S Corporation Income Taxation

Current developments in S corporations

This annual update covers recent developments relating to S corporations, including new IRS relief for common inadvertent S election lapses; state passthrough entity taxes; and court holdings concerning S corporations’ constructive distributions and passive versus nonpassive activities.

Stock repurchase excise tax reporting and payment delayed by IRS

The IRS says covered corporations will not have to report or pay the new 1% stock repurchase excise tax until it issues forthcoming regulations.

Penalty for underpayment of estimated corporate AMT waived for 2023

The IRS waived the penalty for corporations that did not make estimated payments of corporate AMT for their 2023 tax year, saying the move is “in the interest of sound tax administration.”

Interaction of S shareholders’ loss limitations

Shareholder basis and other applicable loss limitations must be applied in a specified order, with differing rules.

PTE deduction: Timing issues for accrual-method taxpayers

taxpayers and practitioners face uncertainty regarding the timing of the deduction provided for in Notice 2020-75.

IRS provides guidance on perfecting S elections and QSub elections

The guidance focuses on nonidentical governing provisions; principal-purpose determinations regarding the one-class-of-stock requirement; disproportionate distributions; certain errors on forms; missing administrative or acceptance letters for an S or QSub election; and the requirement to file returns consistent with an S election.

The ‘one class of stock’ requirement: An interesting letter ruling

While it might stand to reason that if there is only one shareholder, then there can be only one class of stock, that is not necessarily what the Code and regulations provide.

Domestic filing exception requirements modified in draft Scheds. K-2, K-3

Revised draft instructions for partnership and S corporation Schedules K-2 and K-3 contain significant changes to the requirements to qualify for the domestic filing exception for filing and furnishing the 2022 schedules.

Inadvertent terminations of S and QSub elections

The IRS addressed a consolidated corporation’s request to apply Sec. 1362(f) to provide relief from termination of the corporation’s subsidiary’s S corporation and QSub elections.

Rolling over shares upon S corporation’s acquisition

This item discusses nonprorated S corporation rollovers and the unexpected tax consequences.

Questions to consider before electing into a PTE tax

Twenty-nine states have enacted a passthrough entity tax as a possible workaround to the federal state and local tax deduction cap.

State PTE elections: A big picture perspective

Practitioners may face a difficult analysis in helping their clients understand their possible PTE election opportunities.

Avoiding inadvertent termination of an S election

A number of disqualifying events can terminate a corporation’s S status, and not all of those events are listed in the statute or immediately obvious.

Current developments in S corporations

The AICPA S Corporation Taxation Technical Resource Panel summarizes recent developments.

Trusts as S corporation shareholders

Generally, a trust cannot hold stock of an S corporation; however, grantor trusts, testamentary trusts, voting trusts, ESBTs, and QSSTs are permissible S corporation shareholders (Sec. 1361(c)(2)).

Tax planning and considerations: S corporation targets

Approval of an S election by the IRS and/or a state jurisdiction does not mean that S corporation status remains safe and sound forever.

Trusts for holding S corporation interests: QSSTs vs. ESBTs

This article compares the relative advantages and disadvantages of a QSST versus an ESBT in estate planning.

Schedules K-2 and K-3 e-file capability postponed for S corporations

The IRS delays e-filing capability for schedules reporting S shareholders’ items of international tax relevance, earlier forecast for mid-June, to July 24.

More Schedule K-2 and K-3 FAQs posted

In eight new FAQs on its website, the IRS covers some special issues, including several that it says will be added to the forms’ instructions.

Making tax-free distributions to the extent of AAA

AAA and AE&P calculations are key to determining stock basis and, thus, the taxability of shareholder distributions.
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