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I have a C Corp, but now I been a resident for the most part…

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Hello I have a...

Hello I have a C Corp, but now I been a resident for the most part of this year (more than 183 days) so I meet the substantial presence test, and I'm interested in switching my C Corp to an S Corp. Can you help me? Thanks.

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I am in the country with an E2 investors treaty visa, valid for 5 years, easily renewable as long as the business is alive and well, but changing the name of the comapany, even the Inc for LLC would be problematic, so I prefer to keep the Inc, and S Corp suits my business just fine.

Submitted: 11 months ago.Category: Tax
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9/19/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 11 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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HI, MY NAME’S LANE - I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans ) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.

...

When a corporation elects S corporation status, it retains that status for all future years unless it revokes or terminates that status. To convert from a C corporation to an S corporation, you must file Form 2553 with the IRS. It should be signed by the person authorized by the corporation to do so and by the shareholders, then filed on or before the 15th day of the 3rd month of the corporation's tax year.

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However, be aware that becasue of the separate taxable entity nature of the C-COrp, this can lead to an eventual taxable event.

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The excess of the FMV of assets over their adjusted basis at the time of the S election is built-in gain. Any of this built-in gain recognized during the 10-year period beginning with the first day of the first tax year for which the corporation was an S corporation remains subject to corporate-level tax.

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(Sec. 1374(d)(7). For tax years beginning in 2011, the 10-year period was shortened to five years (Small Business Jobs Act of 2010, P.L. 111-240, §2014(a)).

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Only the excess of the FMV of those assets over their respective tax basis is subject to this corporate-level tax. Post-election appreciation is subject to only one level of taxation. Sec. 1374(d)(2).

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SO, it's a best practice - most practitioners would say essential - that an appraisal of all assets be performed at the time of the S election to document the assets on hand and to keep track of their future sale.

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Appraisal of all assets means all assets, even assets that are not reflected on the corporation’s balance sheet, including self-created intangibles, such as goodwill and going-concern value, and patents and trademarks, the costs of which have been expensed.

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But again, if you are not yet at the place where built in gains are significant And/OR are certain of longevity past 5 years (tax reform SHOULDN'T change that given its objective to lower corporate tax burden generally, but no one knows at this point), then filing the 2553 is what you'll need.

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Form 2553

Instructions for Form 2553 (HTML)

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