How to Revoke an S Corporation Election

An S Corporation may no longer fit a business's ownership structure, tax planning strategy, or long-term operating plans. In that situation, shareholders may decide to end the company's S Corporation tax status and have it treated as a C Corporation for federal tax purposes.

However, revoking an S Corporation election is not simply a matter of stopping Form 1120-S filings or notifying the IRS informally. The corporation must follow a specific procedure under Section 1362(d)(1) of the Internal Revenue Code. This includes obtaining the required shareholder approval, preparing a written revocation statement, and submitting it to the appropriate IRS service center.

The effective date also matters. Depending on when the corporation submits its revocation, the change may apply from the beginning of the current tax year, the beginning of the following tax year, or a specified future date.

This guide explains how to revoke an S Corporation election, what shareholder approval is required, how to submit the revocation statement, and what happens to the business's federal tax treatment afterward.

What Does It Mean to Revoke an S Corporation Election?

Revoking an S Corporation election means voluntarily ending the corporation's federal tax status as an S Corporation. Once the revocation becomes effective, the business generally stops being taxed under the S Corporation rules and is treated as a C Corporation for federal income tax purposes.

An S Corporation generally passes its income, deductions, and credits through to its shareholders. A C Corporation, by contrast, generally pays federal income tax at the corporate level, and shareholders may also face tax when they receive dividends.

Revocation changes the corporation's federal tax treatment. It does not automatically dissolve the legal entity, close the business, or cancel its state registration.

For example, suppose a corporation has several shareholders and wants to retain earnings in the business rather than distribute profits. Its owners may decide that C Corporation tax treatment better fits their plans. They can consider voluntarily revoking the S election, provided they meet the applicable approval and filing requirements.

The decision should be evaluated before submitting the revocation because the effective date can affect the corporation's tax returns and shareholder reporting.

Why Would a Business Revoke Its S Corporation Election?

A business may voluntarily revoke its S Corporation election when its ownership, financial plans, or operating requirements change.

Common reasons include:

Changes in business ownership

A corporation may be considering an ownership arrangement that does not fit the S Corporation eligibility requirements. For example, certain ownership structures or shareholder types may not be permitted under the S Corporation rules.

The business may evaluate whether C Corporation treatment is more appropriate for its future ownership plans.

Plans to retain business earnings

S Corporation income generally passes through to shareholders, who may owe tax on their allocated share even when the corporation does not distribute the corresponding cash.

A business that intends to retain substantial earnings may evaluate whether C Corporation treatment better fits its financial strategy.

Plans to attract certain investors

Some businesses may want to explore investment arrangements that are difficult to accommodate under S Corporation restrictions, including certain institutional or entity investors.

C Corporation status may provide a different ownership structure, although the company should evaluate the legal and tax consequences before making a change.

Changes in long-term tax planning

A company's financial position may change as it grows. Its shareholders may decide that the existing tax structure no longer aligns with their plans.

Revocation should not be based on one tax consideration alone. The business should compare the overall federal and state tax consequences, shareholder impact, and administrative requirements.

Who Must Approve an S Corporation Revocation?

An S Corporation cannot revoke its election solely because one shareholder or the company's management wants to change its tax status.

Under Section 1362(d)(1)(B), shareholders holding more than one-half of the corporation's issued and outstanding shares on the date of revocation must consent.

The calculation includes both voting and non-voting shares. Therefore, the approval requirement is based on ownership of shares, not simply the number of shareholders or the number of votes cast.

How to Revoke an S Corporation Election with the IRS

A corporation must submit a written revocation statement to the IRS. It does not use Form 2553 to revoke an existing S Corporation election; Form 2553 is used to make an S Corporation election.

Follow these steps to prepare and submit the revocation.

1. Prepare the S Corporation Revocation Statement

The corporation should prepare a written statement clearly declaring that it is revoking the election made under Section 1362(a).

According to IRS guidance and Treasury Regulation Section 1.1362-6(a)(3), the statement should include:

• The corporation's legal name and Employer Identification Number (EIN).
• A statement that the corporation is revoking its election under Section 1362(a).
• The number of issued and outstanding shares, including non-voting shares, at the time of revocation.
• The name, address, and taxpayer identification number of each consenting shareholder.
• The number of shares owned by each consenting shareholder.
• The date or dates on which the shares were acquired.
• The shareholder's tax year-end information, as required by the IRS.
• The requested effective date of the revocation.
• The signature of the person authorized to sign the corporation's tax return.

The statement must also include the required shareholder consent documentation.

2. Obtain the Required Shareholder Consents

The corporation must obtain consent from shareholders who collectively own more than 50% of the issued and outstanding shares, including non-voting shares.

Each consenting shareholder should provide the required written consent and ownership information. The shareholder consent must be signed under the applicable declaration requirements.

The corporation should verify that the consenting shareholders meet the ownership threshold on the date the revocation is made.

Do not calculate approval using only voting shares. Non-voting shares are included in the statutory calculation.

3. Submit the Revocation Statement to the IRS

The corporation must send the completed revocation statement to the IRS service center where it properly filed its S Corporation election.

The IRS directs corporations to use the appropriate service center identified in the Instructions for Form 2553.

Before submitting the statement, check that:

• The corporation's name and EIN are correct.
• The revocation clearly identifies the election being terminated.
• The effective date is stated.
• The required shareholder consents are attached.
• The ownership information and signatures are complete.
• The corporation retains a copy of the submitted documents and proof of mailing or delivery.

The IRS does not require the corporation to file a separate Form 2553 merely to revoke its election.

When Does an S Corporation Revocation Become Effective?

The effective date depends on when the corporation makes the revocation and whether the statement specifies a permitted prospective effective date.

Under Section 1362(d)(1)(C), the general rules are:

Example for a calendar-year corporation:

Suppose a corporation follows the calendar tax year, beginning January 1 and ending December 31.

• If it makes the revocation by March 15, 2027, the revocation generally takes effect on January 1, 2027.
• If it makes the revocation after March 15, 2027, and does not specify a different permitted date, it generally takes effect on January 1, 2028.
• If it specifies a permitted future date, such as July 1, 2027, the revocation can take effect on that date.

The deadline and effective date should be planned carefully. A revocation that takes effect during a tax year can create separate S Corporation and C Corporation tax periods.

What Happens After an S Corporation Election Is Revoked?

Once the revocation becomes effective, the corporation generally moves from S Corporation tax treatment to C Corporation tax treatment for federal tax purposes.

This change affects how the corporation reports its income and how shareholders are taxed.

How Does the Business's Federal Tax Treatment Change?

Before revocation, an S Corporation generally passes its taxable income, deductions, and credits through to shareholders. Shareholders report their allocated items on their individual tax returns, subject to the applicable tax rules.

After revocation becomes effective, the corporation generally becomes subject to C Corporation taxation.

This means:

• The corporation generally reports its taxable income on Form 1120.
• The corporation generally pays federal income tax at the corporate level.
• Shareholders generally do not report the corporation's operating income directly merely because they own shares.
• Dividends distributed to shareholders may be taxable to them separately.

The corporation should review its tax planning, distributions, accumulated earnings and profits, and shareholder-level consequences before the revocation takes effect.

Which Tax Returns Must the Business File?

The tax returns depend on the effective date of the revocation.

If the revocation takes effect on the first day of a tax year, the corporation generally files as a C Corporation for that full tax year.

If the revocation takes effect during a tax year, the corporation generally has an S Corporation short tax year and a C Corporation short tax year. Special rules under Section 1362(e) govern the allocation of income, deductions, and other tax items between those periods.

The corporation may need to file:

• Form 1120-S for the S Corporation short tax year.
• Form 1120 for the C Corporation short tax year.

The applicable due dates and reporting requirements should be checked for the corporation's circumstances.

For the S Corporation return filing process, see our guide to Form 1120-S filing requirements.

Can a Business Elect S Corporation Status Again?

A corporation that voluntarily revokes its S Corporation election generally cannot make another S Corporation election for a tax year beginning before the fifth tax year after the first tax year for which the termination was effective, unless the IRS consents to an earlier election.

This restriction is important for businesses considering revocation as a temporary tax-planning decision.

For example, if a corporation's revocation becomes effective for the 2027 tax year, it should not assume that it can simply elect S Corporation status again for the next tax year. The five-tax-year restriction and any applicable IRS consent requirements must be reviewed before planning a return to S Corporation status.

The corporation must also satisfy the S Corporation eligibility and election requirements that apply when it seeks to elect that status again.

Does Revoking an S Corporation Election Affect State Taxes?

Revoking a federal S Corporation election does not automatically resolve every state-level tax requirement.

States may have their own rules for recognizing S Corporation status, terminating state elections, and changing a corporation's tax classification.

Depending on the state, a business may need to:

• Notify the state tax authority of the federal revocation.
• Submit a separate state revocation or election form.
• Change its state income tax filing status.
• Review state franchise, minimum, or other business taxes.

A corporation operating in more than one state should check the rules in every relevant jurisdiction. Federal revocation and state tax treatment should be reviewed separately.

For more information, see our guide to S Corporation state taxes and elections.

Conclusion

Revoking an S Corporation election requires more than a business decision. The corporation must obtain consent from shareholders holding more than 50% of its issued and outstanding shares, prepare the required written statement, and submit it to the appropriate IRS service center.

The effective date is equally important because it determines when the corporation moves from S Corporation to C Corporation tax treatment. If the revocation takes effect during a tax year, the business may also need to manage separate S Corporation and C Corporation tax periods.

Before submitting a revocation, review the shareholder approval, filing requirements, effective date, federal tax consequences, and state-level obligations. Careful planning can help the corporation avoid filing errors and unexpected tax complications.