The funds also can be withdrawn from a C corporation
The C Corporation
was a holding company that held over 80% of the stock of five corporations engaged in retail auto sales through six dealerships.
1363(d) mandates recapture of the LIFO reserve on the conversion of a C corporation
to an S corporation.
The IRS outlined in Letter Ruling 9822012(32) the tax consequences when a C corporation
grants stock options and stock appreciation rights (SARs) to individuals employed by a partnership in which the Corporation and an S corporation are general partners.
Specifically, an eligible C corporation
could convert to S status and avoid gain recognition if corporate assets were retained for a 10-year period after the conversion date.
A calendar-year C corporation
(C) had been on the LIFO inventory method through 1993.
Additionally, if a C corporation
has an outstanding obligation that satisfies the definition of straight debt, but is considered equity under general principles of tax law, the obligation would not be treated as a second class of stock if the C corporation
converts to S status.
Does the answer depend on whether or not there is previously accumulated C corporation
earnings and profits?
Without such relief, C corporations
sponsoring ESOPs would effectively be prevented from maintaining a SESOP after converting to S status, because they would be required to make in-kind distributions of employer securities and could quickly violate the 75-shareholder requirement.