Question

An S corporation converted to a limited partnership and also concurrently elected as an association taxable as a corporation. Will such actions terminate it’s S corporation election? Explain

Answer 1

Solution:-

The regulations allow an LLC that would be classified as a partnership or a disregarded entity under the default rules to elect to be taxed like a corporation. Corporate status is achieved by filing Form 8832, Entity Classification Election, electing to treat the entity as an “association.” An association is treated as a corporation for federal income tax purposes. Once the LLC elects association status, its owner(s) may also choose to have it taxed as an S corporation. To simplify the election process in such cases, it is not necessary to file both Form 8832 to elect association status and Form 2553 to elect S corporation status. Reg. § 301.7701-3(c)(1)(v)(C) allows a single election to be made on Form 2553. A timely filed Form 2553 will constitute a deemed filing of Form 8832. This deemed association election is effective only if the electing entity meets all of the requirements to be an S corporation. Form 2553 also is not effective if the entity fails to qualify as an S corporation as of the election date.