How to Revoke S Corp Status: Filing, Effective Date, and Five-Year Lockout

To revoke S corp status, shareholders who together own more than 50% of the corporation’s outstanding stock must sign a written revocation statement and mail it to the IRS service center where the corporation files Form 1120-S.¹ There is no official form for this; you draft the statement yourself. Once the revocation takes effect, the company becomes a C corporation, its profits face the flat 21% federal corporate tax, and shareholders pay tax again on any dividends they receive.²

What the Revocation Statement Must Contain

The statement is short but every element matters. Include all of the following:¹

The corporation’s legal name and employer identification number.
A clear declaration that the corporation revokes its election under Section 1362(a).
For each consenting shareholder: name, address, taxpayer identification number, number of shares owned, and the date the stock was acquired.
The date each consenting shareholder’s personal tax year ends.
The requested effective date, or a statement that you want the revocation effective at the beginning of the current tax year.
Signatures from shareholders holding more than 50% of all issued and outstanding shares (voting and nonvoting), signed under penalties of perjury, plus the signature of an officer authorized to sign the corporate return.

The 50% threshold is strict. Exactly half is not enough, and you count every outstanding share, including nonvoting stock.³ Document the consent in board minutes or a shareholder resolution so you have a paper trail if the IRS later questions whether the revocation was valid.

Where and How to File

Mail the statement to the IRS service center listed in the Form 1120-S instructions for your state.¹ There is no electronic filing option. Use certified mail with return receipt requested; the postmark is your only proof of timely filing.

Attach a copy of the revocation statement to the corporation’s income tax return for the first year the revocation applies. If the revocation splits the year into two short periods, the copy goes with the final S corporation short-year return.

When the Revocation Takes Effect

The effective date depends on when the IRS receives the statement and what date you request.

If the IRS receives the revocation on or before the 15th day of the third month of the tax year (March 15 for calendar-year corporations) and you don’t specify a later date, it takes effect on the first day of that tax year. The company is a C corporation for the entire year.
If the IRS receives it after that cutoff and you don’t specify a date, the revocation takes effect on the first day of the following tax year.
You can name any prospective date on or after the day you file. That creates a mid-year transition.

These rules come from the statute itself and the March 15 date is firm.³ For a mid-year effective date, the statement must reach the IRS by the date you’ve requested.¹ Miss the deadline by a day and the revocation slides to the next available date.

Splitting the Year After a Mid-Year Revocation

A mid-year revocation produces what the tax code calls an S termination year. The calendar year splits into an S short year (January 1 through the day before the revocation) and a C short year (the revocation date through December 31). The corporation files Form 1120-S for the S short period and Form 1120 for the C short period.⁴

Full-year income and expenses have to be divided between the two returns. The default is daily pro rata allocation: each short year gets a share based on how many days it contains, no matter when transactions actually happened. You can instead elect the closing-of-the-books method, which assigns income and deductions to the short year in which they actually occurred. That election requires consent from every person who was a shareholder at any point during the S short year and every shareholder on the first day of the C short year.⁵

The S short-year return is due by the due date (including extensions) of the C short-year return, not the usual March 15 S corporation deadline.⁴

How Taxation Changes Once You’re a C Corporation

During S years the corporation itself owed no federal income tax; profits passed through to shareholders. After revocation the corporation pays a flat 21% federal income tax on its taxable income,² and shareholders pay tax again on any dividends. That two-layer result is the “double taxation” that drives most of the planning around this decision.

There’s a counterweight. A C corporation that reinvests profits rather than distributing them keeps earnings at 21%, which may be lower than the top individual rate shareholders were paying on pass-through income. If distributions are modest, the overall near-term tax burden can actually drop.

Filings change too. The corporation moves from Form 1120-S to Form 1120.⁶ Shareholders no longer receive Schedule K-1s and stop reporting the corporation’s income on their personal returns; they report only dividends they actually receive.

Accounting method can also come into play. For tax years beginning in 2025, a C corporation generally must switch to the accrual method if its average annual gross receipts over the prior three years exceed $31 million.⁷ Smaller corporations can usually keep the cash method without interruption.

The Post-Termination Transition Period: Pulling Out Already-Taxed Profits

This is the piece most people miss. During S years, shareholders already paid tax on the corporation’s earnings whether or not those earnings were distributed. That previously taxed income is tracked in the accumulated adjustments account (AAA). The post-termination transition period (PTTP) is a limited window for taking that money out without paying tax on it again.

The PTTP begins the day after the corporation’s last day as an S corporation and ends on the later of one year after that date or the extended due date for filing the final S corporation return.⁸ For a calendar-year corporation revoking effective January 1, 2026, the PTTP runs through at least January 1, 2027, and possibly through September 15, 2027, if the final S return goes on extension.

During that window, cash distributions reduce the shareholder’s stock basis to the extent they don’t exceed the remaining AAA balance, and they aren’t taxed as dividends.⁹ Once the PTTP closes, whatever’s left in the AAA loses its special character and becomes ordinary C corporation retained earnings. From that point forward, distributions come out as taxable dividends to the extent of the corporation’s earnings and profits.

Two limits apply during the window. Only cash distributions qualify; property distributions don’t get the same treatment. And a distribution can’t take a shareholder’s stock basis below zero, so the tax-free amount is capped at whichever is smaller: the AAA balance or the shareholder’s stock basis. Mark the PTTP end date on your calendar the day you file the revocation.

What Happens to Suspended Losses

If you had S corporation losses you couldn’t deduct because your stock or debt basis was too low, those losses don’t disappear at revocation. The tax code treats suspended losses as incurred by the shareholder on the last day of the PTTP.¹⁰ You have the same PTTP window to use them.

The catch is that suspended losses are deductible only up to your stock basis at the close of the PTTP, and only against stock basis, not debt basis.¹⁰ Anything the basis can’t absorb by the end of the window is lost permanently. Shareholders can contribute capital before the PTTP expires to increase stock basis and absorb more loss, but the window itself doesn’t extend.

The Five-Year Lockout on Re-Electing

A corporation that revokes its S election generally cannot re-elect for any tax year before the fifth tax year beginning after the first year the revocation was effective.³ A revocation effective January 1, 2026, means the earliest you can be an S corporation again is 2031. Re-election uses the same Form 2553 as the original election.¹¹

The IRS can waive the five-year wait. The statute says only “unless the Secretary consents” and doesn’t list qualifying circumstances.³ In practice, consent is more likely when ownership has changed substantially since the revocation, or when the original revocation was driven by circumstances outside the corporation’s control. Getting consent requires a private letter ruling request, with its own fees and processing time. Plan around the five years.

Before re-electing, confirm the corporation still meets S corporation eligibility: no more than 100 shareholders, one class of stock, only eligible shareholders (individuals, certain trusts, and estates), and domestic incorporation.¹² If a disqualifying shareholder was what prompted the revocation in the first place, that same issue will block re-election unless it has been resolved.

1
Internal Revenue Service. Revoking a Subchapter S Election
2
Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed
3
Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination
4
Internal Revenue Service. Instructions for Form 1120-S
5
eCFR. 26 CFR 1.1362-3 – Treatment of S Termination Year
6
Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation
7
Internal Revenue Service. Revenue Procedure 2024-40
8
Office of the Law Revision Counsel. 26 USC 1377 – Definitions and Special Rule
9
Office of the Law Revision Counsel. 26 USC 1371 – Coordination With Subchapter C
10
Office of the Law Revision Counsel. 26 USC 1366 – Pass-thru of Items to Shareholders
11
Internal Revenue Service. About Form 2553, Election by a Small Business Corporation
12
Internal Revenue Service. S Corporations