S-corporation converting back to sole-prop

[GTS1101]

A client that was a disregard LLC in Calif filing a Schedule C chose to be taxed as a S-corp but he had negative equity on the books from before he chose to be taxed as an s-corp. The negative equity was not an issue while a sole-prop. As an s-corp he distributed all the profits to himself except for a small amount so to avoid being taxed on the negative equity we created a loan to owner and he is paying the coropration interest on the note.

My question is can we chose to no longer be taxed as an s-corp and go back to a disregarded LLC and then remove the loan to owner from the books and go back to having negative equity as a disregarded LLC without any tax consequences?

[Lion]

He can dissolve the S election and be a C corporation and dissolve the C corporation, which might have tax consequences. That's too complex of an activity for me. Do some serious study or engage a mentor/advisor or send your client to someone who works with dissolving corporations.

[GTS1101]

Thank you for your help and recommendations!

[ttbtaxes]

My understanding is there is a 5-year period to revoke the S election once the SMLLC elected to be treated as an S corporation. Within that 5-year period, the only choice, as I see it, is for the S corporation to dissolve which is a taxable transaction. I believe that also means the LLC itself must dissolve in the state formed.