For small firms, S Corporations, often known as S Corps, are a common corporate entity structure. They provide the advantages of limited liability protection and pass-through taxation. An S Corp election may need to be revoked, nevertheless, depending on the situation. We will outline the process for revoking a S Corp in this article and address some associated queries.
The corporation’s shareholders have the right to revoke a S Corp election at any time. Revocation of a S Corp election, it is crucial to remember, may have tax repercussions for the corporation and its shareholders. It is advised to speak with a tax expert before revocation of a S Corp election to comprehend the possible repercussions.
How to Reverse a S Corporation Election Hold a shareholder meeting as a first step. A shareholder meeting is the first stage in rescinding a S Corp election. According to the corporation’s bylaws, the meeting must be duly called and convened after giving adequate notice. Shareholders will decide whether to revoke the S Corp election during the meeting.
Step 2: Submit Form 2553 The corporation is required to submit Form 2553 to the Internal Revenue Service (IRS) to inform them of the revocation following the shareholder vote. The document must contain the following information and be signed by an authorized officer of the corporation:
– The corporation’s name and address
– The shareholders’ names, addresses, and taxpayer identification numbers (TIN)
– The date the S Corp election was first made
– The revocation’s effective date Step 3 is to inform the state. The corporation is also required to inform the state where it was founded of the revocation. It is advised to verify with the state’s Secretary of State office for particular instructions as the procedure for alerting the state may vary. Step 4: Submit Final S Corporation Tax Return For the year in which the S Corp election was cancelled, the corporation must submit a final S Corp tax return. The tax return will be submitted on March 15th for calendar year corporations, the same day as a conventional S Corp tax return.
No, a S Corp election cannot be revoked in the past. The cancellation shall go into effect on the day mentioned in Form 2553. The corporation must wait five years after the revocation’s effective date before making a new S Corp election if it wants to become a S Corp once more.
Where Should I Send My S Corp Cancellation Letter? Form 2553 must be sent to the IRS. Depending on the state in which the organization is located, different addresses must be used to file Form 2553. On their website, the IRS lists the locations where Form 2553 can be sent.
– The company no longer satisfies the criteria for S Corp status (e.g., has more than 100 shareholders)
– The company neglects to keep its tax status current or fails to file necessary tax filings
– The business voluntarily cancels its S Corp designation
Finally, canceling a S Corp election can be a difficult process with possible tax repercussions. Before making any choices on revocation, it’s crucial to speak with a tax expert. The corporation can effectively reverse its S Corp election and stay clear of any potential fines or legal repercussions by following the procedures described in this article.
The company will no longer be taxed as a S corp and will instead be taxed as a C corp once S corp status expires. As a result, the business will be subject to double taxation, with profits first being taxed at the corporate level and then again when dividends are paid to shareholders. The business can also lose access to some of the tax advantages that come with having a S corp status, including the ability to pass through profits and losses to shareholders and to defer paying some taxes.