S Corporation Revocation

Technical topics regarding tax preparation.
#1
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If someone is voluntarily revoking their S election, can you mail the 8832 and revocation letter in the same package to the IRS if they're both going to the same place? I think it would make sense to as processing is so far behind I would hate for one to get processed at a different time than the other.
 

#2
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I mail them separately.

I would think that mailing them together risks one of them -- either the 8832 or the statements of revocation and consent -- being overlooked.

What are the ramifications of them being processed at different times? In the revocation letters that I prepare, I state that the S Corp desires to be taxed as [fill in the blank] and that a Form 8832 has been concurrently filed that reflects that desire.
 

#3
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You don't file Form 8832 to revoke an S-election. Such a revocation is carried out via a letter and signed consent from a majority of shareholder interest(s) must be attached.
Read Form 8832 carefully, you'll notice it doesn't say anything about an s-election. If you're already taxed as an s-corp, you've already made a corporate election. Revoking your s-election doesn't change that.
~Captcook
 

#4
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If we have a client LLC that needs to go from S corporation to disregarded entity (or to partnership), we just do Form 8832, that's it. Right or wrong, that works for us; we haven't had any problems with the IRS on it.

But I that it's right, because the thing is, it's not the S status that's the problem, it's the corporate status. Talking about revoking the S election would make sense if you wanted the LLC to go from S-corp to C-corp. But Form 8832 is what gets rid of the corporate status and lets you be taxed as a disregarded entity or partnership.
 

#5
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CaptCook wrote:You don't file Form 8832 to revoke an S-election. Such a revocation is carried out via a letter and signed consent from a majority of shareholder interest(s) must be attached.
Read Form 8832 carefully, you'll notice it doesn't say anything about an s-election. If you're already taxed as an s-corp, you've already made a corporate election. Revoking your s-election doesn't change that.


If you revoke your S Election by the letter the IRS will treat you as a C Corp for tax purposes if you don't file the 8832. There was a rev proc many years that changed the filing procedure from filing the 8832 first then the 2553 to get s status to just filing the 2553 but you have to file the 8832 after revocation to go back to a SMLLC/disregarded entity treatment
 

#6
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warnickcpa wrote:
CaptCook wrote:You don't file Form 8832 to revoke an S-election. Such a revocation is carried out via a letter and signed consent from a majority of shareholder interest(s) must be attached.
Read Form 8832 carefully, you'll notice it doesn't say anything about an s-election. If you're already taxed as an s-corp, you've already made a corporate election. Revoking your s-election doesn't change that.


If you revoke your S Election by the letter the IRS will treat you as a C Corp for tax purposes if you don't file the 8832. There was a rev proc many years that changed the filing procedure from filing the 8832 first then the 2553 to get s status to just filing the 2553 but you have to file the 8832 after revocation to go back to a SMLLC/disregarded entity treatment


Correct.
But you only noted in the OP that you wanted to revoke your s-election, not your corporate status. That is a meaningfully different transaction.
Is your client prepared to undergo a full corporate liquidation by no longer being a corporation? You didn't mention anything about that.
~Captcook
 

#7
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CaptCook wrote:
warnickcpa wrote:
CaptCook wrote:You don't file Form 8832 to revoke an S-election. Such a revocation is carried out via a letter and signed consent from a majority of shareholder interest(s) must be attached.
Read Form 8832 carefully, you'll notice it doesn't say anything about an s-election. If you're already taxed as an s-corp, you've already made a corporate election. Revoking your s-election doesn't change that.


If you revoke your S Election by the letter the IRS will treat you as a C Corp for tax purposes if you don't file the 8832. There was a rev proc many years that changed the filing procedure from filing the 8832 first then the 2553 to get s status to just filing the 2553 but you have to file the 8832 after revocation to go back to a SMLLC/disregarded entity treatment


Correct.
But you only noted in the OP that you wanted to revoke your s-election, not your corporate status. That is a meaningfully different transaction.
Is your client prepared to undergo a full corporate liquidation by no longer being a corporation? You didn't mention anything about that.




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.
 

#8
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beardenjv wrote:If we have a client LLC that needs to go from S corporation to disregarded entity (or to partnership), we just do Form 8832, that's it. Right or wrong, that works for us; we haven't had any problems with the IRS on it.

But I that it's right, because the thing is, it's not the S status that's the problem, it's the corporate status. Talking about revoking the S election would make sense if you wanted the LLC to go from S-corp to C-corp. But Form 8832 is what gets rid of the corporate status and lets you be taxed as a disregarded entity or partnership.


I've always heard that the statements of revocation and consent need to be concurrently filed with an 8832 if the LLC is going from S Corp to DRE or pship.
 

#9
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ManVsTax wrote:
beardenjv wrote:If we have a client LLC that needs to go from S corporation to disregarded entity (or to partnership), we just do Form 8832, that's it. Right or wrong, that works for us; we haven't had any problems with the IRS on it.

But I that it's right, because the thing is, it's not the S status that's the problem, it's the corporate status. Talking about revoking the S election would make sense if you wanted the LLC to go from S-corp to C-corp. But Form 8832 is what gets rid of the corporate status and lets you be taxed as a disregarded entity or partnership.


I've always heard that the statements of revocation and consent need to be concurrently filed with an 8832 if the LLC is going from S Corp to DRE or pship.


This is how I would do this, as well.
~Captcook
 

#10
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warnickcpa wrote: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.
~Captcook
 

#11
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CaptCook wrote:
Correct. You weren't clear.



I'll blame my brain being fried from reading the new 1040 and 1120-S instructions regarding PPP loan reporting :lol:
 

#12
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ManVsTax wrote:I've always heard that the statements of revocation and consent need to be concurrently filed with an 8832 if the LLC is going from S Corp to DRE or pship.


Do you mean filing them together in one package or filing them at the same time but mailing them separately? Thanks for your input!
 

#13
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warnickcpa wrote:
CaptCook wrote:
Correct. You weren't clear.



I'll blame my brain being fried from reading the new 1040 and 1120-S instructions regarding PPP loan reporting :lol:


No worries...this will get worse before it gets better, of course :lol:
~Captcook
 

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warnickcpa wrote:Do you mean filing them together in one package or filing them at the same time but mailing them separately?


Separately, as stated in post #2.
 

#15
JR1  
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Let's be clear: you cannot revoke corp status.

You have to liquidate the corp and move on....I'm not sure there's clarity on this from the posts above. I know the Capt knows this....

Even if you 'haven't had a problem with IRS' on this...wow. That's NOT how we do things! lol You may well discover that in 2-3 years, IRS comes along asking where the 1120s are? Seriously? Many of us have had situations where a client thought they were one thing, we filed that way for several years, and then get mail, uh, no, you're not what you thought you were. You don't want to be there. It's horrible.
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#16
supdat  
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You definitely need a new EIN either way.


Do they? The state law single member LLC in OP's case is converting, for tax purposes, from an S corporation to a disregarded entity. The IRS has a whole webpage devoted to different scenarios for when a new EIN is required and when it is not.

https://www.irs.gov/businesses/small-bu ... -a-new-ein

The OP's specific scenario is not on the page, but the following scenario is on the page:

You will not be required to obtain a new EIN if any of the following statements are true.

An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation


I think that if an LLC with an EIN chooses to be taxed as a corp does not need a new EIN, the reverse is probably also true.
 

#17
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supdat wrote:
You definitely need a new EIN either way.


Do they? The state law single member LLC in OP's case is converting, for tax purposes, from an S corporation to a disregarded entity. The IRS has a whole webpage devoted to different scenarios for when a new EIN is required and when it is not.

https://www.irs.gov/businesses/small-bu ... -a-new-ein

The OP's specific scenario is not on the page, but the following scenario is on the page:

You will not be required to obtain a new EIN if any of the following statements are true.

An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation


I think that if an LLC with an EIN chooses to be taxed as a corp does not need a new EIN, the reverse is probably also true.


Actually, I believe a new EIN is required based on the page you referenced. The S corp is going back to a SMLLC (a DRE, i.e., sole proprietorship) from my understanding of the posts. If that is the case, the page states:

Corporations
You will be required to obtain a new EIN if any of the following statements are true.

A corporation receives a new charter from the secretary of state.
You are a subsidiary of a corporation using the parent's EIN or you become a subsidiary of a corporation.
You change to a partnership or a sole proprietorship. [Emphasis added]
A new corporation is created after a statutory merger.
 

#18
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supdat wrote:I think that if an LLC with an EIN chooses to be taxed as a corp does not need a new EIN, the reverse is probably also true.


I disagree. You're going to mark the 'FINAL' box on the 1120S. A new EIN is necessary.

This aligns with JR1's comment, which I agree was necessary to clarify. The corporation is being liquidated. It will be no more. A new entity must be created, thus, the new EIN.
~Captcook
 

#19
Nilodop  
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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.. The most important post so far in this thread.
 

#20
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For what it's worth the entity is a single member LLC that filed an S-election. They just want to go back to disregarded entity status. The same LLC is still in operation they just want to change their tax status...

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?
 

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