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IRS Publication 5318 On S Corporation Conversion To C Corporation

IRS On S Corporation To C Corporation Conversion

Some S corporations may find it beneficial to convert to C corporations because of the new, flat 21 percent C corporation tax rate. The recent changes make two modifications to existing law for a C corporation that:

  1. Was an S corporation on Dec. 21, 2017
  2. Revokes its S corporation election after December 21, 2017, but before December 22, 2019, and
  3. Has the same owners of stock in identical proportions, on the date of revocation and on December 22, 2017.

The following modifications apply to these entities:

  • The period for including net adjustments that are required by law (Section 481(a) (2)) and attributable to the revocation of the S corporation election (e.g., a change from the cash method to an accrual method required as a result of the revocation of the S corporation election) is changed to six years.  This six-year period applies to net adjustments that decrease taxable income as well as net adjustments that increase taxable income.
  • Distributions of cash following the post-termination transition period are treated as coming out of the corporation’s accumulated adjustments account and earnings and profits proportionally.
  • For more information, see the Corporate Methods of Accounting topic on the Tax Reform – Businesses page.



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