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What is the correct procedure to notify IRS that a corporation

is being converted to an...
What is the correct procedure to notify IRS that a corporation is being converted to an LLC?
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11/20/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,282
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane :

Hi ... I'll get the form for you, but DO realize that (even though there may be more hassle in terms of paperwork for the Corp, IRS will treat any conversion as a liquidation of the S-Corp. for federal income tax purposes, so, if the assets of the Corp. have increased in, the increase will be taxable to the shareholders - most likely as capital gains. I would advise only to make the LLC-conversion only if the increase in value of the S-Corp. is small or nonexistent, so that there will be little or no tax liability.

Lane :

Here's the form: Form 8832 and here's the page where you can download it as well: http://www.irs.gov/uac/Form-8832,-Entity-Classification-Election

Lane :

And of course, you'll need to do the appropriate paperwork with LA as well

Lane :

Woops sorry pulled the one for Indiana, juuuust a sec

Customer:

The corporation has no assets, it is a consulting company and I am electing S corp from day one. So, I don't think there will be an entity election change. They elected S corp entity when they incorporated as a C corp and will continue to be an S corp as an LLC. I already looked at the 8832 and I don't see any option that fits the circumstance.

Lane :

SO they've already filed the 2553?

Lane :

This is interesting ... very atypical

Lane :

Still taxed as an s-corp ... hmm let me check

Lane :

I think that in the case of initial election, it was never really considered a C-Corp at all ... let me see what I can find on this

Lane :

Yes, ... still looking for anything in the regs but may not find anything as IRS has always seen them as an S-Corp ... they will need to deal with the LA regs

Lane :

see this (anecdotal infor from an article, but while i"m looking): But C vs. S status is all about taxes. File a one page “S election” with the IRS and it is taxed almost like a partnership or LLC. See IRS: S Corporations. A corporation may be taxed as a C corporation for many years and then change to S status. Alternatively, by filing the S election upon initial formation, it will never be a C corporation, so does not need to worry about the built in gain tax on conversion from C to S (more about that tax below). Of course, it could always convert later from S to C.

Lane :

And on the LA side, I guess you saw this?

Lane :

In Louisiana, you can use a relatively new, simplified procedure that allows you to convert your business from a corporation to an LLC largely by filing one key form with the Department of State. This procedure, technically known as “statutory conversion,” automatically transfers your corporation’s assets and liabilities to the new LLC. Unlike other methods of conversion, only one business entity is involved, and you do not need to separately form an LLC before the conversion can occur. By the same token, there is also no need to dissolve your corporation; on the contrary, under Louisiana’s conversion statute, the one business entity involved in the conversion, which is originally a corporation, is simply considered by default to continue its existence in the form of an LLC. The conversion procedure is codified primarily in Sections 12:1601, 12:1602, 12:1603, 12:1604, and 12:1605 of the Louisiana Revised Statutes (R.S.).


To convert your Louisiana corporation to a Louisiana LLC, you need to:



  • get the corporation shareholders to approve the plan of conversion; and

  • file a conversion application and initial report with the Secretary of State.

Lane :

Yes, There's no reason to do anything if the S-corp treatment will be the same (at the federal level)

Lane :

One hint to this is looking at the 1120-S ... there isd no place where the underlying entity is even noted ... From a federal tax perspective , nothing changes, you'll still do an 1120-S

Lane :

Questions?

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here) … Please let me know if you ave ANY questions at all.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,282
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi Joan,

 

... just checking back in here, as I never saw you come back into the chat.

 

Again, as nothing is changing at the Federal level, there is nothing to do there, as Far as IRS is concerned, this has been a S-Corp and will continue to be.

 

And there will be same work to do at the state level, but LA does have a simplified statutory conversion.

 

 

Please let me know if you any questions at all.

 

Positive feedback is appreciated ... that's the only way we get credit for the work.

 

But if you need more on this, let me know...

 

Lane

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Thanks for the rating Joan

Let me know if I can help further

Lane
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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