Discussion:Changing from a C-Corp to an S-Corp
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Discussion Forum Index --> Tax Questions --> Changing from a C-Corp to an S-Corp
| 2007-02-22 | |
| I have a new client that wants to change an existing C-Corp to an S-Corp. This company has been in existence for over 20 years and I have been told that they use the cash basis of accounting. Unfortunately, I have not yet had a chance to review their books or previous returns to verify any of this info. However, they have told me that they have approximately $1.3 million in A/R as of 12/31/2006 (I am assuming this is billed/uncollected A/R since they have told me they are cash basis). I need to know the tax ramifications of this change so that I can advise them whether this is a good idea or not. Do they have to report any additional income related to the A/R if they make this change? Are there any other issues (loss carryforwards, shareholder accounts, etc.) that we should consider related to such a change? Thanks in advance for your help. | |
| 22 February 2007 | |
| A/R will be considered a Built-in Gain at the date of conversion from C to S. As such it will be subject to B.I.G. tax unless it can be matched against built-in losses. A/P would be considered B.I.L. You may also want to see if you can justify an accrued bonus to be paid in the year following when the AR gets collected. | |
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