How to Terminate an S Corp. Election and Revert to an LLC

By Edward A. Haman, J.D.

How to Terminate an S Corp. Election and Revert to an LLC

By Edward A. Haman, J.D.

You elected to have your limited liability company (LLC) taxed as an S corporation but would now like to have it taxed as a sole proprietorship or a partnership. This is done by officially notifying the Internal Revenue Service (IRS) that you are revoking the S corporation election. While this process is not particularly complicated, it must be done correctly.

Basic Revocation Requirements

Your election to have your LLC taxed as an S corporation was done by filing Election by a Small Business Corporation (Form 2553), most likely when you first formed your corporation. You may revoke your company's S corp. status for the current tax year or for a later date. In order to do so, two basic requirements must be met:

  1. All members of the LLC must agree to the revocation.
  2. The LLC must give proper written notice to the IRS.

Date of Revocation Rules

There are IRS rules regarding when a revocation is effective. To revoke S corp. status effective at the beginning of the current tax year, the revocation notice must be received by the IRS no later than the 16th day of the third month of the tax year. For example, if the LLC's tax year is the same as the calendar year, the revocation would need to be filed by March 16. This revocation would apply retroactively to January 1.

If the revocation notice is received by the IRS after the 16th day of the third month, the revocation will be effective at the beginning of the next tax year, unless another date is specified in the notice. In the example above, if you miss the March 16 deadline, the revocation would not be effective until January 1 of the following year.

If a date other than the first day of the current or the first day of the next tax year is specified in the notice, the specified date will be the effective date. However, the IRS must receive the revocation notice by the effective date. For example, if you specify an effective date of June 1, the notice must be received by the IRS on or before June 1.

A mid-tax-year revocation may require additional form filings, with accompanying accounting complications. Be sure you understand what is required before making such a midyear change.

Notice Requirements

Two documents need to be filed with the IRS:

  1. A statement of revocation
  2. Entity Classification Election (Form 8832)

Statement of Revocation

The IRS does not have a form for revoking S corp. status, so you must create your own statement of revocation. This is essentially a letter containing the required information, whose basic purposes are to inform the IRS that you are revoking the LLC's election for S corp. treatment and to show that all LLC members are in agreement.

The revocation statement must contain the following information:

  • A statement that the LLC is revoking its Subchapter S election made under Section 1362(a) of the Internal Revenue Code.
  • The effective date of the revocation.
  • The LLC's name and employer identification number (EIN).
  • A statement that the LLC members have ownership percentages rather than shares of stock.
  • Each member's name, address, and taxpayer identification number, which is often their Social Security number.
  • Each member's percentage of ownership. (Make sure they add up to 100%.)
  • The date, or dates, each member acquired their ownership interest.
  • The date each member's tax year ends. Most often this will be the same as the calendar year, in which case the date will be listed as December 31.
  • A statement that the members signing the statement consent to the revocation of the S corp. election on the effective date and that they do so under penalty of perjury.
  • Each member's signature, which should be just below the above statement of consent.
  • The signature of a person who is authorized to sign the LLC's tax returns.

IRS Form 8832

The revocation statement tells the IRS that you are revoking the S corp. election, while Form 8832 tells the IRS how your LLC will be taxed going forward. If you have a single-member LLC, check the box for item 6(c) to be taxed as a sole proprietorship. If you have a multimember LLC, check the box for item 6(b) to be taxed as a partnership.

The statement of revocation and Form 8832 must be sent to the IRS center where the corporation's tax returns are filed. The address may have changed since the last tax filing, so be sure to check the Form 8832 instructions to confirm the current address.

Revoking S corporation status is a bit time-consuming, but not overly difficult. Be sure to check with your state's business regulation and tax agencies to find out if any state filings are also necessary.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.