SCorp terminates election

[BHoffman]

Single shareholder Scorp voluntarily terminated S Election effective 01/01/11. Winding down and wants to report on Sch C as a SMLLC.

I think the Assets are revalued at FMV and treated as sold to the shareholder for that amount on 12/31/10. Results in Sec 1231 loss of $20k. Do you know where and how this is reported? Is it just reported on the form 4797 in the shareholder's 1040?

Total book assets after revaluation are $180k
Total book liabilities are $120k
Total book equity is $60k

When I close the books after the revaluation, the shareholder tax basis worksheet shows $25k in remaining stock basis. Do I have to do anything with that?



Thanks for advice. I know I've already asked this and Maribeth answered, but now I'm down to the nitty-gritty and want to be sure.

[JON]

Termintes

or liquidates - there is a difference...

[BHoffman]

Jon - you are right and I'm wrong about this whole thing. There is no distribution of assets at FMV. There's nothing except checking the box on 1120S that the S election is terminated. The assets go on under the SMLLC Sch C in 2011 like nothing happened.

[BOB W]

Something doesn't sound right. SCorp to Schedule C>>> No problems?

In other words, being an LLC by-passes all IRS rules on an SCorp becoming a Schedule C???????

[Gretel]

I agree with Bob. Shouldn't there be two types of transactions, 1. sale of assets within corporation to flow through to K-1, 2. Maybe sale of stock, gain/loss to be determined by basis?

[BHoffman]

I'm sticking with Jon. My old boss agrees. It also makes sense because the entity itself is not changing. The assets are not transferring into a new entity.

This is a SMLLC that made an S election. Now, it wants to terminate the S election. Nothing else changes.

But, I'm listening because I don't ever discount things Bob W or Gretel say

[okie1tax]

S Corp Termination

I thought that when an S Corp terminated it reverted to a C Corp.

[BOB W]

I'm sticking with Jon. My old boss agrees. It also makes sense because the entity itself is not changing. The assets are not transferring into a new entity.

This is a SMLLC that made an S election. Now, it wants to terminate the S election. Nothing else changes.

But, I'm listening because I don't ever discount things Bob W or Gretel say

Jon only asked a question without giving an answer. I'm not sure his question makes a difference.

[BHoffman]

Yay! I got through to the IRS legal dept. and he couldn't find any guidance either, so we discussed the economic substance of the transaction.

He agreed with me (and Jon and old boss) that the economic substance seems that the assets should carry over at their tax basis.

[BOB W]

Hummmmmm.............

[BHoffman]

Okie - I filed the statement requesting a voluntary termination of the S Election and included the 8832 to reclass from a C-Corp to a disregarded entity.

I got that advice from the IRS legal dept. a few months ago. They said to file the 8832, and to keep the same EIN.

[Gretel]

Why would you ever want to believe the IRS, even if it is the legal department?

Maybe I have it all wrong from the start, but here are my thoughts:

Nothing changes for SMLLC on state level. However, once corporation taxation is chosen it has the same affect as for Federal filing and tax issue as going the regular Corporation route. Only difference is that the Corporation paperwork (State level) is not required (but strongly recommended anyway for liability issues).

I strongly believe that the IRS is confused on this issue as are many lawyers who say the "C" in LLC stands for Corporation.

As I say, I might have it wrong from the start, always thinking I am eating apples while all along I ate pears.

[JON]

I think

you have been told. Termination of the S means you are a C corp. There is no way to go from an S to a LLC without liquidating the corporation and all asset are considered sold to the stockholder, any gains are recognized at the corporate level any loses are not deductable-related party loss.

Good luck - if there are gains you may want to consider trying to stop.

[BHoffman]

I love you guys.

Here is the thing I've been looking for right smack dab in the destructions for form 8832:

"• If an eligible entity classified as an association elects to be disregarded as an entity separate from its owner, it is deemed that the association distributes all of its assets and liabilities to its single owner in liquidation of the association."

Whew! So, the assets will be distributed to the owner at FMV after all!!

Not a problem. I just needed to know how to handle this and thank you very much for your valuable input. I'm very, very tired and this is on the back burner for now. Should have looked at 8832 instructions in the first place.

[veritas]

no loss

Single shareholder Scorp voluntarily terminated S Election effective 01/01/11. Winding down and wants to report on Sch C as a SMLLC.

I think the Assets are revalued at FMV and treated as sold to the shareholder for that amount on 12/31/10. Results in Sec 1231 loss of $20k. Do you know where and how this is reported? Is it just reported on the form 4797 in the shareholder's 1040?

Total book assets after revaluation are $180k
Total book liabilities are $120k
Total book equity is $60k

When I close the books after the revaluation, the shareholder tax basis worksheet shows $25k in remaining stock basis. Do I have to do anything with that?



Thanks for advice. I know I've already asked this and Maribeth answered, but now I'm down to the nitty-gritty and want to be sure.

Is allowed between the corporation and the shareholder.