Involuntary termination of a C corporation that is closely held often results in what outcome?

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When a closely held C corporation’s status ends unexpectedly, the typical consequence is to shift to S corporation status and pass through income to shareholders. In this setup, the entity itself isn’t taxed at the corporate level; instead, the corporation’s income, deductions, and credits flow through to the shareholders, who report them on their own tax returns. This is especially common for small, closely held businesses that want to avoid double taxation on corporate profits.

So the result is an S corporation with the shareholders taxed on their share of the income. The other options don’t fit this pattern: dissolving would terminate the entity, reorganization into a partnership is not the usual involuntary outcome for a company in this situation, and claiming no tax effects ignores the pass-through taxation that follows an S election.