A sort of corporate entity that is taxed similarly to a partnership is a S Corporation, also referred to as a S Corp. Certain tax advantages, such as avoiding double taxation and reporting profits and losses on individual tax returns, are offered by the S Corp classification. But there are some circumstances in which a S Corp might desire to withdraw its status. This page will give a general summary of the process for revoking S Corp classification as well as its effects.
By submitting Form 1120S to the Internal Revenue Service (IRS), a S Corp can withdraw its status. By the deadline for the S Corp’s tax return for the year for which the revocation is intended, the form must be submitted. The revocation also requires the approval of all S Corp shareholders. The S Corp will be regarded as a C Corporation for tax reasons after the revocation is approved.
An S Corp will be taxed as a C Corporation if it withdraws its election. As a result, the S Corp will be subject to double taxation, with profits being taxed once when given as corporate dividends and once more when distributed as shareholder dividends. A C Corporation tax return, Form 1120, rather than the Form 1120S used for S Corporations, must also be filed by the S Corp.
What steps do I need to take in order to dissolve a S Corp with the IRS? The S Corp must file Form 966, Corporate Dissolution or Liquidation, within 30 days of the dissolution in order to disband the S Corp with the IRS. The paperwork must contain details such the S Corp’s name, the dissolution date, and the cause of the dissolution. Before submitting Form 966, the S Corp must also file its last tax return and settle any unpaid taxes. Can a S Corp be backdated?
An S Corp election cannot be retroactively made. The choice must be made by the S Corp’s tax return due date for the year for which the choice is intended. However, in certain situations, the S Corp may be able to ask the IRS for relief if it misses the deadline for making the election.
An S Corp may, in the end, remove its status by submitting Form 1120S and getting the approval of all shareholders. When S Corp status is revoked, the S Corp must file a C Corporation tax return and will be subject to double taxation. The S Corp must submit Form 966 along with its last tax return in order to dissolve the S Corp with the IRS. An S Corp election cannot be retroactively made, but there may be circumstances when relief is feasible.