August 19, 2019 - Douglas Myser

Tax consequences of s corp to c corp. We have had numerous clients of the last 30 years who have had tax debts because they either made the wrong status election upon the opening of the business, or because they then went from a c corp to an s corp, or vice versa, without truly knowing the consequences. We have had IRS Revenue Agents who denied the business tax returns of clients, who came to us because the old tax preparer didn't understand the rules, and filed incorrectly, and they wanted us to fix the problem. So understanding one aspect of this might be useful. Tax consequences of s corp to c corp.

After the Tax Cuts and Jobs Act was passed, many corners of tax land were screaming lets switch to an C Corp. The 21% rate is too good to pass up and dealing with the 20 pass through deduction will be good for your health. You need to consider multiple aspects of changing but here are some considerations to look at.

The stock must be issued when the corporation is a C corporation and the corporation must be a C corporation for "substantially all" of the shareholder's holding period. The stock must have been acquired at original issuance, in other words, the shareholder acquired the stock in exchange for cash, property or the performance of services. From the date of the corporation's formation up to the moment immediately after the shareholder acquires the stock, the total assets--the sum of the cash plus the adjusted tax basis of all other assets--must be less than $50 million. In cases where the corporation receives assets as a contribution from a shareholder in exchange for stock, however, the contributed assets are counted towards the $50 million test at their fair market value, rather than their adjusted tax basis. In turn, solely for purposes of Section 1202, the shareholder's tax basis in the stock is equal to the fair market value of the contributed assets, as opposed to the adjusted basis of the assets, which is the normal rule under section 358.

If you chose the wrong Status for your company, and have a tax debt, or have to refile several business tax returns, we can help. Once the returns are filed, we can determine all of your Tax Relief options in the IRS Code, including the IRS Fresh Start Program. We are a Nationwide Tax Resolution Company, and for 35 years have been providing Superior Tax Resolution Services.