S-Corp Strategy
How to Revoke an S-Corp Election
Sometimes the S-Corp no longer fits — profits dropped, you took on a partnership, or you want to raise outside capital. Here's exactly how (and when) to revoke the election.
When revoking actually makes sense
- Net profit dropped below ~$50K and the payroll/compliance costs eat the savings
- You want to bring on an ineligible shareholder (corporation, partnership, foreign person)
- You want a second class of stock for outside investment
- You're winding the business down and a Schedule C is simpler
- You're converting to a C-Corp to take advantage of QSBS or to seek venture capital
The revocation process
- Get majority shareholder consent. Shareholders holding more than 50% of issued and outstanding shares must consent in writing.
- Draft a statement of revocation. Include entity name, EIN, the statement that the corporation revokes the S-Corp election made under §1362(a), the effective date, and the number of shares outstanding.
- Attach a consent statement signed by every consenting shareholder.
- Mail to the IRS service center where you file Form 1120-S. There is no specific form — the statement is the filing.
Timing and effective date
File by March 15 (the 15th day of the third month) to revoke as of the first day of the current tax year. File after March 15 and the revocation generally takes effect on the first day of the following tax year. You can also pick any prospective date by stating it in the revocation statement.
What happens to your books and tax filings
- Mid-year revocation creates an S-Corp short-period 1120-S and a separate C-Corp (or disregarded LLC) return for the rest of the year
- Final K-1s go to shareholders for the S-Corp portion
- Owner payroll generally continues if you remain a corporation; it stops if you revert to a single-member LLC
- Track shareholder basis as of the revocation date — it carries forward for a year as the post-termination transition period
The 5-year reelection rule
Once revoked, the corporation generally cannot reelect S-Corp status for 5 tax years without IRS consent. The IRS will sometimes grant earlier consent if the revocation was inadvertent or if there's been a more-than-50% ownership change.
Before you revoke: try the calculator
Most owners who think the S-Corp is not working actually just have an unrealistic salary set or are missing the distribution piece. Run your numbers through the savings calculator before pulling the trigger.
How GuidedLedger handles revocations
We draft the revocation statement, gather shareholder consents, file the short-period 1120-S, transition payroll appropriately, and update your books for the new entity classification — all without the double-fee mid-year scramble.
Frequently Asked Questions
Can I undo the revocation if I change my mind?
If you withdraw before the effective date, yes. After the effective date, you generally have to wait 5 years before re-electing S-Corp status without IRS consent.
Will I owe back taxes if I revoke mid-year?
You'll file a short-period 1120-S for the S-Corp portion and a separate return for the post-revocation portion. No automatic tax owed, but the split filing has real complexity.
Keep reading
- How to elect S-Corp status — If you ever want to come back.
- S-Corp vs LLC — Compare your options after revocation.
- Common S-Corp mistakes