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

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


Conducted on Wednesday, June 24, 2020

Recorded event now available

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Program Materials

This webinar 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% pass-through deduction under Section 199A does not apply to specific trades or businesses, and some S corps may benefit from spinning off certain operations into C corp 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 tax free to the extent of the shareholder's basis in the S corporation stock. New proposed 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. Proposed 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
  • The impact of 2017 tax law reform on startup companies and incentives for startups to incorporate under Chapter C

Faculty

Dyer, Marcus
Marcus E. Dyer, CPA, JD

Team Leader of Tax Controversy
WithumSmith+Brown

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

King, Matthew
Matthew King

Corporate Tax Director
Grant Thornton

Mr. King has over 14 years of public accounting experience. He has extensive experience providing tax planning and...  |  Read More

Van Houtteghem, Garrett
Garrett Van Houtteghem

Manager, Tax Reporting and Advisory Services
Grant Thornton

Mr. Van Houtteghem specializes in corporate tax compliance and income tax accounting. He has extensive tax experience...  |  Read More

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