S Corporation Income Taxation

S Corporation Tax Year Rules

The use of a fiscal year defers reporting of the S corporation’s passthrough income to the shareholders and facilitates year-end tax planning.

Final Sec. 1367 Regs. Address Open Account Debt Between S Corps. and Their Shareholders

Final regulations (T.D. 9428) amend the definition of open account debt, which may significantly affect when an S corporation shareholder recognizes gain on the repayment of such debt.

Allocating Passthrough Items to S Corporation Shareholders

Passthrough items from an S corporation are allocated on a per-share, per-day basis (Sec. 1377(a)(1)).

Guidance on S Corporation Life Insurance Premiums Raises Questions

The IRS recently issued long-awaited guidance on the treatment of life insurance premiums paid and life insurance proceeds received by an S corporation.

Current Developments in S Corporations (Part II)

This article discusses S corporation eligibility, elections, and termination issues, including guidance for changes made by the American Jobs Creation Act of 2004 and the Gulf Opportunity Zone Act of 2005 , significant issues related to second class of stock, and a notice that provides a simplified method to make an S election.

S Corporation Sale of Assets Followed by a Liquidation

This item focuses on the specific tax implications to the seller of the sale of an S corporation’s assets followed by a liquidation or a deemed asset sale followed by a liquidation.

Current Developments in S Corporations (Part I)

This two-part article discusses recent legislation, cases, rulings, regulations, and other developments in the S corporation area. Part I covers operational issues, including new guidance on the treatment of medical insurance premiums for wholly owned S corporations, new built-in gain developments, and the impact of charitable giving by S corporations on shareholders’ adjusted basis in stock.

S Corporation Shareholder Loans: A Cautionary Tale

A practitioner should take special care in advising clients on shareholder loans to an S corporation. Repayment of the loans by the corporation has the potential to generate unexpected taxable income to the shareholder.

Qualifying a Marital Deduction Trust as an Eligible S Shareholder

The marital deduction permits the estate of the spouse who dies first to claim an estate tax deduction for property passing to the surviving spouse if certain requirements are met.

F Reorg. of an S Corp. May Require a New EIN

Rev. Rul. 2008-18 posits two situations in which an S corporation becomes a QSub of a newly formed corporation that will qualify as an F reorganization. The ruling also provides new guidance on the proper employer identification number (EIN) to be used by the entities in each situation.

Compensation Issues for Self-Employed S Corp. Owners

This item discusses how reporting a higher wage can actually maximize long-term profits for the owner-employee of an S corporation.

IRS Offers Opportunity for 2% Shareholders of S Corp.

The IRS recently offered an opportunity for 2% shareholders of an S corporation to receive a deduction for health insurance premiums under Sec. 162(l).

Understanding the Tax Consequences of Liquidation to an S Shareholder

The shareholder consequences of a complete liquidation of an S corporation are governed by Secs. 331 and 1001. The dividend rules that otherwise apply to corporate distributions are not applicable to distributions in complete liquidation.

S Corporations’ Charitable Contributions of Appreciated Property and Shareholders’ Adjusted Basis in S Stock

PPA amended Sec. 1367(a)(2) to limit the reduction in a shareholder’s basis to the shareholder’s pro-rata share of the S corporation’s adjusted basis of the contributed property, not the FMV.

Prop. Regs. Reflect S Corporation Changes Made by AJCA and GO Zone Act

Proposed regulations provide guidance on S corporation family shareholder rules, the definitions of “powers of appointment” and “potential current beneficiaries” (PCBs) with regard to electing small business trusts (ESBTs), and the allowance of suspended losses to the spouse (or former spouse) of an S corporation shareholder.

Simplified Method Relief for Late S and Entity Classification Elections

The IRS provided an additional simplified method for certain eligible entities to request relief for late S elections and for late entity classification elections that were intended to be effective as of the intended effective date of the S election.

Preventing a Dissident Shareholder from Transferring Stock to Cause a Loss of S Status

When a corporation first elects S status, all shareholders of the corporation must consent to the election (Sec. 1362(a)(2)). However, once S status is in place, new shareholders, whether acquiring stock by purchase or gift, need not consent to the election, nor are they given the opportunity to consent.A voluntary

Current Developments in S Corporations (Part II)

This article covers S corporation operational issues.

QSubs Recognized as Separate Entities for Employment and Excise Taxes

Editor: Kevin F. Reilly, J.D., CPA The IRS has issued final regulations that treat qualified subchapter S subsidiaries (QSubs) and other disregarded entities (DEs) as separate entities for federal employment tax and certain excise tax purposes (TD 9356). Although the regulations are effective as of August 16, 2007, the employment

Modifying the Order of Distribution Rules for an S Corporation with AE&P

Editor: Joel E. Ackerman, CPA, MST A distribution from an S corporation is generally treated as made from the corporation’s accumulated adjustments account (AAA) tax free to the extent of a shareholder’s basis. It is then treated as taken from any remaining balance of AAA and is taxed at capital
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