Home > Research Legal Advice > Corporate / Incorporation > Can a S-Corporation voluntarily revoke a S-election effective immediately?
Asked about 1 year ago - Long Beach, CA
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How can shareholders voluntarily revoke a S corporation's S-Election so it is effective immediately? Shareholders want to immediately switch to a C-corporation and not wait
until the end of the corporation's tax year, i.e., have a short tax year.
You have to have a valid vote of more than 50% of the shareholders and file a revocation that states as of what date you want the revocation to be effective. See the link below for some information. You can have it effective at a date AFTER you file the revocation but before the next tax year if you so specify.
BUT... since I don't believe there is a specific form for revocation of an S election it might be well worth your while hiring a CPA to file the revocation for you.
Disclaimer: The materials provided below are informational and should not be relied upon as legal advice.
I agree with my colleague. While the shareholders may vote to revoke a Subchapter S election, you should not do so until you have thoroughly discussed the tax ramifications with your tax advisors.
The traditional way to immediately revoke an S election is to violate one of the S corporation rules - authorize and issue a second class of stock is a classic. Another would be to transfer some stock to an entity that would not qualify as a shareholder of an S corporation like another corporation.
Wikipedia says this about S Corporations:
Must have only one class of stock.
Must not have more than 100 shareholders.[1][2]
Shareholders must be U.S. citizens or residents, and must be natural persons, so corporate shareholders and partnerships are generally excluded.
Violation of any one of these rules revokes the election.
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