5 Year Rule
By Jason Watson, CPA
Posted February 28, 2020
S Corps that lose their “S” status must typically wait five years before being able to re-elect it. As mentioned, deliberately violating one of the rules, such as transferring stock to an ineligible shareholder, is not a good thing. What happens if it was unintentional? The IRS in private ruling letters has on a case-by-case basis allow S Corps to remain as such if the event causing termination was not reasonably within the control of the owners. Hard to demonstrate and private letter rulings (PLRs) can cost thousands of dollars.
In other cases, the IRS has relented and allowed an S Corp to continue when there is a more than 50% change in ownership. Details. Details. So, a business becomes an S Corporation. Revokes the election. Then has a greater than 50% change in ownership within five years. Begs to the IRS. Perhaps is granted an early S Corp election.
|Previous Article||Next Article|
|Distributed Assets||Life Cycle of an S Corporation|
Taxpayer’s Comprehensive Guide to LLCs and S Corps : 2020 Edition
This KB article is an excerpt from our book which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles, click on the fancy buttons below or visit our webpage which provides more information at-