1120 conversion to 1120S

[jmcdtax]

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 suggested

[New York Enrolled Agent]

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.

[TaxGuyBill]

Can they carry forward the losses from 1120 to 1120S for 2022?

Are there any caveats I should be concerned about?

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.

[jmcdtax]

Yes, it is a business and not a hobby. I was concerned about the coversion considerations.

[Rapid Robert]

"Are there any caveats I should be concerned about?"

Yes.

"for years and has had continual losses."

Is it a business or a hobby?

[jmcdtax]

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?