Prepare a letter to the IRS, terminating the election. There is no official form to terminate an S corporation election. The letter should be titled’ “Revocation of S Corporation Status” and include a statement that the company is terminating the election pursuant to IRC Section 1362(a). It should also include the company’s Employer Identification Number and the effective date of the termination. The managing member who signs the company’s federal income tax return should be the one who signs this letter.
4.
Send the termination letter and the statement of consent to the IRS. Send the documents to the same IRS service center that processed the original election. Refer to the letter the company received from the IRS, authorizing the election, when you filed Form 2553. This letter should be in your company’s records book. Address the termination letter to the same service center.
Instead, you need to mail 3 items to the IRS, which together, “put the IRS on notice” that your LLC is revoking its S-Corporation status.
The items you need to revoke your LLC’s S-Corporation election with the IRS are:
- Letter of Revocation of S-Corporation Election
- Statement of Consent of LLC Members for S Election Revocation
Submitting a Letter
Once the vote has taken place, the S-corp must submit a letter to the IRS stating its intent to terminate its tax status. The letter must include a “statement of consent” from each shareholder that agreed to terminate the S-corp status. These statements should list each shareholder’s name, address, tax identification number, and how much of the outstanding stock each shareholder owns as of the revocation vote. All the shareholders who voted to terminate the election must sign the letter. The form must be mailed to the IRS at the appropriate address, which can be found in the section “Where to File” for the Instructions for Form 2553, Election by a Small Business Corporation.
Tips
- Timing of the termination of an S corporation election is important. The Internal Revenue Code specifies that if you cancel the election before the 15th day of the third month of the company’s taxable year, the termination is effective for that year. If you terminate outside of this window, you cannot file as a regular corporation until the next taxable year.
When effective Except as provided in subparagraph (D)—
(i) a revocation made during the taxable year and on or before the 15th day of the 3d month thereof shall be effective on the 1st day of such taxable year, and
(ii) a revocation made during the taxable year but after such 15th day shall be effective on the 1st day of the following taxable year.
Termination in Middle of Year
If the corporation terminates its tax status in the middle of its tax year, it might have to file two returns. It will have to file a return covering the months during which the corporation was still an S-corp. All income and losses from those months are reported on Form 1120S and the shareholders must include that financial data on their personal returns. Whether the business must file a second tax return depends on what type of business entity it is.
If this is LLC’s Revocation of S-Corporation Letter, please review this:
(we have a free template letter for you to download below)
Your LLC’s Revocation of S-Corporation Letter must include:
1. A statement that the LLC is revoking its election to be taxed as an S-Corporation under Section 1362(a) of the Internal Revenue Code.
2. The name of your LLC, the mailing address of your LLC, and your LLC’s EIN (also known as a Federal Tax ID Number).
3. A statement that the LLC doesn’t have shares of stock, but rather has percentages of ownership. And a list of the LLC owners and how much of the LLC they each individually own.
4. Which taxable year you want the LLC’s revocation of the “S” Election to take effect.
5. An attachment must be included along with your Revocation Letter showing that all LLC Members have agreed to the S Election Revocation. This attachment is called a “Statement of Consent of LLC Members for S Election Revocation“.
(we also have a free template letter for this too, which you can download below)
The Statement of Consent of LLC Members must include the name of your LLC, its EIN, and a statement that the LLC Member(s) agree to revoke the LLC’s S-Corporation Election.
Along with the above, your Statement of Consent must also include:
•the LLC Members’ name,
•the LLC Members’ mailing address,
•the LLC Members’ Tax ID Number (such as SSN or ITIN),
•how much of the LLC each Member individually owns (expressed as a %),
•the date each LLC Member acquired their ownership in the LLC, and
•the date the LLC Member’s tax year ends (for most people they’ll list “12/31”)
Does my LLC also need to revoke
S-Corporation status with my state?
Yes.
Keep in mind that the above information is only for how to revoke your LLC’s S-Corporation tax status with the IRS.
The IRS will then not make it its duty to contact anyone on your behalf and update them. C’mon, that’s your job 😉
Depending on the state where you formed your LLC, you likely need to revoke your S-Corp status with your state’s Department of Revenue, Department of Taxation, or equivalent tax office.
In addition to the above, depending where you file state taxes, your accountant will likely be changing the way you file your state income tax return.
You should not only ask them for assistance on how to properly revoke your LLC’s S-Corporation election at the state level, but also make sure they are filing your taxes correctly after your LLC’s revocation of S-Corporation status takes effect (since payroll and withholding amounts, among other things, will change).