S Corp. with C Corp. owner - OOOPS

[Hamacher]

I just picked up a new client and we are starting to prepare some old tax returns 2003 - 2005. Upon review of his account we realized that one of the owners of the S Corp. is a C Corp. What do we do now? Does the S Corp. automatically convert to a C Corp.? Any help would be appreciated.

Thanks in advance.

[Brad Imsdahl]

Yes, the S corp terminates. However, if you take steps to correct the situation (like transfer the S corp stock owned by the C corp to the C corp individual owners), the IRS might allow the S corp to remain an S corp.

TTB, page 19-5 talks about Inadvertent Terminations. You need IRS permission to cancel the termination.

[veritas]

I just picked up a new client and we are starting to prepare some old tax returns 2003 - 2005. Upon review of his account we realized that one of the owners of the S Corp. is a C Corp. What do we do now? Does the S Corp. automatically convert to a C Corp.? Any help would be appreciated.

Thanks in advance.

Who originally formed the corporation. Was it the client? An attorney (I hope)?

[Hamacher]

Who originally formed the corporation. Was it the client? An attorney (I hope)?

I believe his attorney formed the Corporation, but I have to confirm that.