EIN Change for Conversion from LLC (S Corp) to C Corp (S Corp)

[TaxCat1]

Looking to convert single member Calif LLC (treated as S corp) to C / general stock corp (treated as S corp) using SOS conversion form.

***My question is whether it’s possible to avoid a new EIN for the entity?

Publication 1365 seems to say when incorporating an entity, need a new EIN.  Seems to apply here since going from single member LLC (disregarded from owner) to C corp.

But when I called IRS, agent said that since currently entity is an S corp, no need for EIN change; and can simply do a name change from LLC to Inc.

IRS agent said that because business name is line 1 of entity in IRS systems (and individual owner name is Line 2), they treat the entity as a corp (as opposed to business name being in second line and individual name in first line).

I have a feeling agent is wrong but want to get thoughts/suggestions/comments here.

Thanks in advance.

[tagteam]

"Seems to apply here since going from single member LLC (disregarded from owner) to C corp."

See https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein

You will not be required to obtain a new EIN if any of the following statements are true.

• You report income tax as a branch or division of a corporation or other entity, and the LLC has no employees or excise tax liability.
• An existing partnership converts to an LLC classified as a partnership.
• The LLC name or location changes.
• An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation.

[TaxCat1]

@tagteam so what's your opinion?  that it is required or not required to change EIN?

any of the Tax Experts from Intuit want to chime in?  @Bozaya1 @MelanieCPA @JANETB211 

[tagteam]

@TaxCat1 

Do you already have an EIN for your LLC? If so, you do not need a new EIN if you make an election fot your LLC to be treated as a corporation for federal income tax purposes.

[TaxCat1]

yes I have EIN.  

the question is whether conversion of LLC (single member) to C corp under state law triggers an EIN change.

The LLC made the S corp election and so will the C corp (after the conversion)

[tagteam]

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@TaxCat1 wrote:

the question is whether conversion of LLC (single member) to C corp under state law triggers an EIN change.

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I understand after the above-quoted explanation and you will need an new EIN in that event.

The following is applicable to your scenario:

Corporations

You will be required to obtain a new EIN if any of the following statements are true.

• A corporation receives a new charter from the secretary of state.

It should be noted that there is no such thing as a "conversion" from an LLC to a corporation. In order to form a corporation, you need to file articles of incorporation with the authority in your state (typically, the secretary of state or division of corporations).

[TaxCat1]

California permits has a conversion form: https://bpd.cdn.sos.ca.gov/corp/pdf/articles/conv-llc-gs.pdf

IRS agent (for employers) on phone said NO ein change required because it's already an S Corp in their system (because business name is on line 1 of IRS entry for the entity and individual owner name is on line 2 of IRS entry for the entity, versus the other way around for sole props)

[tagteam]

I understand, but you're still creating an entirely new entity; an LLC is in no way similar to a corporation.

Further, you're still filing articles of incorporation (at least in a sense) using the CA procedure and changing your LLC (which, as far as the IRS is concerned, defaults to a disregarded entity or a partnership) to a corporate entity. The only variable here is that you apparently made an S corporation election (Form 2553) for your LLC.

Frankly, whatever the agent told you on the phone cannot be used as any sort of authority so you might want to at least get something in writing to that effect. I'm just not sure why erring on the side of caution and getting a new EIN is not the better course of action.

[TaxCat1]

because it will require updating EIN with lots of vendors and clients and other places where EIN is stored (same EIN for over 15 years) and will require filing a final tax return.  

[TaxCat1]

the purpose of the C corp conversion is for owner of entity to take advantage of SDI shareholder exclusion which is only available to C corps (and not LLCs). 

SDI percentage will be on unlimited W2 income starting in 2024.

if there is a more efficient to accomplish the same, let me know.

[tagteam]

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@TaxCat1 wrote:

.......will require filing a final tax return.  

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Now I'm confused again because you indicated you had an LLC with an S corporation election. 

If that's the case, then you have been filing (or should have been filing) an 1120-S with a K-1 being issued to you. With a C corporation you will be filing an 1120 (no K-1 is issued) and, essentially, will be double-taxed (once at the corporate level and again when you receive distributions in the form of dividends). 

Thus, you would typically be filing a final 1120-S regardless. 

[TaxCat1]

the C corp will also make the S corp election.  so entity would continue to having the same tax treatment.

[tagteam]

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@TaxCat1 wrote:

the C corp will also make the S corp election.  so entity would continue to having the same tax treatment.

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Then you may not have an issue with the IRS (in terms of forms filing or an EIN), but is this going to fly with the state if they happen to learn that you're using this method only to circumvent SDI? I mean, why wouldn't this be a widespread phenomenon?

[TaxCat1]

So are you saying now you think I can keep my EIN?

The IRS agent was ready to make the change on the phone from LLC to Inc for biz name (process a name change), but I told her I would call back.  I want to speak to at least one more IRS agent to confirm.

California has a law that permits C corp sole shareholders to opt out of SDI.   https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de459.pdf

Logically, this should apply to LLCs as well but I was rejected when I applied.  The law says corporations only and that's how they are interpreting it.  Lots of rules, regs and laws have specific applications.   Not surprised about this one.

How can the state object?  The law permits it.

(Section 637.1 of the California Unemployment Insurance Code [CUIC])

https://codes.findlaw.com/ca/unemployment-insurance-code/uic-sect-637-1/

[Mike9241]

I agree with the agent. your entity is being classified as a corporation so converting from an S to a C only changes the form that is to be filed. from the iRS viewpoint it is still a corporation.

Corporations
You will be required to obtain a new EIN if any of the following statements are true.

A corporation receives a new charter from the secretary of state.
You are a subsidiary of a corporation using the parent's EIN or you become a subsidiary of a corporation.
You change to a partnership or a sole proprietorship.
A new corporation is created after a statutory merger.

Limited Liability Company (LLC)

An LLC is an entity created by state statute. The IRS did not create a new tax classification for the LLC when it was created by the states; instead IRS uses the tax entity classifications it has always had for business taxpayers: corporation, partnership, or disregarded as an entity separate from its owner, referred to as a “disregarded entity.” An LLC is always classified by the IRS as one of these types of taxable entities.