Tax Guru – Ker$tetter Letter

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S Corp Status

Posted by taxguru on January 20, 2008

I actually sent the very same answer to the following two emails that came in within a few days of each other from different people.

Q-1:

Subject: Converting from an S to a C Corporation

My S corp is located in the state of Tennessee and I would like to change to a C corp.  What specific tax form do I use to make this change?

Q-2:

After our fiscal year end (Aug 31, 2007), we sent a request to the IRS to change from C to S Corp.

 

We have since realized that this is probably not a good idea.

 

Is it possible to void the request and not file a short return?

 

Any help will be greatly appreciated.

A:

As I’ve mentioned on several occasions, nothing related to dealing with an S corp is a do it yourself task.  This covers the decisions to become an S corp, as well as to revoke the S election. All of those processes need to be handled with the assistance of an experienced professional tax advisor, who can thoroughly analyze your business’s current and future situations.

Needless to say, the actual mechanics of revoking the S election, if that is considered to be the appropriate course of action, are also not something you can do on your own. 

I have lost track of the number of times I have heard about people, hoping to save a few dollars in consulting fees, making what I can plainly see are bone-headed decisions to either choose to be classified as an S corp or to revoke an S election and then have to deal with the restrictions that entails, such as the use of the much more expensive calendar tax year. 

Again, as I have explained on countless occasions, it is frequently a much better plan to simply start up a brand new C corp than to try to convert an existing S corp back to a C.  That decision also needs to be made with the assistance of an experienced tax advisor.

This is obviously not the answer you were expecting; but it’s plain from your question that you are already in dangerous territory by attempting to navigate the corporate tax environment without professional assistance. I hope I’ve made the point about how foolish that is.

Good luck.

Kerry Kerstetter

 

TaxCoach Software: Finally! Plain-English Tax Planing That Builds Your Business!

 

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