S Corporation: Eligibility and Election

Question 1

IRS consent generally is required for another election by the corporation on IRS Form 2553 (Election by a Small Business Corporation)

Answer 1

for any tax year before the fifth tax year after the first tax year in which the termination took effect. See IRC Section 1362(g) for more details

Question 2

what would cause an S corporation’s status to be terminated?

Answer 2

Having more than 100 shareholders

transferring stock to a C corporation, a partnership, or a nonresident alien

creating a second class of stock

Having passive income of 25% of its gross receipts

Question 3

The American Jobs Creation Act of 2004

Answer 3

increased the maximum number of shareholders from 75 to 100 along with providing that a family may elect for all family members to be treated as one shareholder (IRC Section 1361(c)(1)) effective for tax years beginning after December 31, 2004

Question 4

The eligible shareholders

Answer 4

can only be individuals, estates, charitable organizations, and certain trusts

Question 5

An S corporation is allowed to have one class of stock that has two different voting rights. The rule for voluntarily revoking an S election

Answer 5

is more than 50% of the total number of shares of S corporation stock must voluntarily revoke the S election. This S corporation has a total of 50,000 shares of stock outstanding In order to revoke the S election, a minimum of 25,001 shares must voluntarily revoke the S election

Question 6

The consent to form an S corporation

Answer 6

must be given by all shareholders

Question 7

An election may be made by a small business corporation for any taxable year at any time during the taxable year

Answer 7

will be effective January 1 of the following year, or on or before the 15th day of the third month of the taxable year, which will be effective as of the first day of that year