I am filing an s corp return for an LLC. I would like to revoke s corp status (2018 will file schedule c), so should the ending balance sheet have all 0s?

[Rick19744 · Accepted solution]

You can't just arbitrarily say you want to revoke your S election.

The revocation is made by the corporation in the form of a statement filed with the IRS Service Center where the corporation initially filed its S election.  A revocation may specify a prospective effective date.  This can be any date on or after the day on which the revocation is made, but must be stated in terms of a specific day, month, and year, and not in terms of a specific event.

The statement must contain certain information.  In addition, once your S election is revoked, your entity then becomes a C corporation.  This is because initially you elected to be taxed as an association and then made the S election.  Well once the S election is revoked, you are now back to being taxed as an association.  So this means that you would need to file a form 8832 to go back to the default entity as a single member LLC.

It may just be easier to close out the LLC / S corporation and then start a new LLC which could then be taxed as a disregarded entity.

Having said all of the above, I would recommend you consult with a tax professional to work through these issues.

[msavuto]

C Corp election Form is 8832 NOT 8332 (releasing claim of dependent)

[Rick19744]

Just seeing if someone is paying attention !!!!
Corrected the typo.  Thanks.

[Kate6]

I am dealing with this issue right now. My question is if an LLC revokes an S Corp election and makes an election to be revert back to be taxed as a sole proprietor ( single member LLC) , do you have to worry about liquidation of the corporation and tax consequences? It puzzles me as there is no corporation to liquidate per se. An LLC forms on the state level. So the company is still an LLC. 

[MaryK4 · Accepted solution]

When you convert from an S Corporation to a single-member LLC, the liquidation process includes winding up the debts incurred in the corporation's name (if applicable) and final stock distribution.  You would have to consider the distribution of any assets for tax purposes especially if you were depreciating any of the assets within the S Corp structure.  You would also have to make sure that all final employment tax return and deposit requirements were made.  Also, some states do have requirements to formally change business structure, but that is beyond the scope of this tax discussion. 

[Rick19744]

While you formed as an LLC under state law, when you made the election to be an S corporation, you were informing the IRS that you wanted to be treated as an association and taxed as an S corporation (an entity type other than the default classification).

As a result, you are required to follow the laws that are application to S corporations; federal and state income tax only.

Some items to consider here:

• Hopefully you have been maintaining a basis schedule as you will need this when determining the tax implications of the liquidating distribution
• If you distribute any property as part of the liquidating distribution, this is treated as if you sold the property at FMV.  The gain or loss is recognized at the S corp level and reflected accordingly.
• Your liquidating distribution needs to be reported on a form 1099-DIV and not the K-1.
• This entity has always been an LLC for state law purposes (not state income tax).
• There are a number of complexities, and as such, I would recommend consulting with a tax professional to get some guidance