New Owner Wants to Convert to a C Corp
When a new shareholder takes over an S corporation and wishes to convert it to a C corporation, the IRS does require specific documentation to revoke the S corporation status. Here are the key points:
Revocation of S Corporation Election
The new shareholder must file a statement with the IRS to revoke the S corporation election. This statement must be signed by shareholders who hold more than 50% of the shares of stock (including nonvoting stock) at the time the revocation is made.
Content of the Revocation Statement
The IRS does not have a form to use to make the revocation. The revocation statement should be in writing and must include:
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The name of the corporation.
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The corporation's EIN.
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The number of shares of stock (including nonvoting stock) issued and outstanding at the time of the revocation.
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The date on which the revocation is to be effective.
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A statement that the corporation revokes its election under section 1362(a) to be an S corporation.
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Signatures of the shareholders who consent to the revocation.
Effective Date
The revocation can specify an effective date that is on or after the day the revocation is filed. If no date is specified, the revocation is effective at the start of the tax year if the revocation is made on or before the 15th day of the 3rd month of that tax year. If made after this date, it is effective at the start of the next tax year.
Filing the Revocation
The revocation statement must be filed with the appropriate IRS service center.
If the new shareholder did not submit the revocation, the corporation would continue to be treated as an S corporation for tax purposes until the revocation is properly filed and processed by the IRS.
For more detailed guidance, you can refer to the IRS instructions for Form 1120-S