IRS Rejection of an Election to be taxed as a C Corp?

[Rachel Kennerly]

I have a client in the cannabis space who formed an LLC. IN order to lock the tax liability into the LLC I had planned on filing an election to be taxed as a C Corp. Client gets a new attorney who has advised them to set up a entity that is an Inc. which will buy the LLC so that any tax liability would be locked in the C Corp. When I explained to the atty that we could accomplish that by filing the election to be taxed as a C corp so a new entity was not necessary, they responded by asking if there was a risk of the IRS reversing the election and forcing the taxpayer to be taxed as a pass through entity. I told them I’d never heard of that happening, but I wasn’t 100% sure that the IRS can’t do it.

Has anyone ever heard of a scenario like this happening??

I want my client’s personal assets to be protected from IRS collection if they are ever audited, but I also don’t want them to pay an atty for a new corporation when it’s not absolutely necessary.

Would appreciate some feedback if you have any experiences with that.

Thanks,

Rachel

[Eric Green]

I have never heard of them reversing an election like that. I can ask my partners, but usually they dont force people into being a pass through…

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