What This Notice Means
The IRS revoked your corporation's subchapter S election. Your corporation is no longer treated as an S corporation. It is now taxed as a regular C corporation.
What to Do
- File Form 1120, U.S. Corporation Income Tax Return, by the required due date.
- Keep this notice in your permanent records.
- Give a copy to your tax preparer and bookkeeper so returns, estimates, and shareholder reporting are set up for a C corporation.
A shareholder can revoke an S election only with consent from shareholders holding more than half of the corporation's shares. If you didn't request a revocation, or you don't recognize this action, call the number on your notice right away and find out what was filed.
Can You Re-Elect S Status?
Not right away. You must wait five years before you're eligible to make a new S election.
That is a long time. If the revocation was intended, plan your tax approach for C corporation treatment over that period. If it wasn't intended, act fast.
Filing Tips
- File Form 1120 on time for every year the corporation is a C corporation.
- Consider e-filing. Form 1120 can be filed through the IRS Modernized e-File system by authorized providers.
- Keep corporate records that show when the revocation took effect.
Why It Matters
S and C corporations are taxed very differently. A C corporation pays its own income tax, and distributions to shareholders can be taxed again. Your tax planning, payroll setup, and shareholder distributions should all reflect the change.
If you received a CP262 notice and didn't expect your S election to end, call us at (813) 229-7100.