To revoke S corp status, shareholders who together own more than 50% of the corporation’s outstanding stock must sign a written revocation statement and mail it to the IRS service center where the corporation files Form 1120-S.1Internal Revenue Service. Revoking a Subchapter S Election There is no IRS form for this; you draft the statement yourself. Once the revocation takes effect, the company defaults to C corporation status, its profits face the flat 21% federal corporate tax, and shareholders pay tax again on any dividends they receive.2Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed
What Goes in the Revocation Statement
Because the IRS has no official form, the statement itself has to carry all the required information. Include the following:1Internal Revenue Service. Revoking a Subchapter S Election
- The corporation’s legal name and EIN.
- A clear statement that the corporation revokes its election under Section 1362(a).
- For each consenting shareholder: name, address, taxpayer identification number, number of shares held, and stock acquisition date.
- The date each consenting shareholder’s personal tax year ends.
- The requested effective date, or an indication that you want it effective as of the first day of the current tax year.
- Signatures from shareholders holding more than 50% of all issued and outstanding shares, voting and nonvoting, signed under penalties of perjury, plus the signature of an officer authorized to sign the corporate return.
The consent threshold is strict. Exactly 50% is not enough, and every outstanding share counts, including nonvoting stock.3Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination Back the consent up in your corporate records with board minutes or a shareholder resolution. If the IRS later questions the revocation, that paper trail is your proof.
Where and How to File
Mail the statement to the IRS service center where the corporation files its Form 1120-S. The correct address appears in the Form 1120-S instructions.1Internal Revenue Service. Revoking a Subchapter S Election There is no electronic filing option, so use certified mail with a return receipt. The postmark and delivery confirmation are the only proof you have that the statement arrived on time.
Also attach a copy of the revocation statement to the corporation’s income tax return for the first tax year affected. For a revocation effective January 1, 2026, that copy goes with the 2026 return. For a mid-year revocation, it goes with the S short year return.
When the Revocation Takes Effect
The effective date depends on when the IRS receives the statement and what date you request inside it.5Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination
Missing the March 15 cutoff by a day pushes the revocation into the next year, so plan the mailing with that in mind.4Internal Revenue Service. Revoking a Subchapter S Election
Splitting the Year: The S Termination Year
A mid-year revocation creates an “S termination year.” The year splits into an S short year (January 1 through the day before the revocation date) and a C short year (the revocation date through December 31). The corporation files Form 1120-S for the S short year and Form 1120 for the C short year.6Internal Revenue Service. Instructions for Form 1120-S
Full-year income and expenses have to be divided between the two periods. The default is a daily pro rata allocation: each short year gets its share based on the number of days it contains, regardless of when transactions actually happened. The alternative is a “closing of the books” election, which assigns items to whichever short year they actually fall in. That election needs consent from every person who was a shareholder at any point during the S short year and every shareholder on the first day of the C short year.7eCFR. 26 CFR 1.1362-3 – Treatment of S Termination Year Closing the books usually matters when income is concentrated in one half of the year. If income is spread evenly, the two methods land in about the same place.
The S short year return is due by the due date (including extensions) of the C short year return, not by the usual March 15 S corporation deadline.6Internal Revenue Service. Instructions for Form 1120-S
How the Tax Picture Changes After Revocation
As an S corporation, the company owed no federal income tax and profits passed through to shareholders. Once C corporation status takes effect, the corporation pays a flat 21% federal income tax on its taxable income.2Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed When the corporation later distributes those after-tax profits as dividends, shareholders owe tax again at their individual dividend rate. That is the double taxation people warn about.
Filing shifts from Form 1120-S to Form 1120 for all C corporation years.8Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation Shareholders stop receiving Schedule K-1s and stop reporting the corporation’s income on their personal returns. They only report dividends they actually receive.
The accounting method may also change. S corporations can generally use the cash method. A C corporation must switch to the accrual method if its average annual gross receipts over the prior three years exceed the applicable threshold, set at $31 million for tax years beginning in 2025 and adjusted for inflation each year.9Internal Revenue Service. Revenue Procedure 2024-40 Smaller C corporations can usually stay on cash.
Pulling Out Already-Taxed Profits: The PTTP Window
During the S years, shareholders paid tax on the corporation’s earnings whether or not they were distributed. Those earnings sit in the accumulated adjustments account (AAA). After the revocation takes effect, a limited window called the post-termination transition period (PTTP) lets you distribute that already-taxed money in cash without a second layer of tax.
The PTTP begins the day after the corporation’s last day as an S corporation and ends on the later of one year after that date or the extended due date for the final S corporation return.10Office of the Law Revision Counsel. 26 USC 1377 – Definitions and Special Rule For a calendar-year corporation with a January 1, 2026 revocation, the PTTP runs at least through January 1, 2027, and possibly through September 15, 2027, if the final S return is filed on extension.
Inside the window, cash distributions reduce the shareholder’s stock basis to the extent they don’t exceed the remaining AAA balance, and they are not taxed as dividends.11Office of the Law Revision Counsel. 26 USC 1371 – Coordination With Subchapter C Once the PTTP closes, whatever remains in AAA loses its special character and becomes ordinary C corporation retained earnings; later distributions come out as taxable dividends to the extent of the corporation’s earnings and profits. Two limits apply: only cash distributions qualify, and a distribution can’t drop stock basis below zero, so the tax-free amount is capped at whichever is smaller, the AAA balance or the shareholder’s stock basis. Put the PTTP end date on the calendar the day you file the revocation.
Suspended Losses
Losses that a shareholder couldn’t deduct during the S years because stock or debt basis was too low don’t disappear at revocation. The code treats suspended losses as incurred by the shareholder on the last day of the PTTP.12Office of the Law Revision Counsel. 26 USC 1366 – Pass-thru of Items to Shareholders You have that same window to use them.
The catch is that suspended losses are deductible only to the extent of stock basis at the close of the PTTP, and only against stock basis, not debt basis.12Office of the Law Revision Counsel. 26 USC 1366 – Pass-thru of Items to Shareholders Anything not absorbed by the end of the window is lost. Shareholders who want to use up the losses can contribute additional capital before the window closes to raise stock basis high enough to absorb them.
Re-Electing S Status Later
A corporation that revokes its S election generally cannot re-elect for any tax year before the fifth tax year beginning after the first year the revocation was effective.3Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination A revocation effective January 1, 2026 means the earliest you could be an S corporation again is the 2031 tax year. Re-election uses Form 2553, the same form as the original election.13Internal Revenue Service. About Form 2553, Election by a Small Business Corporation
The IRS can consent to an earlier re-election, but the statute lists no specific qualifying circumstances; it simply says “unless the Secretary consents.”3Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination Getting consent means a private letter ruling request, with its own fees and processing time. For planning purposes, treat the five-year wait as the default.