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Converting From S Corp to C Corp: Final 1371(f) Regulations, Favorable Treatment of PTTP Distributions

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Monday, May 1, 2023

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers and compliance professionals with a thorough exploration of the potential tax benefits and hazards of revoking S elections and converting entities to C corporations. The panel will offer tools and strategies to maximize the tax and operational advantages of making an S to C corp election. The panel will discuss steps to lower the tax cost of distributions and outline alternatives to revoking the S election.

Description

Along with several provisions that adversely impact S corps, tax reform's permanent reduction in C corp income tax rates is leading many S corps to evaluate their entity choice and explore whether converting to C corp status will provide more tax benefits. Tax advisers must have a solid grasp of whether, when, and how to make an S corp revocation election to avoid costly tax consequences.

The law makes several changes to S corporation income treatment that negatively impact some companies and their shareholders. Most notably, the 20 percent pass-through deduction under Section 199A does not apply to specific trades or businesses, and some S corporations may benefit from spinning off certain operations into C corporation status while retaining the S corp election for others.

The law also contains provisions that in many cases will allow shareholders of "eligible terminated S corporations" to treat dividends paid during the "post-termination transition period" (PTTP) as coming from the corporation's accumulated adjustment account or E&P more favorably than a typical dividend distribution from an operating C corporation. Such distributions are not subject to tax to the extent of the shareholder's basis in the S corporation stock. Final regulations provide rules for S corporation distributions made during the PTTP to qualify for 1371(f) treatment allowing taxpayers to treat a portion of these distributions as distributions from AAA for ETSCs (eligible terminated S corporations).

Listen as our expert panel provides thorough and practical guidance to help advisers determine whether, as well as when and how, to make a tax-efficient entity change from S corporation status to take advantage of the new tax reform law provisions.

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Outline

  1. Incentives in new tax law to consider revocation of S corp election
  2. Types of business operations that may benefit from S corp revocation
  3. Final 1371(f) regulations
  4. Favorable treatment of distributions from "eligible terminated S corporation" during a post-termination transition period
  5. Reasons to not revoke S corp status
  6. Timing considerations

Benefits

The panel will review these and other critical matters:

  • Businesses that derive tax benefits from revoking S corporation elections and electing to be taxed as a C corporation
  • The mechanics of distributions for eligible terminated S corporations during the PTTP
  • How final Section 1371 regulations affect distributions made during the post-termination transition period
  • Reasons not to revoke S corp status

Faculty

Alfonsi, John
John T. Alfonsi, CPA
Managing Director
Cendrowski Corporate Advisors

Mr. Alfonsi has 25 years of tax consulting, business valuation, litigation support and forensic accounting experience....  |  Read More

Dyer, Marcus
Marcus E. Dyer, CPA, JD
Principal, Team Leader of Tax Controversy
Withum Smith+Brown

Mr. Dyer manages and reviews all aspects of federal and state tax compliance for C-corporation, S corporation and...  |  Read More

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