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I started a company several years ago as a C-corp and had…

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I started a company...

I started a company several years ago as a C-corp and had several years of accumulated losses. I later switched to a S corp. the losses continued.

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Now I may have substantial income. Can I switch back to the C-corp. to clear the accumulated losses with the income the company receives?

Submitted: 9 months ago.Category: Tax
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Customer reply replied 9 months ago
now I may have income to clear the losses accumulated on the C corp. Can I switch back to a C corp. the realize those accumulate those losses from the C corp , then file form 2553 again to convert it back to an S corp back again ?
Customer reply replied 9 months ago
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9/17/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 9 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,715
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

Q: Can I switch back to the C-corp. to clear the accumulated losses with the income the company receives?

A: In brief, based on the following information, the answer is no, you are not allowed to do this. SEE BELOW:

(b)No carryover between C year and S year(1)From C year to S year

No carryforward, and no carryback, arising for a taxable year for which a corporation is a C corporation may be carried to a taxable year for which such corporation is an S corporation.

(2)No carryover from S year

No carryforward, and no carryback, shall arise at the corporate level for a taxable year for which a corporation is an S corporation.

(3)Treatment of S year as elapsed year

Nothing in paragraphs (1) and (2) shall prevent treating a taxable year for which a corporation is an S corporation as a taxable year for purposes of determining the number of taxable years to which an item may be carried back or carried forward.

REFERENCE SOURCE:

https://www.law.cornell.edu/uscode/text/26/1371

Let me know if you require further assistance with this matter. If not, I ask that you be so kind as to scroll to the top of the page and select 3 or more stars to positively rate my response so that I can receive credit for assisting you. Thank you in advance.

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Customer reply replied 9 months ago
I get that you cannot mix losses between C & S entities.
I will explain my Q with a hypothetical example.
My company ABC was registered as a C-corp between 2003-2014. The accumulated loss for these years was $100k.
In 2015, I converted it to an S-corp with the same tax iD. using form 2553. The losses for the year2015 and 2016 were reported on 1120S and personal taxes (1040) for the individual years.Now in 2018 I was planning to reconvert to C- corp. If the business received a income of $100k in 2018 can I use the losses of 2003-2014 of 100k (when it was a C-corp ) to offset the income on my 1120 for 2018 ?Are there restrictions to how many times you can convert between C & S & LLC entities?
Also, Is there an IRS Publication #, section , you can direct me to ?
Thanks.
Kam
Tax Professional: Tax.appeal.168, Tax Accountant replied 9 months ago

Hello again.

Q1: Now in 2018 I was planning to reconvert to C- corp. If the business received a income of $100k in 2018 can I use the losses of 2003-2014 of 100k (when it was a C-corp ) to offset the income on my 1120 for 2018 ?

A1: You will have to first carry-back the entire NOL amount 2 years and then you can carry-forward the remaining NOL forward 20 years. SEE BELOW:

-------------------

Generally, if you have an NOL for a tax year ending in 2013, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carryback period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carryforward period). You can, however, choose not to carry back an NOL and only carry it forward. See Waiving the Carryback Period, later. You cannot deduct any part of the NOL remaining after the 20-year carryforward period. Refer to page 3 of the publication.

REFERENCE SOURCE:

IRS Publication 536 for tax year 2013.

https://www.irs.gov/pub/irs-prior/p536--2013.pdf

--------------------------------------

Q2: Are there restrictions to how many times you can convert between C & S & LLC entities?

A2: Thus far I have not located any information that indicates that there is a restriction on the number of times that a person can convert between C & S & LLC entities. I would like to do a bit more research on this question and get back to you.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 9 months ago

I have researched numerous resources and I have not come across any information that indicates that there is a limit on the number of times that a corporation can be converted from one entity to another. Based on my research, I am going to say no, there is not a limit on the number of times that a corporation can convert from one business entity type to another.

A positive rating of 3 or more stars is appreciated. Thank you in advance.

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Customer reply replied 9 months ago
Angela,
The losses are accumulated for combined years from 2003-2014 ( that's <20 yrs). I choose to carry fwd not to carry back the losses.
So your answer to my Q1 ..(Now in 2018 I was planning to reconvert to C- corp. If the business received a income of $100k in 2018 can I use the losses of 2003-2014 of 100k (when it was a C-corp ) to offset the income on my 1120 for 2018 ?) is Yes?The link you gave for Pub 536 is for individual NOL. . I said I was reconverting it to a C-corp.
I am still looking for the IRS publication for interconverting from C-corp to S-corp and visce versa and handling of tax consequences to the above Q.
Thanks
Kam
Tax Professional: Tax.appeal.168, Tax Accountant replied 9 months ago

Hello again,

Net Operating Losses

A corporation generally figures and deducts a net operating loss (NOL) the same way an individual, estate, or trust does. The same 2-year carryback and up to 20-year carryforward periods apply, and the same sequence applies when the corporation carries two or more NOLs to the same year. For more information on these general rules, see Pub. 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.

A corporation's NOL generally differs from individual, estate, and trust NOLs in the following ways.

  1. A corporation can take different deductions when figuring an NOL.

  2. A corporation must make different modifications to its taxable income in the carryback or carryforward year when figuring how much of the NOL is used and how much is carried over to the next year.

  3. A corporation uses different forms when claiming an NOL deduction.

For more information, see the Instructions for Form 1139, and the instructions for the corporation's tax return.

REFERENCE SOURCE:

https://www.irs.gov/publications/p542/ar02.html#en_US_201609_publink1000257868

There is no IRS publication dedicated to interconverting from a C-Corp, to S-Corp, etc. There is only general information. You might find the information at the following links helpful.

https://www.accountingtoday.com/news/look-before-you-leap-from-an-s-to-a-c-corporation

http://www.taxlawforchb.com/2015/01/from-s-to-c-to-s-or-but-i-was-already-taxed-on-that/

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