LLC to S Corp Conversions and S Corp to LLC Conversions: Benefits and Caveats, Step-by-Step Examples

Many clients can benefit from converting their single-member LLC or LLC/partnership to an S corporation. An S corporation status provides several advantages; perhaps the most popular is the ability to limit self-employment taxes paid by its owners. There are also key disadvantages that tax advisers and owners should weigh. Reasonable compensation must be paid to shareholders and an 1120-S must be filed. A chief concern has been that LLC agreements often include distribution provisions that can create a second class of stock, invalidating a Subchapter S election. Fortunately, the IRS recently released Revenue Procedure 2022-19 which provides relief for this and other missteps often encountered by S corporations and shareholders.

In addition to LLC to S corporation conversions, many taxpayers benefit from an S to LLC conversion. LLCs provide greater flexibility for distributions and management, and an S corporation can offer greater asset protection. As with S corporation to LLC conversions, there are caveats. The partnership tax provisions are complex and compliance can be a challenge. Also, LLC earnings are often subject to self-employment tax. Whether converting from an LLC to an S corporation or vice versa specific steps must be followed to ensure a smooth transition.

Listen as our panel of flow-through experts reviews the benefits and caveats of LLC and S corporation conversions and the steps to take to affect these conversions.

1. LLC to S corporation
   1. Benefits of conversion
   2. Caveats
   3. Steps to conversion
2. S corporation to LLC
   1. Benefits of conversion
   2. Caveats
   3. Steps to conversion
3. Best practices

The panel will review these and other critical issues:

• Identifying entities that could benefit from LLC to S or S to LLC conversions
• Applying Revenue Procedure 2022-19 to avoid conversion missteps
• Understanding the caveats of LLC to S corporation conversions
• Examples of the steps needed and options available to transfer S corporation ownership to an LLC

Learning Objectives

After completing this course, you will be able to:

• Identify entities that could benefit substantially from a change of tax structure
• Decide what steps must be taken to change an entity's structure from LLC to S corporation
• Determine qualifications for relief under Revenue Procedure 2022-19
• Ascertain when the caveats of an LLC to S corporation conversion outweigh the benefits

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).