S Corporation Income Taxation

Compensatory split-dollar life insurance benefits are compensation

Economic benefits from a compensatory split-dollar life insurance arrangement are not property distributions.

Where individual, corporate, and passthrough entity taxation meet

Passthrough owners must consider many risks and uncertainties, in addition to political trends on Capitol Hill, before opting into a state-level regime designed to bypass the $10,000 SALT deduction cap created by the TCJA.

Handling tax issues related to noncompete agreements

Covenants not to compete can protect a company’s interest as long as they are drafted in an appropriate manner, but their 15-year amortization period can cause issues.

Avoiding gain at the S shareholder level when a loan is repaid

When the basis in an S shareholder’s loan to the S corporation has been reduced by passthrough losses, repayment of the loan may be a taxable event.

AICPA asks for guidance on S corp. and partnership PPP loan forgiveness

In a letter dated March 15, the AICPA asked for IRS guidance on how S corporations and partnerships should treat tax-exempt income from PPP loan forgiveness, especially when it occurs during a different tax period.

Bridging the gap: GILTI and AAA

IRS Notice 2020-69 provided a new entity election that allows an S corporation to compute the deemed inclusions at the entity level, as opposed to at the shareholder level. This item provides background on the new election, illustrates its effects, and highlights opportunities and traps to consider when contemplating the election.

IRS finalizes rules on eligible terminated S corporations

The IRS issued final regulations on ETSCs and distributions of money from those corporations after the post-termination transition period.

The built-in gains tax

The built-in gains tax applies to C corporations that make an S corporation election, and it can be assessed during the five-year period starting with the first tax year for which the S election is effective.

Taxpayer not a shareholder of not-for-profit corporation

The president and a director of a not-for-profit is not its beneficial owner and cannot be a shareholder of it.

Partnerships and S corps. can deduct state and local taxes

The IRS said it would issue proposed regulations allowing S corporations and partnerships to deduct “specified income tax payments” paid to state and local governments above the line and not as passthrough items for partners and shareholders.

Final regs. govern eligible terminated S corporation rules

The IRS finalized proposed regulations on eligible terminated S corporations, a new provision enacted under the Tax Cuts and Jobs Act that provided favorable treatment for corporations that wished to terminate their S elections.

Regulations coming on S corporations with accumulated E&P and GILTI

The IRS announced that it will issue regulations to allow S corporations with accumulated earnings and profits to elect to have global intangible low-taxed income inclusions increase the S corporation’s accumulated adjustments account.

Private equity and F reorganizations involving S corporations

The M&A market is poised to regain its pre-COVID-19 activity levels as many business owners seek to exit closely held businesses or explore alternatives. One popular transaction that could emerge is Sec. 368(a)(1)(F) reorganizations F reorganizations) of S corporations.

Making a new S election after termination

Generally, after a corporation has revoked or terminated an S election, it cannot make an S election for any tax year before its fifth tax year that begins after the first tax year for which the termination was effective, unless the IRS consents to the election.

State and local considerations in using an F reorganization to facilitate an acquisition

Foresight of the potential state tax implications of an F reorganization will allow a seller to evaluate the lesser-known hazards.

Current developments in S corporations

This annual update on S corporations covers cases, regulations, and IRS rulings that have been issued in the last year, including the rules for eligible terminated S corporations.

Electing S status by an LLC

A limited liability company can elect to be classified as a corporation and elect S status by following the procedures discussed here.

Liquidating an S corporation that is not subject to the BIG tax

Review how shareholders would be taxed on the gain from the sale of stock in an S corporation that is not affected by the built-in gains tax.

Payment of S corp.’s expenses by affiliated companies did not increase shareholder’s basis

A tax court recently found that where an S corp. and affiliated entities were partially owned by a taxpayer, payment of the S corp.’s expenses by the affiliated entities did not increase the taxpayer’s debt basis in the S corporation.

New rule on nonresident aliens in an S corporation

The TCJA provides a way to avoid the unexpected termination of the S election when certain ESBT situations occur.
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