Hello and thanks for asking today.
Yes, the NOL would be locked up in the C-Corp and cannot be passed to an S-Corp because an S-Corp is a pass-through entity. The NOL must stay at the entity level.
Essentially the only relief that I can think of is to revert back to a C-Corporation. I would have to do some research to see if the NOL survived the transition to S-Corp such that it still exists after such re-conversion to C-Corp.
In any case, there is a limit of switching back and forth between S and C status as well that you need to be aware of.
And I think it accurate that the IRS told you that success in a PLR is minimal, at best. You would have to have some reason to sustain the NOL in switching over, and the law is quite clear that it is prohibited.
You may have jumped off the cliff (switching to S-status) and once you go over, it is too late. But I will research and get back to you.
sorry about that...
I do know that you can revoke S-status by simply writing a letter to the IRS. However, under normal circumstances, this election, if made today, would apply to 2013 and beyond. It would not affect 2011 or 2012.
According to a letter I just reviewed with the IRS, it is not possible to revoke an S-election retroactively for 2011 or 2012, so that option is off the table.
It would appear from my readings that the C-Corp just hangs on to the NOL. If the S-Corp converts back to C-status, the NOL can be used again.
Any particular reason you elected S-Corp? Obviously it wasn't for the tax advantage.
Hi, Thank you for the response
Yes,we wanted to revoke S-corp to take advantage of NOL
we earned an income of total 100K for 2011 & 2012 for which we have to pay taxes and if it is C-Corp NOL will eliminate these taxes
Yes. You will be stuck for 2011 and 2012,
But also keep in mind that any money you take out of the C-Corp will be taxed to you. Which may be why your switched.
For example, if the company has a $100K profit BEFORE paying you and you pay yourself the $100K in salary and bonus, then the corporation has a net income of zero, and the NOL has no purpose.
Unlike an S-Corp there are no "distributions" that are not salary or bonus.
A C-Corp can pay out a dividend, but that's only AFTER corp level taxes are computed, and the dividend is still taxable to you.