A conversion from S to an LLC can qualify as a tax-free reorganization under § 368-(a)(1)(F). In a Letter Ruling the basis and holding periods of the assets in new LLC are the same as in the prior Sub S. The S Corp status did not terminate as a result of the reorg since new LLC retained its S corp election and continued to meet S corp requirements per § 1361 (Ltr Rule 200528021).
There will be issues if the ownership as a result of this re-org changes. Same owners, same percentages should not be a problem.
There is more information about LLC’s and Sub S Corps on our website www.USATaxHelp.com
I have a client who owns 25% stock in an S Corp. Corp owns a parcel of appreciated real property. If S Corp files article of conversion to become an LLC and the LLC elects to be taxed as S Corp, does the old S Corp have to recognized gain on the real estate?