Form 8832 - Change S Corp status

Filed Form 8832 for an S Corp client to liquidate into a DRE over a year ago.

Client gets a notice from the IRS stating that the 8832 "did not have the necessary information for an S election termination. Please include a cause of termination and the date of the terminating event."

Has anyone ever encountered this before?

The notice strikes me as weird. It's a corporate liquidation, not a termination of an S election. In any event, I doubt if failure to respond would make any difference. The filed 8832 and the final 1120S showing a corporate liquidation is all the evidence you need to support the desired DRE status.

It's bizarre. There's nothing in the 8832 instructions regarding this. Google also returns nothing.

"Please include a cause of termination and the date of the terminating event." Cause of termination is the member is electing a different tax status, which the 8832 literally is. Date of the terminating event is listed on the 8832. Again, bizarre.

I don't understand folks filing this form when you're liquidating the corp?

Filed Form 8832 for an S Corp client to liquidate into a DRE over a year ago.

Not sure if we have a state law corporation of what. It wasn’t stated. A real corporation can’t just just a box to become something different. That’s not an “eligible entity.” Now, if you had something like a single-member LLC (a DE) and you elected S-status, I'm pretty sure you can flip that "corporation” back to a DE, but subject to the 60-month rule. And the 60-month rule wouldn’t apply if the initial election (if there was one) was made by a new entity and was effective on the date of formation.

Yes, it's a SMLLC.

JR1, how do you "liquidate" a corp into a DRE without filing Form 8832? What are the steps?

It is sufficient to simply report correctly. That is, file a final 1120S and show future taxable events on the 1040. Filing the 8832 and/or preparing contemporaneous minutes would merely be additional evidence.

Yeah, I've never filed an 8832 in my life! Of course, there are no C corps anymore, LLC or not. So 2553's for S status of an LLC....and when it's over, I file the final return, 966, etc. and move on.

966 isn't required when an eligible entity taxed as a corp makes the election to go unincorporated. That is a deemed corp liquidation. The 966 instructions are clear regarding this.

From 8832 instructions:

Who Must File
File this form for an eligible entity that is one
of the following:

• A domestic entity electing to change its
current classification (even if it is currently
classified under the default rule).

Yeah, we get to the same place using different paths. Maybe the 966 rules changed along the way....makes no sense to not file it, tho'. You ARE liquidating the corp. Period.

Just got off the line with the PPL.

Statement of revocation wasn't processed until after the 8832. That was the issue.

We'll just have to agree to disagree JR1.

The S election is revoked by notifying the IRS, and more than 50% of shareholders must consent.

That gets you to C Corp. Then an 8832 is filed to get to DRE (and go through a deemed liquidation).

JR1, how do you "liquidate" a corp into a DRE without filing Form 8832? What are the steps?

You just distribute the assets to the “shareholder.” It’s a liquidation. No Form 8832 needed. I too found your approach to be a little odd. Perhaps you wanted to keep the name and EIN.

Perhaps you wanted to keep the name and EIN.

Yes.

And that was a dumb question on my part. Of course an S Corp can get to a DRE without filing an 8832.

What I was trying to ask is how an existing LLC that is an S corp goes to DRE. We need to keep the existing LLC, the existing EIN and all the accounts.

The LLC stays in existence unless you dissolve it at the state level. Just filing a final 1120S is sufficient. Filing a 966 is additional evidence. But changing a corporation to a DRE requires a new EIN.
https://www.irs.gov/businesses/small-bu ... -a-new-ein

What I was trying to ask is how an existing LLC that is an S corp goes to DRE. We need to keep the existing LLC, the existing EIN and all the accounts.

We’d do it your way. If you think about an actual liquidation…let’s say the “corp” physically distributed the cash and re-titled the assets into the guy’s personal name, liquidating the “corp.” Then he says, “I want to be a DRE with the same name and EIN of the S-corp,” so he then transfers the cash (and the other assets) back into the name of the LLC, with the intention of that LLC now being a DRE. I do think the IRS could say, “You just transferred the assets back into what was, and still is, a tax law -corporation.” Gator, I think, might dispute this, given that the 1120S was marked “final” and the accounting therein was consistent with a liquidation.

In any case, one other way to do it – at least partially - is to legally change the name of the S-corporation prior to any movement. Then we legally form a Newco, a DRE, but we use the original name of the S-corp, since that name is now available with the Secretary of State, since it was relinquished by Oldco. “Corporate” assets (including cash) could either go to the individual first, and then on to Newco from there, or perhaps, assets could go directly to Newco. That liqudation would be respected. And it solves the issue of the Company name. What it doesn’t solve is the EIN issue. That might or might not be a big deal, depending on what continues to be transacted with that EIN. But if something gets filed with the IRS using that EIN, where the EIN really matters, IRS might send a love letter. And then you’d have to deal with getting everything resolved. Our office has seen a few of those over the years. If using the old EIN wasn’t such a big deal, Newco could just apply for a new one upon formation.

Your situation is a bit unique because the client wanted to use the same LLC, the same name, and the same EIN.

But changing a corporation to a DRE requires a new EIN.

It’s not a corporation. It was just taxed as one. One big benefit of doing it the way MVT did it is that the IRS will change the classification of the entity attached to the existing EIN. Otherwise, IRS would be none the wiser, as per the above.

It’s not a corporation. It was just taxed as one.

For tax purposes it is a corporation. The new EIN rule applies to the LLC in this case. It's the price to be paid for getting DRE status.

The new EIN rule applies to the LLC in this case.

Nope, don’t think so. MVT would agree. And so would the Form instructions.

For tax purposes it is a corporation.

Depends which “tax purpose” you’re talking about. But for the tax purpose we’re talking about, it’s not a “corporation.”

Nonsense.

Show us authority for the proposition that an LLC which has an effective election to be taxed as a corporation is not treated as a corporation for any Federal tax purpose.

And as to the EIN issue, show us why the authority in #16 is not determinative in this fact pattern.