AICPA seeks guidance on adjustments for conversions from S corp. to C corp.: A reduced corporate tax rate could encourage changeover.


The AICPA is seeking guidance from the IRS regarding the effects of the recent tax law.

The law known as the Tax Cuts and Jobs Act (TCJA), RL. 115-97, provided for a reduction in the income tax rate imposed on C corporations under Sec. 11(b). Given the significance of the reduction, Congress anticipated that some S corporations might revoke their S elections and convert to C corporation status to benefit from the reduced 21% corporate tax rate.

In many instances, an S corporation on the cash method of accounting that converts to a C corporation is required to change its overall method of accounting to an accrual method of accounting. In that case, Sec. 481(d) as amended by the TCJA requires an eligible terminated S corporation to take any resulting Sec. 481(a) adjustment into account over six tax years (instead of four) for positive adjustments or in one year (in the case of negative adjustments).

The AICPA submitted comments to the IRS requesting expeditious guidance concerning adjustments attributable to conversions from an S corporation to a C corporation under Sec. 481(d).

The AICPA recommended that Treasury and the IRS provide administrative guidance on the potential application of Sec. 481(d) to...

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