Question

Convert C Corp to Disregarded Entity

Forum|Forum|3 years ago
February 21, 2023
3 replies
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Hi,

My LLC was elected to C Corp with the IRS but I need to change it to Disregarded Entity LLC

How this should be done and what forms to file?

leeloo

You need to formally close your corporation.

Corporation Filing Requirements (Includes S Corporations)

You must file Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution or plan to dissolve the corporation or liquidate any of its stock.

You must also file your corporation’s final income tax return. Remember to check the “final return” box, which is near the top of the front page of the return, below the name and address.

For a C corporation you must:

File Form 1120, U.S. Corporate Income Tax Return, for the year you close the business.
Report capital gains and losses on Schedule D (Form 1120).

For an S corporation you must:

File Form 1120-S, U.S. Income Tax Return for an S Corporation for the year you close the business.
Report capital gains and losses on Schedule D (Form 1120-S).
Check the "final K-1" box on Schedule K-1, Shareholder's Share of Income, Deductions, Credits, Etc.

Regardless of the type of corporation, you may also need to file these forms when you file your Form 1120 or 1120-S:

Form 4797, Sales of Business Property, for each year you sell or exchange property used in the business. You also need to file this form if closing your business causes the business use of an eligible property under Section 179 to drop to 50% or less.
Form 8594, Asset Acquisition Statement, if you sell your business.

Please see this link from the IRS regarding closing your business.

https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business

Once that is done, you can begin your Schedule C business.

HopeS

You will need to file Form 8832 Entity Classification Election to change to t a single-member disregarded LLC. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances.

You would indicate on line 6(c) part 1 of Form 8832 that you are electing to be treated as a disregarded separate entity.

See additional guidance in the IRS link below. Click on Form 8832 Entity Classification Election once you are on the website.

Limited Liability Company (LLC)

@amr650

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Mike9241

you may want to see a tax pro because there can be income to you upon distribution of any assets held by the C-Corp.