How to Transfer an LLC to an S Corporation
It is possible to disband an LLC, distribute its assets to its owners, form a new corporation, sell the former LLC's assets to the new corporation, and petition the IRS for S corporation status. Since S corporation status is useful primarily for tax purposes, however, a much easier way is to simply petition the IRS to treat your LLC as an S corporation for tax purposes. This process is fairly straightforward as long as the LLC is eligible for S corporation status under the Internal Revenue Code.
Other People Are Reading
Instructions
-
-
1
Research the requirements for S corporation status to see if your LLC qualifies. Although these requirements are stated in terms of corporate shareholders, they apply to LLC members once the LLC has elected to be taxed as a corporation by the IRS. Your LLC may have no more than one hundred members--none of whom may be corporations, partnerships, or non-resident aliens. It may not engage in certain activities such as insurance and certain financial services. See References section for further requirements.
-
2
Determine whether your LLC will convert to S corporation tax treatment during the current tax year or the following tax year. The general deadline for conversion during the current tax year is the 15th day of the third month of the LLC's tax year (March 15 for most LLCs). If you missed the deadline, you may still be eligible to convert during the current tax year if you comply with certain formalities.
-
-
3
Secure unanimous consent to S corporation election from LLC members. If you wish to convert during the current tax year, you will also have to secure consent from those who were LLC members earlier in the tax year but are no longer members.
-
4
Download IRS Form 8832, Entity Classification Election, and IRS Form 2553, Election by a Small Business Corporation (see Resources section), and complete them. Form 8832 is necessary to have your LLC classified as a corporation, and Form 2553 is necessary to have your LLC classified as an S corporation. You will need to provide basic information about your LLC, such as its state of organization, and certain information about each LLC member. You will also need to indicate when you would like your elections to take effect.
-
5
Have every LLC member (including required former LLC members) sign both Form 8832 and Form 2553, and submit them to the IRS Service Center listed in the instructions.
-
1
Tips & Warnings
Even if your LLC owes no federal taxes during a given tax year, it will still have to file an informational tax return, Form 1120S.
Your LLC's S corporation status will be automatically revoked if it grows beyond a hundred members or otherwise fails to continue complying with S corporation eligibility requirements.
References
Resources
- Photo Credit corporate greed image by Steve Johnson from Fotolia.com
