S Corporation Revocation
If you’d like to revoke your S Corporation status, CorpNet can help you request a revocation to revert your tax classification.Â
When an LLC or Corporation wishes to reverse its election to be treated as an S Corporation for tax purposes, it must formally request a revocation to restore its default tax classification or elect a different tax classification for which it is eligible.
The IRS due date vary depending on when a company wishes its revocation to be effective:
- For a revocation effective on the first day of the tax year, the company must submit its revocation request by the 15th day of the third month of the tax year.
- Requests for revocations to be effective any other day of the tax year must be submitted to the IRS by the requested effective date.
Reasons for Revoking S Corporation Election
The primary catalyst when businesses choose to revoke their S Corporation tax treatment is if their circumstances (or the tax code) have changed in a way that makes it more favorable financially for the entity to return to its original tax status or (if eligible) elect C Corp tax treatment.
Another reason for S Corporation revocation is if a company exceeds the maximum of 100 shareholders allowed in an S Corporation. In that scenario, the entity doesn’t have a choice but to change its tax election. Similarly, if a company admits a non-resident alien shareholder, it no longer meets the eligibility criteria for being an S Corp and must change its tax status.
Other factors can also influence the decision to retain or terminate S Corporation tax treatment. Many considerations and nuances come into play, so it’s helpful for business owners to discuss their options with their attorney, accountant, and tax advisor when deciding what’s most beneficial.
What’s Does it Take to Revoke an S Corporation Election?
1. Issue a Statement to the IRS
CorpNet can help LLCs and Corporations prepare the required statement, which must include the following pieces of information:
- A declaration that the corporation revokes the election made under Section 1362(a) of the Internal Revenue Code
- Names of the shareholders
- Addresses of the shareholders
- Shareholders’ taxpayer identification numbers
- The number of shares of stock owned by the shareholders
- Date(s) when the stock was acquired
- Date on which the shareholders’ taxable year ends
- The S Corporation’s name
- The S Corporation’s EIN
- The election to which the shareholder(s) revokes
- Signatures (under penalty of perjury) and consent of shareholder(s) who collectively own more than 50% of the number of issued and outstanding stock (voting or non-voting) of the corporation
- Indication of the effective (or prospective) date of the revocation
- Signature of person authorized to sign return
Typically, all of a business entity’s owners must consent to the S Corporation Revocation .
2. File an Entity Classification Election Form
If a business entity wishes to override its default tax status and be treated under another tax classification it’s eligible for, it must submit IRS Form 8832. We will assist you in preparing the form and provide detailed instructions on how to file it with the IRS.
3. Notify the State
If the company is treated as an S Corporation for state tax purposes, it must also provide its Statement of Revocation to the state when it wishes to revoke its classification. CorpNet will provide instructions on how to submit the statement to your state.
CorpNet Can Help!
Whether you’re electing or revoking your S Corporation election—or otherwise changing your tax status—we’re here to help you prepare the necessary forms. Save time, enjoy peace of mind, and concentrate on building your business while we prepare the necessary paperwork and provide you with details on how to file it.
