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LdiJ

Senior Member
I think it is important to consider not only federal taxes but state taxes as well so it is good that you have reached out to a tax attorney in Oregon.

To add a caveat to what Taxing Matters wrote: You cannot just switch from a C-Corp to an S-Corp and back again at any time. You must remain an S-Corp for at least 5 years (I believe) before you can make a change.
I am not sure that you are accurate on that. I have never run into that myself and I don't recall any such restriction when I took my graduate class in S-Corps, nor anything from continuing education. Do you remember where you found that? I did a brief search and only found that an entity could revoke it's S-Corp election, with nothing about any time restrictions.
 


quincy

Senior Member
I can’t remember where I read it. I thought it was from the link I provided earlier. But I am not a tax person so it is possible I misunderstood what I read and am incorrect. If so, I apologize and will leave it to the tax professionals to advise on taxes. :)
 

Taxing Matters

Overtaxed Member
To add a caveat to what Taxing Matters wrote: You cannot just switch from a C-Corp to an S-Corp and back again at any time. You must remain an S-Corp for at least 5 years (I believe) before you can make a change.
It's the other way around. A S-corporation may revoke its election at any time. The regulations provide you can even do that in the first year that the S-corporation election is effective. Specifically, the regulation states:
An election made under section 1362(a) is terminated if the corporation revokes the election for any taxable year of the corporation for which the election is effective, including the first taxable year. A revocation may be made only with the consent of shareholders who, at the time the revocation is made, hold more than one-half of the number of issued and outstanding shares of stock (including non-voting stock) of the corporation. See § 1.1362–6(a) for rules concerning the time and manner of revoking an election made under section 1362(a).
Treas. Reg. § 1.1362-2(a).

It is the revocation of a S-corporation election that triggers a waiting period. Once a S-corporation revokes its S-corporation election and becomes a C-corporation it must remain a C-corporation for a period of five years before it may again elect S-corporation status unless the IRS consents to allow the S-corporation election before the five years is up. The relevant regulation states:

Absent the Commissioner's consent, an S corporation whose election has terminated (or a successor corporation) may not make a new election under section 1362(a) for five taxable years as described in section 1362(g). However, the Commissioner may permit the corporation to make a new election before the 5–year period expires. The corporation has the burden of establishing that under the relevant facts and circumstances, the Commissioner should consent to a new election. The fact that more than 50 percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted. In the absence of this fact, consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or shareholders having a substantial interest in the corporation and was not part of a plan on the part of the corporation or of such shareholders to terminate the election.
Treas. Reg. § 1.1362-5(a).

So, to sum up, the OP forms a corporation under state law. By default, that corporation is a C-corporation. The corporation may then make a S-corporation election at any time, though depending on exactly when the election is made it may not take effect until the following tax year. Once it is a S-corporation, it may revoke that election at any time, too. But once that revocation takes effect, the corporation must remain a C-corporation for at least 5 years before it may be again elect S-corporation status unless consent is obtained from the IRS to do it earlier, and that's hard to do unless the there has bee more than a 50% ownership change.
 

quincy

Senior Member
It's the other way around. A S-corporation may revoke its election at any time. The regulations provide you can even do that in the first year that the S-corporation election is effective. Specifically, the regulation states:
An election made under section 1362(a) is terminated if the corporation revokes the election for any taxable year of the corporation for which the election is effective, including the first taxable year. A revocation may be made only with the consent of shareholders who, at the time the revocation is made, hold more than one-half of the number of issued and outstanding shares of stock (including non-voting stock) of the corporation. See § 1.1362–6(a) for rules concerning the time and manner of revoking an election made under section 1362(a).
Treas. Reg. § 1.1362-2(a).

It is the revocation of a S-corporation election that triggers a waiting period. Once a S-corporation revokes its S-corporation election and becomes a C-corporation it must remain a C-corporation for a period of five years before it may again elect S-corporation status unless the IRS consents to allow the S-corporation election before the five years is up. The relevant regulation states:


Absent the Commissioner's consent, an S corporation whose election has terminated (or a successor corporation) may not make a new election under section 1362(a) for five taxable years as described in section 1362(g). However, the Commissioner may permit the corporation to make a new election before the 5–year period expires. The corporation has the burden of establishing that under the relevant facts and circumstances, the Commissioner should consent to a new election. The fact that more than 50 percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the date of the termination tends to establish that consent should be granted. In the absence of this fact, consent ordinarily is denied unless the corporation shows that the event causing termination was not reasonably within the control of the corporation or shareholders having a substantial interest in the corporation and was not part of a plan on the part of the corporation or of such shareholders to terminate the election.
Treas. Reg. § 1.1362-5(a).

So, to sum up, the OP forms a corporation under state law. By default, that corporation is a C-corporation. The corporation may then make a S-corporation election at any time, though depending on exactly when the election is made it may not take effect until the following tax year. Once it is a S-corporation, it may revoke that election at any time, too. But once that revocation takes effect, the corporation must remain a C-corporation for at least 5 years before it may be again elect S-corporation status unless consent is obtained from the IRS to do it earlier, and that's hard to do unless the there has bee more than a 50% ownership change.
Ahh. Thanks for the correction. I should know better than to mess with anything to do with taxes. :)

I edited my previous post to remove the incorrect information. I don’t want to cause any confusion for slac.in.the.box.
 
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S

slac.in.the.box

Guest
Thanks for the valuable information. Here's an update: I'm still waiting on first tax attorney, who didn't respond to contact form as quickly as promised; so I've emailed a second professional, except this one is only LTC and not an attorney (but he was recommended by a friend).... answers from a licensed tax consultant are still better than no answers.

In the meanwhile, while I await a response from professional tax guy #2, another question arose, which has nothing to do with number of board members, so I started another thread.
 

quincy

Senior Member
Thanks for the valuable information. Here's an update: I'm still waiting on first tax attorney, who didn't respond to contact form as quickly as promised; so I've emailed a second professional, except this one is only LTC and not an attorney (but he was recommended by a friend).... answers from a licensed tax consultant are still better than no answers.

In the meanwhile, while I await a response from professional tax guy #2, another question arose, which has nothing to do with number of board members, so I started another thread.
Calling to make an appointment is generally a better way to get a response from an attorney than by email. :)
 
S

slac.in.the.box

Guest
Calling to make an appointment is generally a better way to get a response from an attorney than by email. :)
Unfortunately, I am the exception to most generalities.

For one thing, as an internet programmer, I've created these "contact forms" on many a web site, and the ones I create work and contact my client; so if an organization already has a fail at its first contact point, then I figure they're not for me.

Also I live 45 minutes from the nearest fuel station in a mountainous region still beyond cellphone access--they don't work out here, so I don't even maintain one. I used to have a land-line for the DSL, but my neighbor's wifi reaches us, and she lets us piggy-back, so I cancelled our land line.

On the piggy-backed wifi, when the signal is low, my software phone sometimes has poor voice quality. But he connection is great for email, and has enough bandwidth to download a movie first and then watch it: so I try to avoid phones when possible. I went on a flight; I was then only person in the airport without a phone... even the bar was quiet with people trapped in their tech worlds!

When my doctor retired, it took three weeks of filling out contact forms and emailing doctors until a new one responded by email! Now, whenever I fell sick, I email my primary caregiver directly, and usually he gives me advice without me even having to come in; and other than my initial consultation, so far I haven't been charged for any of the email advice. How many people can just email up their doctor?

By starting with email, I found a professional who checks his regularly. I intend to do the same for this lawyer, even if it takes another week... I am gonna start contacting more, however, than just my "first picks".
 

quincy

Senior Member
Unfortunately, I am the exception to most generalities.

For one thing, as an internet programmer, I've created these "contact forms" on many a web site, and the ones I create work and contact my client; so if an organization already has a fail at its first contact point, then I figure they're not for me.

Also I live 45 minutes from the nearest fuel station in a mountainous region still beyond cellphone access--they don't work out here, so I don't even maintain one. I used to have a land-line for the DSL, but my neighbor's wifi reaches us, and she lets us piggy-back, so I cancelled our land line.

On the piggy-backed wifi, when the signal is low, my software phone sometimes has poor voice quality. But he connection is great for email, and has enough bandwidth to download a movie first and then watch it: so I try to avoid phones when possible. I went on a flight; I was then only person in the airport without a phone... even the bar was quiet with people trapped in their tech worlds!

When my doctor retired, it took three weeks of filling out contact forms and emailing doctors until a new one responded by email! Now, whenever I fell sick, I email my primary caregiver directly, and usually he gives me advice without me even having to come in; and other than my initial consultation, so far I haven't been charged for any of the email advice. How many people can just email up their doctor?

By starting with email, I found a professional who checks his regularly. I intend to do the same for this lawyer, even if it takes another week... I am gonna start contacting more, however, than just my "first picks".
Email is certainly an option (and apparently your best option :)) but attorneys do not always respond promptly to queries made by email that are not from existing clients. I have found that meeting with an attorney in person, even for a brief initial consultation, is generally best.

I saw your other thread and I agree with Zigner and adjusterjack that the questions you ask in it probably exceed the scope of what this forum can offer. The forum can offer general information and advice but specifics must be handled by an attorney licensed to practice in your own jurisdiction.
 

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