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LLC filing as S-Corp wants to convert back to a single-member LLC - possible without starting fresh?
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caj11
Dec 5, 2016, 5:59:15 PM12/5/16
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Hello,
I haven't had much luck in getting an answer from the IRS on this one and I have researched around without anything conclusive, maybe someone here knows.
Client of mine was a single-member LLC in 2014, made an S-Corp election that was effective starting in 2015 and continued to be one in 2016. Things haven't panned out from a tax savings standpoint the way they hoped, mainly because the business didn't bring in as much honey as they hoped and they are considering converting back to a single-member LLC just to simplify things again.
Rather than dissolving the whole business and starting over with a new federal identification number, can they simply revoke their S-Corp status at the federal and state levels, and go back to being a single-member LLC? Or when they revoke their S-Corp status will the entity default to being a C-Corp?
Thanks in advance,
Chris Johnson, EA
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I haven't had much luck in getting an answer from the IRS on this one and I have researched around without anything conclusive, maybe someone here knows.
Client of mine was a single-member LLC in 2014, made an S-Corp election that was effective starting in 2015 and continued to be one in 2016. Things haven't panned out from a tax savings standpoint the way they hoped, mainly because the business didn't bring in as much honey as they hoped and they are considering converting back to a single-member LLC just to simplify things again.
Rather than dissolving the whole business and starting over with a new federal identification number, can they simply revoke their S-Corp status at the federal and state levels, and go back to being a single-member LLC? Or when they revoke their S-Corp status will the entity default to being a C-Corp?
Thanks in advance,
Chris Johnson, EA
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
John Levine
Dec 5, 2016, 8:35:55 PM12/5/16
to
>Rather than dissolving the whole business and starting over with a new federal identification number, can they
>simply revoke their S-Corp status at the federal and state levels, and go back to being a single-member LLC? Or
>when they revoke their S-Corp status will the entity default to being a C-Corp?
The good news is that he can change the tax treatment of the LLC by
>simply revoke their S-Corp status at the federal and state levels, and go back to being a single-member LLC? Or
>when they revoke their S-Corp status will the entity default to being a C-Corp?
filing a new 8832, in this case checking box 6c to turn it back into a
disregarded entity.
The bad news is that (with exceptions that don't seem to apply here)
he can only do that once every 60 months, so his choices are to stay
an S-Corp until 2020, or else shut it down.
The instructions for Form 8832 are reasonably clear on this.
Alan
Dec 6, 2016, 12:18:37 AM12/6/16
to
On 12/5/16 5:31 PM, John Levine wrote:
>> Rather than dissolving the whole business and starting over with a new federal identification number, can they
>> simply revoke their S-Corp status at the federal and state levels, and go back to being a single-member LLC? Or
>> when they revoke their S-Corp status will the entity default to being a C-Corp?
>
> The good news is that he can change the tax treatment of the LLC by
> filing a new 8832, in this case checking box 6c to turn it back into a
> disregarded entity.
>
> The bad news is that (with exceptions that don't seem to apply here)
> he can only do that once every 60 months, so his choices are to stay
> an S-Corp until 2020, or else shut it down.
>
> The instructions for Form 8832 are reasonably clear on this.
>
If you look at Form 8832, you will notice that once he answers Yes to
>> Rather than dissolving the whole business and starting over with a new federal identification number, can they
>> simply revoke their S-Corp status at the federal and state levels, and go back to being a single-member LLC? Or
>> when they revoke their S-Corp status will the entity default to being a C-Corp?
>
> The good news is that he can change the tax treatment of the LLC by
> filing a new 8832, in this case checking box 6c to turn it back into a
> disregarded entity.
>
> The bad news is that (with exceptions that don't seem to apply here)
> he can only do that once every 60 months, so his choices are to stay
> an S-Corp until 2020, or else shut it down.
>
> The instructions for Form 8832 are reasonably clear on this.
>
Q2a and No to Q2b, he is done. The Form can not be used to reclassify.
See D. Stussy reply.
John Levine
Dec 6, 2016, 12:28:43 AM12/6/16
to
>Revoking S-corp status means that it will be a C-corp. Anything else
>requires a new EIN as it would be a change in the form of the entity.
It might seem that way, but I was surprised to find last year that
when I bought out my partner in my LLC thereby ending the partnership
and turning it into a disregarded entity, the IRS instructions were
crystal clear that it keeps the EIN even though the form of the entity
is different.
Take a look at the instructions for form 8832 and see what you think.
R's,
John
>requires a new EIN as it would be a change in the form of the entity.
It might seem that way, but I was surprised to find last year that
when I bought out my partner in my LLC thereby ending the partnership
and turning it into a disregarded entity, the IRS instructions were
crystal clear that it keeps the EIN even though the form of the entity
is different.
Take a look at the instructions for form 8832 and see what you think.
R's,
John
John Levine
Dec 6, 2016, 12:33:42 AM12/6/16
to
>> The good news is that he can change the tax treatment of the LLC by
>> filing a new 8832, in this case checking box 6c to turn it back into a
>> disregarded entity.
>>
>> The bad news is that (with exceptions that don't seem to apply here)
>> he can only do that once every 60 months, so his choices are to stay
>> an S-Corp until 2020, or else shut it down.
>>
>> The instructions for Form 8832 are reasonably clear on this.
>>
>If you look at Form 8832, you will notice that once he answers Yes to
>Q2a and No to Q2b, he is done. The Form can not be used to reclassify.
>See D. Stussy reply.
Yeah, that was the bad news, he has to wait 60 months to reclassify.
>> filing a new 8832, in this case checking box 6c to turn it back into a
>> disregarded entity.
>>
>> The bad news is that (with exceptions that don't seem to apply here)
>> he can only do that once every 60 months, so his choices are to stay
>> an S-Corp until 2020, or else shut it down.
>>
>> The instructions for Form 8832 are reasonably clear on this.
>>
>If you look at Form 8832, you will notice that once he answers Yes to
>Q2a and No to Q2b, he is done. The Form can not be used to reclassify.
>See D. Stussy reply.
R's,
John
ira smilovitz
Dec 6, 2016, 12:48:48 AM12/6/16
to
ira smilovitz
Dec 6, 2016, 12:58:55 AM12/6/16
to
On Tuesday, December 6, 2016 at 12:28:43 AM UTC-5, John Levine wrote:
> >Revoking S-corp status means that it will be a C-corp. Anything else
> >requires a new EIN as it would be a change in the form of the entity.
>
> It might seem that way, but I was surprised to find last year that
> when I bought out my partner in my LLC thereby ending the partnership
> and turning it into a disregarded entity, the IRS instructions were
> crystal clear that it keeps the EIN even though the form of the entity
> is different.
>
> Take a look at the instructions for form 8832 and see what you think.
>
> R's,
> John
>
> --
There are two separate issues here. The S-Corp election can be revoked at any time, but the entity will then become a C-Corp. The LLC can revert back to a single member LLC treated as a disregarded entity only after 60 months as an S-Corp since it didn't elect S-Corp treatment at its creation.
> >requires a new EIN as it would be a change in the form of the entity.
>
> It might seem that way, but I was surprised to find last year that
> when I bought out my partner in my LLC thereby ending the partnership
> and turning it into a disregarded entity, the IRS instructions were
> crystal clear that it keeps the EIN even though the form of the entity
> is different.
>
> Take a look at the instructions for form 8832 and see what you think.
>
> R's,
> John
>
> --
Ira Smilovitz, EA
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