Forbes: S Corp To Partnership Conversion Under Build Back Better (October 1, 2021)

Forbes has published an article, “S Corp To Partnership Conversion Under Build Back Better”, which discusses provisions of the Build Back Better Act such as the differing restrictions between S Corporations and Partnerships. The article begins as follows: 

One of the most exciting provisions of the Build Back Better Act, to me anyway, is the opportunity that it gives for a tax free conversion to partnership for some S corporations.  There may be some people who don’t find this exciting thinking that partnerships and S corporations are both flow-through, so it is six of one, half a dozen of the other.  But there are some big differences.  And this provision may be a big opportunity for some.

The way the opportunity is structured is to treat the liquidation of the S corporation into a domestic partnership as if it were the liquidation of a wholly owned subsidiary of a corporation into its parent (Section 332(b)). In order to be eligible the corporation must have been an S corporation on May 13, 1996.

Why May 13, 1996?  That was when the “check-the-box” regulations came out.  The regulations replaced a complex factor analysis that determined whether an entity could be taxed as a partnership.  Simplistically, the regulations allowed you to choose whether an entity that was not a corporation would be treated as a corporation or partnership (or a disregarded entity if there were not multiple owners).  Essentially, the pre-reg  entities are getting a chance to check the box.

Click here to see the full article: “S Corp To Partnership Conversion”

Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal

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