Can S Corp Status be Revoked?

Can S Corp status be revoked?
To revoke S corp status, the company must send a letter to the IRS requesting the revocation. The letter must be signed by all shareholders who agreed to it. According to the IRS, the letter should state that the corporation revokes the election made under Section 1362(a).
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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.

In this regard, how does one revoke a S Corp?

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.

What occurs if you cancel your S Corp election?

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.

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