Free at Last
You no longer have to be up to your "S" in regulations.
With the economy dragging, a bipartisan effort is afoot in Congress to ignite the afterburners on subchapter S corporations. Over the past decade, S corps have lost some of their allure as states (and the IRS) have authorized creation of limited liability corporations, which have the advantages of S corps without the federal regulatory disadvantages.
So why not switch an S corp to an LLC? Because an S corp cannot be converted to an LLC without paying taxes on appreciated gains on assets. That's why Sen. Orrin Hatch (R-UT) is sponsoring the Subchapter S Modernization Act (S. 1201). "Subschapter S, as enacted and modified over the years, contains a variety of limitations, restrictions and pitfalls for the unwary," Hatch says. The bill, backed by the U.S. Chamber of Commerce, would make a number of numbingly technical changes in rules on who can be shareholders, stock classification, accounting for losses and S status termination.
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