Character of C Corporation Losses after S corporation conversion.
Unfortunately, the immediate impact of these losses is that they become suspended!
Yes, it sounds nasty, but it is true, these losses are not deductable nor do they pass through to the individual owners of an S Corporations through the K-1.
Perhaps, you made a hasty move to Convert to an S corporation w/o consideration of the impact of the NOL's. I have seen this time and again where folks are eager to convert to an S Corporation, but forget they have significant prior year losses that can be absorbed by the C corporation on being profitable.
The treatment of these losses is a very complicated subject, suffice to say these losses eventually raise the basis of the shareholder, and in event of sale of the company may help offset the capital gains.
Last edited by TaxGuru : 02-22-2007 at 05:49 PM.