S Corps Flashcards
List the requirements for an S Corporation status.
Nonresident aliens, partnerships, and most trusts cannot be shareholders; Only one class of stock is outstanding (voting and nonvoting is OK).
What rules apply for the contribution of property to an S Corporation?
Control club (80%) rules apply (corporation rules.)
What circumstances may cause a termination of S Corporation status?
Majority vote of all shares;
Violation of an eligibility requirement;
Violation on limit of passive investment income for three consecutive years.
After termination of an S Corporation, when may a company make a re-election for S Corporation status?
Cannot be re-elected without IRS permission for 5 years after termination.
List the types of trusts that can be stockholders in a corporation.
Estates;
Grantor trusts where grantor is alive;
Testamentary trusts within 2 years after death;
Special stock voting trusts (all beneficiaries are shareholders);
Qualified S trusts (all beneficiaries are shareholders);
Small business electing trusts;
Exempt entities.
List the characteristics of an S Corporation.
Shareholders not liable for debt;
Shares freely transferred;
Shareholders can be employees;
Flow-through taxation.
What corporations are ineligible for S Corporation status?
Most subsidiaries;
Financial Institutions;
Domestic International Sales Corporations (DISCs);
Foreign corporations.
What must occur for an S Corporation status to be elected?
Must be unanimous.
List some characteristics of an S Corporation’s corporate tax.
Not entitled to some corporate deductions (i.e., Dividends Received Deduction);
Do not pay alternative minimum tax;
Do not pay personal holding company tax;
Do not pay accumulated earnings tax.
How are losses and gains recognized for corporate taxes on property distribution?
Corporation generates gains by distribution of appreciated property;
Gain is passed through to shareholders. Losses are not recognized.
What items increase a stockholder’s basis in an S Corporation?
Additional contributions;
Share of corporate and exempt income.
What items decrease a stockholder’s basis in an S Corporation?
Distributions from accumulated adjustments accounts;
Share of nondeductible expenses and corporate loss.
What options does an S Corporation have for taxable years?
Calendar year is default;
May use fiscal if used by more than 50% of shareholders;
Can elect a fiscal year with IRS permission if business reason.
What tax effects do shareholder-employees of a corporation need to consider?
Imposed on greater than 2% shareholders on any day during year;
Fringe benefits are included in income. Accident and health premiums are included as fringe benefits.
What forms are used to report S Corporation income?
Report taxable income on Form 1120S;
Report separately-stated items for each shareholder on schedule K-1.
List the four loss limits on S Corporation shareholders.
Adjusted basis of stock;
Adjusted basis of loans to corporation once stock basis exhausted;
May only deduct losses to extent at risk;
Passive loss limits.
What is the tax rate that is applied to built-in gains income?
Highest statutory corporate income tax rate.
What does the accumulated adjustment account include?
Includes all income and expenses of S corporation except for tax-exempt income and related expenses.
How are shareholder gains on distributions calculated?
Cash + Value of Property Received - adjusted basis of stock
What effect does an S Corporation distribution have on earnings and profits?
Dividend income to extent of earnings and profits;
Reduces basis in stock; no income;
Any excess is capital gain.
What is the income effect on an S corporation of the distribution of property?
Gains are recognized for appreciated property; losses are not recognized.
