Converting a C corporation to an S corporation usually doesn't carry forward any net operating losses (NOLs) from their C corporation years for use in the S corporation.

Here’s why:

• The entity determines whether C corporation losses can be deducted at the corporate level.
• Choosing S corporation status results in a pass-through structure where income and losses are directly passed on to shareholders.
• Future S corporation income cannot be offset by C corporation losses since they cannot be passed on to shareholders.

Nonetheless, there are certain exceptions:

• If the S corporation sells assets that had gained appreciation during the C corporation years, some prior losses in the C corporation may make up for the built-in gain tax.
• The capital loss carryforward from C corporation years is kept at the corporation level and can only be utilized to offset future capital gains of the corporation.
• Some businesses use tax strategy planning to strategically structure conversions and take advantage of tax benefits while transitioning.