From C to S

[TAX]

Client has been C corp since year 2000

2004 - Net Income - 10,000
Loss (From Previous year) (10,000)
Taxable income = Zero

RE in 2004 is (15,000).

Client wants to convert to S corp in 2005.

Is it worth doing it.
(1) Have to do it before 3/15
(2) Loss just stays with crop
(3) Wait for next yaer and then do it.

Thanks
Tax

[Matt Sova]

Are your years correct?

If the taxpayer wants to convert for 2005, they can still do it even though the 2553 was due by 3/15/05. They would file it pursuant to Rev Proc 2003-53 (you can look up the RP and see what is necessary to file it late).

If the taxpayer wants to convert for 2006 obviously they still can do that as normal. The question becomes should they?

Do they have any appreciated assets in the corp that they have not been taxed on? Even A/R for a cash basis taxpayer? Do they plan on selling the corp within 10 years? These are things you need to look at because of the Built In Gains (BIG) Tax. If everything else looks pretty good then switching might be the thing to do.

Matt