Prepare a letter to the IRS, terminating the election. There is no official form to terminate an S corporation election. The letter should be titled’ “Revocation of S Corporation Status” and include a statement that the company is terminating the election pursuant to IRC Section 1362(a). It should also include the company’s Employer Identification Number and the effective date of the termination. The managing member who signs the company’s federal income tax return should be the one who signs this letter.
4.
Send the termination letter and the statement of consent to the IRS. Send the documents to the same IRS service center that processed the original election. Refer to the letter the company received from the IRS, authorizing the election, when you filed Form 2553. This letter should be in your company’s records book. Address the termination letter to the same service center.
Instead, you need to mail 3 items to the IRS, which together, “put the IRS on notice” that your LLC is revoking its S-Corporation status.
The items you need to revoke your LLC’s S-Corporation election with the IRS are:
- Letter of Revocation of S-Corporation Election
- Statement of Consent of LLC Members for S Election Revocation
Submitting a Letter
Once the vote has taken place, the S-corp must submit a letter to the IRS stating its intent to terminate its tax status. The letter must include a “statement of consent” from each shareholder that agreed to terminate the S-corp status. These statements should list each shareholder’s name, address, tax identification number, and how much of the outstanding stock each shareholder owns as of the revocation vote. All the shareholders who voted to terminate the election must sign the letter. The form must be mailed to the IRS at the appropriate address, which can be found in the section “Where to File” for the Instructions for Form 2553, Election by a Small Business Corporation.
Tips
- Timing of the termination of an S corporation election is important. The Internal Revenue Code specifies that if you cancel the election before the 15th day of the third month of the company’s taxable year, the termination is effective for that year. If you terminate outside of this window, you cannot file as a regular corporation until the next taxable year.
When effective Except as provided in subparagraph (D)—
(i) a revocation made during the taxable year and on or before the 15th day of the 3d month thereof shall be effective on the 1st day of such taxable year, and
(ii) a revocation made during the taxable year but after such 15th day shall be effective on the 1st day of the following taxable year.
Termination in Middle of Year
If the corporation terminates its tax status in the middle of its tax year, it might have to file two returns. It will have to file a return covering the months during which the corporation was still an S-corp. All income and losses from those months are reported on Form 1120S and the shareholders must include that financial data on their personal returns. Whether the business must file a second tax return depends on what type of business entity it is.