Taxes: Eligibility, Election, and Termination Flashcards
Taxes:
Eligibility, Election, and Termination
Legal Status
Legal Status
- S election can only be made by a corporation
- shareholders not liable for corp debt
- shares are freely transferable
- shareholders can be employees
Taxes:
Eligibility, Election, and Termination
Tax Characteristics
Tax Characteristics
- S shareholders taxed on portion of income/loss regardless of distributions
- no corp AMT, PHC, or Accumulated Earnings
- adj basis of stock adjusted at year end
- shareholder gain when value of distributions > adjusted basis of stock
- not considered employee if own 2%+ shares
Taxes:
Eligibility, Election, and Termination
Default to Corporation Rules
Default to Corporation Rules
- same “control club”
- can deduct organizational expenditures
- distributions of property take an outside basis (FMV)
- distributions of built-in gain/loss have no effect
- distribution of appreciated property cause gain at corporate level
- no earnings and profits calculation
Taxes:
Eligibility, Election, and Termination
Eligibility
Eligibility
Entity
- cannot be foreign
- certain members of affiliated groups not eligible
- S corp may own 80%+ of C corp
- S corp may own a qualified S corp Subsidiary
Shareholders
- not eligible: nonresident aliens, C Corp, Partnerships
- Estates or trusts can be shareholders
Limit
- no more than 100 shareholders
- all members of family and their estates = 1
- each beneficiary of shareholding trust = 1
- coowners of stock = 1
Stock
- only one class of stock
Taxes:
Eligibility, Election, and Termination
Election
Election
- unanimous consent
- on or before 15th day of 3rd month after commencing
Taxes:
Eligibility, Election, and Termination
Termination
Termination
- voluntary termination by majority vote by 15th day of 3rd month
- involuntary effective on date of violation
- passive investment income > 25% gross reciepts for 3 years
