Business diversification will always need to include some accounting for tax. Truly diversified companies will always consider the tax implications of their M&A activity and overall business strategy. C-corporations seeking a way to shelter more from the government, avoid taxes and further diversify should take a hard look at an S Status Conversion. In short, an S Status Conversion will allow the company to distribute earnings to small business owners free of the double-tax imposed on C Corporations.There are two major downsides to converting to S Corp status:1. The company will lose�the low tax rates imposed on income accumulations of up to $75K annually for C corporations.2. The newly converted S Corp will also lose the ability to offer tax-preferred employee benefits to company employees and shareholders.In many instances, however, these downsides are not large enough for the profitable C Corp who may need to properly diversify. There are a few offsets to the downsides.1. There is a 5% corporate tax "bubble" which occurs once businesses hit the $100K mark. In effect, this creates a standard 34% flat tax on all corporate earnings up to $10 million.2. Silent "golfer" owners will find little upside to tax-preferred employee benefits. At least, the benefits will generally not be enough to offset the diversification benefits of converting to an S Corp.�While there are a number of nuances and a few more considerations to take into effect when converting to an S Corp (like having <100 shareholders, one class of voting stock, etc.). However, there are a number of other conversion traps which need to be considered when swapping out your C Corp for an S Corp. Here are a few to consider.Post-conversion S Corp distributions in excess of S Corp earnings triggers a shareholder dividend tax to the extent of the C earnings and profits. This could put a threshold cap on distributions to ensure they do not exceed S Corp earnings. In the event of profitable C Corps which convert, this could prove problematic, especially if the C Corp had a great deal of cash or retained earnings on hand at the time of conversion.Accumulated C Corp earnings can also trigger a section 1375 tax trap wherein investment income on an S Corp is taxed at the highest corporate rate (35% as of today) in the event that net passive income (interest, dividends, rents, royalties, etc.) exceeds 25% of gross receipts. In this event, it is wise to monitor passive income from the S Corp to ensure it does not exceed the 25% threshold of gross receipts.Finally, an S Corp can be subject to the built-in-gain ("BIG") tax trap (or section 1374). This tax kicks in when the newly converted S Corp attempts to sell assets owned by the C Corp at the time of the conversion within 10 years of the conversion date. The BIG tax�is in addition to any tax triggered at the S-level on any gain from the asset sale and is imposed at the maximum corporate rate (35% as of today) on the lesser of:a. Built-in-gain at the time of converstion orb. The gain recognized on the sale of said assetsIn any event, careful consideration should be given to divesting assets after converting from a C Corp to an S Corp. In fact, conversion itself should be considered carefully as a strategy congruent with the business's short and long term goals and vision, including any potential future merger activity.