Planning Considerations When Converting a C Corporation to an LLC

The Tax Adviser, Forthcoming

2 Pages Posted: 19 Dec 2013

See all articles by John Everett

John Everett

Virginia Commonwealth University (VCU) - Department of Accounting

William A. Raabe

University of Wisconsin - Whitewater - College of Business and Economics

Cherie Hennig

University of North Carolina (UNC) at Wilmington - Department of Accountancy and Business Law

Date Written: February 1, 2011

Abstract

The owners of a C corporation might consider a conversion to a passthrough entity as a means to retain the limited liability and transferability of ownership that the corporate entity provides, while avoiding the double taxation of corporate earnings. As a profitable corporation matures, it becomes more difficult to "zero out" corporate taxable income through shifting devices such as salaries, fringe benefits, and interest payments.

In the conversion of a C corporation to a limited liability company (LLC), the transaction is treated as a liquidation of the corporation, followed by a liquidating distribution of the net proceeds to the shareholders. The assets are then contributed to the new LLC.

After the conversion, the new LLC takes its assets with a fair market value basis. Other corporate tax attributes are eliminated. Operating results going forward, as well as the eventual liquidation of the LLC, are now single-taxation events.

Keywords: C Corporation, LLC, conversion, limited liability, self-employment, double taxation, goodwill

JEL Classification: E62, H21, H25, K34

Suggested Citation

Everett, John and Raabe, William A. and Hennig, Cherie, Planning Considerations When Converting a C Corporation to an LLC (February 1, 2011). The Tax Adviser, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2368860

John Everett

Virginia Commonwealth University (VCU) - Department of Accounting ( email )

Richmond, VA 23284
United States

William A. Raabe (Contact Author)

University of Wisconsin - Whitewater - College of Business and Economics ( email )

Whitewater, WI 53190
United States

HOME PAGE: http://billraabetax.com

Cherie Hennig

University of North Carolina (UNC) at Wilmington - Department of Accountancy and Business Law ( email )

601 S. College Road
Wilmington, NC 28403
United States

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