S CORP TAX

Question 1

How does a corp get elected for S Corp status?

Answer 1

Unanimously by the shareholders by March 15 of taxable year

If it terminates it must wait 5 years before it can re-elect

Question 2

Requirements under S Corp status

Answer 2

• Less than 100 shareholders
• Husband/Wives are treated as 1
• Shareholders can only be individuals, estates and trusts
• Cannot be a nonresident alien
• Can only have 1 class of stock
• Banks and insurance companies are not eligible

Question 3

How is an S Corp terminated

Answer 3

50% or more is revoked

Can be a mix of voting and non-voting stock

Question 4

S Corp elements of shareholders

Answer 4

• shareholders are not liable for debt
• can be employees
• flow through entity

Question 5

S Corp loss limitations

Answer 5

flow through to the shareholder to the extent of their stock/loan basis

loan basis - when shareholder loans funds directly to the s corp

disallowed losses can be carried forward indefinitely

Question 6

What makes up basis in S Corp Stock?

Answer 6

Initial Basis
\+ Stock Purchased
\+ Taxable & Tax-exempt income
- deductible/non-deductible expenses
AAA Distributions

Question 7

Fringe Benefit Shareholders

Answer 7

Own more than 2% of stock are treated as partners for fringe benefit purposes. Payment must be included in income.

• employer paid premiums to health/accident plans
• group term life insurance employer paid up to 50k
• meals & lodging

Question 8

What happens if a C Corp elects S Corp Status and has unrealized built-in gains as of the election day

Answer 8

Must pay built-in gains tax on the appreciation if it is recognized within the next 5 years

Question 9

Distributions with E&P

Answer 9

If distribute with E&P, tax in following order:

1. Tax-free to the extent of AAA
2. Ordinary dividend to the extent of AE&P
3. Tax-free to the extent of basis in stock
4. Excess is treated as a capital gain

Question 10

Distribution if no E&P

Answer 10

1. Tax-free to the extent of basis in stock

2. Excess is capital gain

Question 11

AAA

Answer 11

Accumulated Adjustments Account

Amount of E&P that has not been distributed

Tax-exempt income and nondeductibles related to tax-exempt income are excluded