According to the IRS, it is seeing these conversions where the S corporation's primary business is property development or homebuilding.
Often the current fair market value of the property is lower than the outstanding liability associated with the property.
Tax Treatment of S Corporation Liquidations Under Code Sec.
1371, except as otherwise provided in the Code, and except to the extent inconsistent with subchapter S, the provisions relating to C corporations apply to an S corporation and its shareholders.
In addition to taking advantage of the lower rates for individuals, the pass-through entity eliminates double taxation associated with the payment of dividends from C corporations.
Although both S corporations and partnerships are now tax-favored entities, there are differences between the two.
There are subtle (and some not so subtle) differences between the two entities from a tax perspective as well.