Shareholders: Transition from C-Corp to S-Corp

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Have a client who's CPA is recommending they change from C-Corp to S-Corp and do it through some sort of "late filing" process. The question is how to handle the Cafeteria Plan in the current plan year.

My gut feeling is that more than 2% shareholders will have to terminate their elections immediately as they will be S-Corp ineligible for at least one day out of the plan year. But does this necessarily have to be the case? Via a "late filing" process, can they look like a C-Corp for the rest of the plan year and maintain their elections intact? Is immediate termination of elections for more than 2% shareholders the proper way to handle this?

Thanks

[Guest sniffles]

Have a client who's CPA is recommending they change from C-Corp to S-Corp and do it through some sort of "late filing" process. The question is how to handle the Cafeteria Plan in the current plan year.

My gut feeling is that more than 2% shareholders will have to terminate their elections immediately as they will be S-Corp ineligible for at least one day out of the plan year. But does this necessarily have to be the case? Via a "late filing" process, can they look like a C-Corp for the rest of the plan year and maintain their elections intact? Is immediate termination of elections for more than 2% shareholders the proper way to handle this?

Thanks

We changed from a C-Corp to an S-Corp and we went back in before the end of the year and backed out the 2% shareholder's health insurance amounts and ran them thru as taxable. They can still be in the plan, just have to be taxable to the shareholder thru payroll.