Discussion:LLC taxed as an S-Corp.
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> LLC taxed as an S-Corp.
Discussion Forum Index --> Tax Questions --> LLC taxed as an S-Corp.
| 15 May 2008 | |
| A prior accountant advised my cient, who is an LLC and filed its initial return as a partnership, to elect "S" status and file a S-Corp tax return to avoid paying any substantial self-employment taxes. Client has now filed as an S-Corp since 2005. The entity owns real estate and, therefore, has appreciated assets. (In my opiion, an S-Corp should never own appreciating real estate because of distribution issues tht creates taxes upon distribution). If the S-Corp status is revoked, does this mean that the entitiy is now taxed as a "C-Corp" or can it now be taxed as a partnership?
It appears from a post dated January 20, 2007 with a similar problem, that the entity will revert to a C-Corp and cannot change its status for five years. Is this correct? Is there any way that the entity can now get partnership tax treatment? | |
| 15 May 2008 | |
| You could liquidate the LLC "S Corp" in a taxable liquidation before the problem gets worse than it already is. (As though advice like that will make you a genius in the eyes of your client!) Maybe in a down RE market the gain won't be too bad. | |
Actionbsns (talk|edits) said: | 15 May 2008 |
| I'm just curious here and my question is just to add to the discussion. Why would this client revert to C corp status if he/she is an LLC? Electing to be taxed as an S corp is a taxation decision not an entity decision. I dont see in HT's comment that the client stopped being an LLC. So if the LLC status is still in place, couldn't the client change back to partnership or disregarded entity? | |
Kmikeburns (talk|edits) said: | 15 May 2008 |
| Am I missing something?
Doesn't an S corp pass gains through to the shareholder as long as it is not unrelated business activity? I had a corporation which sold a business severaly years ago. The prior preparer had shown them as a C corp. We went back and used the S election in order to pay capital gains at the individual level. We did not liquidate the S corporation but we sold assets and the gain passed to the individuals. | |
RoyDaleOne (talk|edits) said: | 15 May 2008 |
| Actionbsns, it is an entity election first to Corporate status then to C or S Corporation.
Kmikeburns, interesting, a retoactive S Corporation. | |
| May 15, 2008 | |
| And you ignored BIG tax apparently....and in this case, just removing the assets would be a deemed sale and taxable. I hope the statute ran out on that KMike, 'cuz you set a time bomb off. | |
Actionbsns (talk|edits) said: | 15 May 2008 |
| So Roy, what happens to the LLC choice in this process? Isn't that the reall entity choice? That part doesn't cease to exist and all the documentation for the client still relates to an LLC. I thought that in all the discussions we've had here, and ones JR has been most vocal in, the S Corp choice for an LLC was merely a tax decision which is why JR keeps harping on it being a "Stupid" choice, and encouraging that if someone wants to be taxed as an S-corp, just become an S-Corp and eliminate the LLC The check the box choices don't include one for C Corp status. | |
| 15 May 2008 | |
| I would like the answer Actionbsns is giving, but I am concerned that the election to be taxed as an S-Corp is in effect a check-the-box decison to be taxed as a corporation and as suoh makes the entity a C Corp when the S election is revoked. If anyone thinks that revoking the S-Status will allow the LLC to be now taxed as a partnership, let me know. That would be great, but probably too good to be true. | |
| 15 May 2008 | |
| Action, the "check the box" election allows an LLC to elect to be treated like a corp. All corps are "born" C corps but become S corps upon electing S status. HT's original question was: "If the S-Corp status is revoked". Revocation of S status does not change the fact that the LLC for tax purposes is still treated like a corp. Only now it has reverted to C corp status.
I am not familiar enough with the rules as to when an LLC that has previously elected to be taxed as a corp may revoke that election. I believe it can be done, but if it is, it is tantamount to a corporate liquidation and would be a taxable event. | |
| 15 May 2008 | |
| Thanks JR1 and Jdugancpa. I am afraid that I agree with you. It woud be nice to be taxed as partnership now as no lots have been sold in 2008 and SE tax would not be an issue. If this could happen, the assets could be distributed to the owners tax-free and get out of this mess.
But it appears that there would be a taxable distribution, which the owners aren't willing to pay the tax at this time without a real sale of the of property. | |
