Certain events can cause the corporation to cease qualifying as an S corporation. Transferring stock in the S corporation to a corporation, partnership, an ineligible trust, or a nonresident alien. Creating a second class of stock Acquiring a subsidiary, other than certain non-operating subsidiaries. By violating the passive investment income restrictions. It has pre- S corporation earnings and profits at the end of each tax year.
Terminations are generally effective on the date of the termination event.
If a corporation's status as an S corporation has been terminated, it must wait 5 years before it can again become an S corporation. If it gets the permission of the IRS, the waiting period may be less than 5 years.