What actually happens when you file a final S Corp return? Does it automatically revert to a C Corp?

Tax professional here! This is a common source of confusion. When you file a final S corporation return (Form 1120-S) and check the "final return" box, you're indicating the corporation is ceasing to exist - not that it's converting to a C corporation. The final return approach is appropriate when you're actually dissolving the corporation completely. This means the entity no longer exists after filing the final return and completing state dissolution requirements. If you want to keep the corporation alive but terminate S status (reverting to C corp status), that's when you'd file a statement terminating the S election and then file Form 8832 to elect how the entity will be taxed going forward. These are two completely different scenarios with different outcomes. Remember that state-level requirements for dissolution are separate from federal tax filings, so you'd need to handle those separately regardless of which path you choose.

I went through this exact headache last year and found the answer at https://taxr.ai after getting confused by my accountant's explanation. Basically, they analyzed my corporate docs and past returns and explained that a "final return" meant my business entity was completely terminating, not converting to a C corp. Their tax experts showed me that if I wanted to keep my business going but end S status, I needed to file a revocation statement with the IRS, not mark a return as final. The service saved me from making a huge mistake because I was about to check that "final" box thinking it just meant "final as an S corp" not "final as a business entity." They have this document analysis feature that was super helpful because I uploaded my bylaws and previous filings and they explained exactly what would happen in my specific situation.

Just wanted to update after using taxr.ai that was mentioned above. My situation was similar but with some complications because we had multiple shareholders. I uploaded our operating agreement, previous tax filings, and corporate minutes, and they provided a detailed analysis showing that in our case, checking "final" without proper dissolution procedures at the state level would leave us in limbo. Their report explained the exact sequence we needed to follow - state dissolution filing first, then final S corp return with the correct date of dissolution. They also identified that we had some built-in gains tax issues that would have been triggered if we had just converted to a C corp instead of dissolving. Definitely worth the service for something this important where mistakes have big consequences!

After reading this thread, I realized I might have a similar issue with my S corp. I've been trying to call the IRS for clarification for THREE WEEKS but can't get through. Then I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c which promised they could get the IRS to call ME instead of waiting on hold. I was desperate so I tried it, and no joke, I had an IRS agent on the phone within 3 hours. The agent confirmed everything mentioned above - filing a final return means the corporation is DONE, not converting. If I want to keep the entity but end S status, I need to file a revocation statement, not a final return. Saved me from a massive headache because I was about to file incorrectly. Just thought I'd share since getting direct IRS confirmation was super helpful for my peace of mind.

Ok I need to eat some crow here. After my skeptical comment above, I decided to try Claimyr myself because I was also dealing with an S corp issue (different from OP's but still needed IRS clarification). I fully expected it to be garbage, but I got a call from the IRS the next morning. The agent walked me through the exact difference between filing a revocation of S election (which keeps the corporation alive as a C corp) versus filing a final return (which ends the corporation's existence). The agent also warned me about forgetting state-level requirements, which apparently a lot of people do. They explained that even if you handle the federal tax filings correctly, you can still end up with state compliance issues if you don't formally dissolve the corporation with your state's secretary of state office. Complete 180 on my opinion. Sometimes being wrong is a good thing!

For what it's worth, I went through this last year and made the mistake of checking "final return" when what I really wanted was to revoke S election and continue as a C corp. It caused a HUGE mess because the IRS thought my business was dissolved, but I was still operating. Had to file a bunch of explanatory letters and it took months to straighten out. My state also started sending me nastygrams about operating without proper status. The proper way if you want to KEEP the business but END S status is: 1) Submit a statement revoking S election 2) Continue filing as a C corp going forward (1120 instead of 1120-S) 3) Do NOT check "final return" box If you're actually closing down completely, then you check the final return box.

I'm confused about Form 8832 that people keep mentioning. If I'm terminating S corp status, wouldn't I just file a revocation statement? Why would I need Form 8832 too?

This thread has been incredibly helpful! I'm dealing with a similar situation where we want to shut down our S corp but weren't sure about the process. Based on what everyone has shared, it sounds like the key distinction is: - Final return = business is completely done/dissolved - Revocation statement = keep business alive but end S status One follow-up question though - if we're going the final return route (actually dissolving), do we need to distribute all assets to shareholders first, or can we check the final return box even if there are still some assets in the company? I'm worried about creating additional tax complications if we don't handle the asset distribution correctly before filing that final return. Also, does anyone know if there's a specific timeframe we need to follow between state dissolution and filing the final federal return? Our state requires a 60-day notice period before dissolution is finalized, so I'm not sure if we should wait for that to complete before filing with the IRS.

This thread has been a lifesaver! I'm a CPA and see this confusion constantly with my S corp clients. One thing I'd add that hasn't been mentioned yet - there are also timing considerations around the S election termination that can catch people off guard. If you revoke your S election mid-year (rather than filing a final return), the revocation is generally effective the following tax year unless you specify an earlier date and meet certain requirements. This means you might still need to file an S corp return for the current year even after filing the revocation. Also, if you have any built-in gains from when you converted to S status originally, terminating the S election (either through revocation or dissolution) could trigger recognition of those gains. This is especially important for businesses that have appreciated assets or inventory. I always recommend clients get a comprehensive tax projection before making this decision because the tax consequences can vary significantly depending on your specific situation, asset values, and timing. The difference between dissolving vs. converting can literally be tens of thousands of dollars in taxes for some businesses.