Client has filed 1120 corporate returns for years and has had continual losses. Prior tax prepaer suggested they convert to 1120S. They have received a letter from IRS authorizing the change to 1120S for 2022. Can they carry forward the losses from 1120 to 1120S for 2022?. I assume their 1120 EIN will be same for 1120S and their incorporation date would remain the same as original incopration date for the 1120. Are there any caveats I should be concerned about?
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"Are there any caveats I should be concerned about?"
Yes.
"for years and has had continual losses."
Is it a business or a hobby?"You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard -
Yes, it is a business and not a hobby. I was concerned about the coversion considerations.Comment
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Originally posted by jmcdtax View Post
In addition to what Robert said, IF it is a business (with presumably an eventual profit), the NOL is now 'stuck' in the C-corp and can't be used unless the S-election is revoked. So at first glance, changing to a S-corporation seems to be a rather bad idea.
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The NOLs from the C cannot be carried over to the S. Section 1371(b)
Possibility of BIG needs to be remembered if assets are involved.
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The conversion was not my idiea. I was thinking the losses would be lost. Not sure if that was explained to client when the conversion was suggestedComment
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