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.
Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal