Rose Corporation is located in Baton Rouge, Louisiana. It is organized for Federal tax purposes as an S corporation; however, Louisiana does not recognize S corporation status. Therefore, for state legal ease and other valid business reasons, the owners, Liza, Lena, Marian, and Mae, would like to reorganize Rose as either a partnership or a limited liability company (LLC).
The owners' plan is to create a new entity consistent with state laws. Under the check-the box rules, the new entity would request to be treated as a corporation for Fedral tax purposes effective from the date of formation. Once the new entity is created, it will merge with Rose, meeting all state and Federal reorganization requirements. No new ownership interests will be available; thus, Liza, Lena, Marianm and Mae will be the only owners of the new entity and will continue their former ownership percentages and rights.Can Rose Corporation be converted into a Partnership or LLC with a tax-free reorganiztion? Does Rose Lose its S election for Federal tax purposes once the conversion is completed?