S Corp. with C Corp. owner - OOOPS

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  • Hamacher
    Senior Member
    • Jun 2006
    • 180

    #1

    S Corp. with C Corp. owner - OOOPS

    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
    Senior Member
    • May 2005
    • 623

    #2
    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.

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    • veritas
      Senior Member
      • Dec 2005
      • 3290

      #3
      Originally posted by 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.
      Who originally formed the corporation. Was it the client? An attorney (I hope)?

      Comment

      • Hamacher
        Senior Member
        • Jun 2006
        • 180

        #4
        Originally posted by veritas
        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.

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