832?

Not sure about existing EIN...I'd read the instructions on that. I can never remember.

But yes, you'd liquidate the LLC/S, assets out at FMV/gain loss, they go into new LLC at that FMV....

I don't see any need to file anything other than the 966/final 1120S....

See post 46 and the 966 instructions. You don't need to file that form in this situation.

I'd keep the EIN. Remember you can't file the 8832 unless it's been 60 months since they elected S.

I rarely disagree with MvT, so I'm probably wrong. But no way I'm not filing the 966. You are liquidating the corp. I want NO danger that somehow it's a C corp without intent. And keeping the EIN seems precarious, tho', again, I'd have to read the rules. Well, let me read it now....well, can't find what I'm looking for. There used to be a short list of when and when not to file for a new EIN.

Next to a big ole caution sign in the 966 attached instructions:

Do not file Form 966 for a deemed liquidation
(such as a section 338 election or an election to
be treated as a disregarded entity under
Regulations section 301.7701-3).

You only file the 966 when you have a corporate legal entity liquidating with the state.

So maybe I don't care...I'll file it anyway! lol

Hopefully you ain't billing your client for it.

See post 46 and the 966 instructions. You don't need to file that form in this situation.

I'd keep the EIN. Remember you can't file the 8832 unless it's been 60 months since they elected S.

Thanks MvT.
Good point about 60 months. In my case the client made S election 66 months before 1/1/23, but it was helpful to double check.