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Wait for Five Years to Restart an S Corp

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in Small Business Tax

Q. In 2003, my friends and I formed an Internet-based company as an S corporation. Like many other “dot coms,” we struggled and eventually terminated our company’s S corporation election. But now we have new backers and want to regain S corp status for tax reasons. Can we do it? I think there may be some limits. E.E., Denver

A. Yes, you can do it. But you’ll have to wait if your rejuvenated business is conducted inside the same corporation. If you revoke or terminate an S corporation election, you can’t reinstate it for at least five years. Assuming the termination was effective for the 2003 tax year, the corporation is not eligible for S corporation status again until 2008. Tip: The IRS may agree to reinstate an S election before the five-year deadline if the termination was inadvertent. Also, if you completely disbanded your old corporation and are running your business through a new corporation, you may be able to elect S status for the new company right now.

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