A few comments:
- First and foremost, I would recommend you meet with a tax professional to work through this change in entity structure. A foot fault will more likely be far more costly in administrative headaches, potential penalties than the fees for a tax professional.
- You will need to pay attention to the timing of the revocation election; impact on the allocation of income or loss in the year of change.
- You will need to pay attention to the method of allocation of income or loss as there could be an election necessary here as well.
- S corporations do not generate earnings and profits; as do C corporations.
- The regulations discuss the timing of distributions during the post S corp termination period (PTTP). This is an important period to understand. This is important as you do not want to have any of those "earnings" (effectively AAA) trapped in the C corp if you miss distributing during the PTTP.
- Hopefully there is sufficient cash to make the distributions during the PTTP. If there is not sufficient cash to make the distributions during the PTTP, the opportunity is most likely lost. There is a Chief Counsel Advice Memo on this that indicates they disappear, but I haven't looked up to see if that is still being followed.
- Hopefully you have consulted the appropriate individuals in making this decision. While the current C corp tax rate could be lower than your individual rate, there is no basis build-up, and any distributions will be taxed as well; potentially generating more tax than if you remained an S corp.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
