How to Move from an S Corporation to a C Corporation


My partner over at US TaxAid, Diane Kennedy, and I did a webinar this past Saturday, all about C Corporations, and why we think they’re about to become a critical tax-planning tool, no matter who wins the election. If you’d like to watch the webinar replay, go to www.CCorporationTax.com (it’s free!)

One of the questions that came up during our after-webinar Q&A session was how to take an existing S Corporation and convert it into a C Corporation. That’s what I’m talking about today.

First off: I’m so glad you’re asking about going from an S Corp to a C Corporation. Going the other way can have some unexpected tax issues. In fact, if you are thinking about how you can change from a C Corporation to an S Corporation, your best move at this point is to talk with your CPA or tax advisor.

But going the other way is actually pretty easy. Here are the steps that I’d recommend you go through:

  1. Check in with your CPA to make sure they are onboard with you making the move.
  2. Prepare a Statement of Intent, along with a Consent of Shareholders or Members to Revoke S Corporation status. If you don’t know how to complete these forms, you can work with your CPA or advisor to prepare them. You’ll also find samples in the Operation Guide for Your Corporation, which is part of the package being offered over at www.CCorporationTax.com.
  3. If you’re operating through an LLC you’ll also need to prepare IRS Form 8832, which is the notification form that LLCs use to tell the IRS they want to be treated as Corporations. If you’re set up as an Inc. or Corp already, you don’t need this.
  4. Prepare a cover letter to the IRS, setting out when you want the election to be effective.
  5. Send the package to the IRS, to the same address where you file your regular tax returns.
  6. Keep a copy, and, if you don’t hear anything from the IRS, submit a second copy with your next business tax return – which is now going to be on a Form 1120, instead of Form 1120S. You’re going to get the IRS’s attention as soon as you file a different tax form in any event. Sending in the second copy of your documents is a great way to answer their first question (when did this happen?) and get your new return and new tax status into the system.
  7. Notify your state tax agency that you’ve made the switch. There probably isn’t going to be a form, so start with a phone call and see where it goes. Again, make sure that your next tax return is on the state’s version of a C Corporation form.

In the meantime, as soon as you make the change, begin to act like a C Corporation. That will probably include planning for and making quarterly estimated tax payments, or maybe more frequently, depending on your income. Remember to budget for these new payments – you may have gotten out of the habit of doing those if you moved from a Schedule C to an S Corporation.

And, make sure that your accounting files are changed to reflect your new corporate status. You don’t necessarily want your accounting software thinking you’re still an S Corporation.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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