S Corp 1 - Eligibility, Elections, Terminations Flashcards
Which entity can make S corp?
Only corporations.
Does a corporation retains its legal corporate status after electing S corp status or must forfeit?
Retains.
What is the only difference between C and S Corp?
Federal income tax laws.
Single taxation.
Reported on Form 1120S.
Income flow through on K-1.
What are characteristics of S Corp: re: transfer of shares? Shareholder liability? Ownership and management?
Shares can be freely transferred.
Shareholders are not liable for corporate debt.
Shareholders can be employees.
What is the default rules for S Corp?
Regular corporation rules, not partnership rules.
What are 3 rules that are different from regular corporation rules for S Corp?
Flow through rules, year-end rules, and basis rules.
Eligibility: how many shareholders? Are husband and wife treated as 2 shareholders or one? Individuals and estates? Family members?
No more than 100.
Husband and wife: one shareholder.
Individuals and estates: one.
A family may elect that all family members be treated as one shareholder.
Eligibility: who can be shareholders?
Individuals, estates, and certain trusts (C corp and partnership can not be shareholders).
How many shareholder does 80% of S Corp have?
Only one.
Eligibility: is non-resident aliens eligible to be a shareholder?
No.
How many classes of stock can S Corp have? Can it have voting and nonvoting stock? Common and Preferred stock?
Only one class of stock.
Voting and nonvoting: Ok.
Common and preferred: No (no preferential benefits allowed).
What are certain companies that are not eligible to make S selection?
Banks and insurance companies.
When must a corporation file the S Corp election to be effective for the current year? In the case, when would be the earliest date the corp will be recognized as S corp? What if the corp made the election after this time requirement?
On or before the 15th day of the 3rd month of the taxable year.
Beginning of taxable year.
will be recognized as S Corp following taxable year.
What is the requirement in order to make S Corp election?
All individuals owning stock anytime during the taxable year must consent to the election.
Consent requirement: will a shareholder who no longer owns a stock at the time of selection need to sign the form?
Yes.
Can the corporation elect S status right back after termination?
No, must wait for 5 yrs.
How can termination of S status occur?
If shareholders owning more than 50% of voting and nonvoting stock select to revoke election.
If any eligibility requirements are violated.
Does S Corp have dividend?
No because there is only one level of taxation.
What are 2 criteria for S corp to be terminated re: passive investment income? When would S corp be terminated in this case?
- Passive investment income exceeds 25% of gross receipts for 3 consecutive taxable years.
- The S corp had accumulated earnings and profits.
As of the beginning of the fourth year.
Can S Corp be a partner in partnership, own stocks of C corp and other S corp?
Yes.
