An “S corporation” is a special tax status. It allows profits and losses to pass through to the owners. Sometimes, businesses decide this structure no longer fits. They might want to change to a different structure. This is when you need to revoke the S status.
This article is all about that process. We’ll provide sample letters. These templates will make it easier. You can use them to write your own.
We’ll share different examples. Each sample letter covers different scenarios. You can adapt them to your specific needs. Let’s get started!
Sample Letter To Irs To Revoke S Status
[Your Name/Company Name]
[Your Address]
[City, State, Zip Code]
[Date]
Internal Revenue Service
[IRS Address]
[City, State, Zip Code]
**Subject: Revocation of S Corporation Election**
Dear Internal Revenue Service,
This letter formally requests the revocation of our S corporation election, effective [Date of Revocation]. Our Employer Identification Number (EIN) is [Your EIN].
[Company Name] originally elected to be treated as an S corporation on [Date of Election]. After careful consideration, the company has decided to revoke this election.
We understand that this revocation requires the consent of shareholders holding more than 50% of the shares of stock of the corporation. Attached to this letter is a statement of consent from shareholders holding [Percentage]% of the company’s shares, indicating their agreement to this revocation.
We acknowledge that once revoked, the S corporation election cannot be reinstated for five years unless we receive consent from the IRS.
We request confirmation of this revocation in writing. Please send all correspondence regarding this matter to the address listed above.
Thank you for your time and attention to this matter.
Sincerely,
[Your Name]
[Your Title]
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How to Write Letter To Irs To Revoke S Status
Subject Line: Concisely Stating Your Intention
- Begin with a straightforward subject line.
- Employ verbiage like: “Revocation of S Corporation Election – [Your Company Name] – EIN: [Your EIN]”.
- Clarity eschews ambiguity; the IRS should immediately understand the letter’s purpose.
Salutation: Addressing the IRS Appropriately
- Use a formal salutation.
- Typically, “To Whom It May Concern” is a safe, albeit impersonal, choice.
- If you possess the name of a specific contact person, utilizing it adds a modicum of personalization.
Introductory Paragraph: Declaring Your Intent Unequivocally
- State your company’s name, Employer Identification Number (EIN), and intent to revoke the S corporation election.
- Example: “This letter serves as formal notification that [Your Company Name], EIN: [Your EIN], hereby revokes its election to be treated as an S corporation under Section 1362(a) of the Internal Revenue Code.”
- Succinctness is paramount; avoid convoluted sentences.
Effective Date: Specifying When the Revocation Takes Effect
- Clearly indicate the date on which you desire the revocation to be effective.
- This date must be on or after the date the revocation is filed. Note that if you want it to be effective for the current tax year, the revocation must be filed by March 15th.
- “The effective date for this revocation is [Date].”
- Omission of this detail can engender processing delays.
Reason for Revocation (Optional but Recommended): Providing Context
- While not strictly mandated, articulating the reason for revocation can be judicious.
- Reasons could include changes in business structure, owner preferences, or operational strategy.
- Example: “This decision is predicated on a strategic shift towards a partnership model, better aligning with our current operational needs.”
- Transparency often expedites bureaucratic processes.
Shareholder Consent: Affirming Universal Agreement
- Crucially, include a statement confirming that all shareholders consent to the revocation.
- Attach signed statements from each shareholder explicitly agreeing to the revocation. These statements should include their names, addresses, Social Security numbers, and the number of shares they own.
- Sample Statement: “I, [Shareholder Name], residing at [Shareholder Address], SSN: [Shareholder SSN], owning [Number] shares of [Your Company Name], hereby consent to the revocation of its S corporation election.”
- Lack of unanimous consent invalidates the revocation request.
Closing: Formalities and Contact Information
- Use a professional closing, such as “Sincerely” or “Respectfully.”
- Include your name, title, and contact information (phone number and email address).
- This facilitates any follow-up communication from the IRS.
- Maintain a copy of the letter and all attachments for your records. Mailing the letter via certified mail gives proof of delivery.
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Frequently Asked Questions: Revoking S Corporation Status
This section addresses common inquiries regarding the process of voluntarily revoking S corporation (S status) election with the Internal Revenue Service (IRS).
It offers guidance on understanding the required procedures and potential implications.
What reasons might compel a corporation to revoke its S status?
A corporation might choose to revoke its S status due to changes in profitability, tax law modifications, or strategic shifts in business operations where the benefits of C corporation status become more advantageous.
What form is used to revoke S status?
While there isn’t a specific IRS form for revoking S status, the revocation is typically documented through a statement attached to the corporation’s tax return (Form 1120-S) indicating the intent to revoke the S election.
What information should be included in the revocation statement?
The revocation statement must clearly state that the corporation is revoking its S election, specify the effective date of the revocation, and be signed by shareholders holding more than 50% of the shares of stock of the corporation.
When does the revocation become effective?
The revocation can be effective on the first day of the tax year if made on or before the 15th day of the third month of that tax year. Otherwise, it will be effective on the first day of the following tax year. The revocation can also specify a date other than the first day of the tax year.
Is it possible to re-elect S status after a revocation?
Generally, a corporation that has terminated its S election cannot re-elect S status for five tax years unless the IRS consents to an earlier re-election.