Prepare the books and consents for an S corporation revocation

Voluntary revocation of an S election for a US corporation begins with a dated ownership record and a reviewed revocation statement. Retrieve the stock ledger, transfers and outstanding share classes as of the revocation. A vote at a management meeting does not replace the required shareholder consent.

IRS guidance requires consenting shareholders to hold more than half of the issued and outstanding shares, including nonvoting stock. Count shares under that rule rather than using the percentage of voting power shown in a board presentation. Have counsel or the tax adviser resolve trusts, joint ownership or other uncertain ownership facts before signatures are collected.

Retain each consenting holder's required information, share count and acquisition dates with the signed statement. For illustration, 310 consenting shares out of 600 clears the numerical majority; the example does not establish valid signatures, authority or the remaining requirements.

Put the proposed effective date beside the planned filing date and have the preparer confirm the applicable timing rule. IRS guidance treats a first-day-of-year revocation differently from one effective on another date. An intended date written in an internal memo cannot overcome a filing that fails the relevant requirement.

Preserve the final signed statement, delivery evidence and any IRS correspondence. Track revisions so the accounting team does not use an abandoned proposal. Identify the people responsible for notifying the return preparer and updating the filing calendar once the effective treatment is established.

Record whether the event is a voluntary revocation or another termination of S status. An ownership transaction that independently ends eligibility can create a different effective date. Provide the complete transaction timeline rather than assuming the later revocation statement controls every fact.

A termination during the tax year generally creates an S short year ending the day before termination and a C short year beginning on the effective date. For a properly effective July 1 termination, that boundary separates June 30 from July 1. Keep full-year transaction detail and a reliable balance-sheet cut-off at the boundary.

The regulations generally allocate the year's income or loss pro rata, with exceptions and an election to use the normal tax accounting method. That election has its own shareholder-consent requirements. Do not assume that the majority consenting to revocation also supplies every consent required for the allocation election.

Give the adviser dated sales, expenses, distributions and significant transactions, together with the ownership timeline. Preserve the tax allocation schedule separately from the ordinary ledger reports. A monthly profit split may be useful evidence without being the allocation method the return must use.

Ask the preparer to identify the return periods, owner information, opening C corporation schedules and state treatment requiring action. Keep unresolved questions about distributions, historical balances or carryovers assigned to a named reviewer. Ending the S election does not eliminate the need to explain how the opening records were derived.

Reconcile approved tax adjustments to the final schedules and retain the consent history with the transition file. If a later transaction changes the assumed dates or ownership, revisit the affected calculations and filings together. The next preparer should be able to locate the effective revocation and the separately reviewed allocation conclusion.