S corporation status can be terminated either voluntarily or involuntarily.
* Involuntarily: An "S" corporation status is involuntarily terminated if any event occurs that would prohibit the corporation from making the election in the first place that is a "disqualifying event". For examples disqualifying event would include having more than 75 shareholders, a shareholder that is other than an individual, estate, or trust, or a shareholder who is a non-resident alien. Generally, the election is automatically terminated as of the date on which the disqualifying event occurs. However, if a corporation has both accumulated earnings and profits as well as passive investment income that exceeds 25 percent of the corporation's gross receipts for three consecutive years, the corporation election will be terminated beginning with the following tax year.
* Voluntarily: An S corporation election may be voluntarily revoked with the consent of shareholders holding more than 50 percent of the outstanding shares of stock (voting and nonvoting) on the day the revocation is made.
