How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Barbara Your Own Question
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3104
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
71603090
Type Your Tax Question Here...
Barbara is online now
A new question is answered every 9 seconds

I have an LLC being treated as a C Corp. (State of

Customer Question

I have an LLC being treated as a C Corp. (State of California). I no longer want to be treated as a C Corp, I just want to be an LLC. I understand the 5 year rule of selling any of the assets and having them being taxed as a C Corp (which under the proposed Trump business tax rate of 15% would be fine). I'm tired of filing a separate return, and I never should have been treated as a C Corp to begin with, it was bad advice. What steps do I have to follow, and do I do it for the Feds as well as the State of California?
Thanks,
Paul
Submitted: 4 months ago.
Category: Tax
Expert:  Barbara replied 4 months ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

You will need to dissolve the corporation with the CA Secretary of State, Division of Corporations. Since it's late in the year, you will probably want to make the dissolution effective as of 12/31/16.

You will then file the federal and state tax returns for the last year you are operating as a corporation and make sure you mark them as "final."

The following links contain detailed information that you will find helpful:

http://smallbusiness.chron.com/dissolve-corporation-back-sole-proprietorship-68000.html

http://www.powerhomebiz.com/question-and-answer/converting-from-a-corporation-to-sole-proprietorship.htm

My best advice would be to contact a local CPA/Enrolled Agent/tax attorney who can assist you and make sure that everything gets done to properly convert from a C corporation to a sole proprietorship.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Customer: replied 4 months ago.
I think I have to file something with the State regarding the LLC and the Articles of Organization, don't I?
Expert:  Barbara replied 4 months ago.

Yes.

As I mentioned in my initial response, "You will need to dissolve the corporation with the CA Secretary of State, Division of Corporations."

http://bpd.cdn.sos.ca.gov/corp/pdf/dissolutions/corp_stkdiss.pdf

Expert:  Barbara replied 3 months ago.

Just following up with you to see if you have any other questions. If so, please let me know so I can assist you further.

Best regards,

Barb

Customer: replied 3 months ago.
Hi Barbara,
I talked to the Sec. of State's office, and they said I file nothing with them (meaning, no dissolution papers) because with them, I'm an LLC, the C-Corp election by the LLC is a tax issue and I need to ask the FTB. I then called the Franchise Tax Board, and they told me I don't do anything, I just file the 2016 Form 100 as I have in the past, for 2017 I file Form 568. I asked her if I mark "Final" on the Form 100 since I will no longer be filing as a Corp, and she told me "No" because I'm still continuing as the LLC. I called back later to speak to someone else, and I got the same answer. It seems strange to me that I just file a different "Tax Form" and they accept it as opposed to sending me a notice saying I filed the wrong form. I completely confused.
Expert:  Barbara replied 3 months ago.

It seems strange to me as well. I would have thought CA would need some distinction/clarification about the LLC as a C corporation going to an LLC as a sole proprietor, but less paperwork for you!

You will not file any dissolution documents with CA since you are continuing with the LLC.

For 2016, you will file Form 1120 with the IRS and mark it final. You have to notify the IRS that it will be the C corporation's final return. You will also file Form 8832. In Part 1, Item 6, you will check c.

https://www.irs.gov/pub/irs-pdf/f8832.pdf

You will file Form 100 with CA for 2016.

For 2017 and going forward, you will file Form 568 with CA, and you will use Schedule C of your federal 1040 to report income and expenses.

Please let me know if I can assist you further.