S Corporation Income Taxation

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.

Deducting losses after an S corporation terminates

A special relief provision allows unused losses caused by a lack of basis to be deducted by an S corporation shareholder under certain conditions for one year (or more) during the S corporation’s post-termination transition period.

Impact of S corp. shareholder agreements in M&A transactions

Shareholders and their advisers should be prepared to verify the validity of the S election when the decision is made to begin marketing the company for sale.

Distribution by former S corporation is part dividend

The IRS ruled that a distribution to the sole shareholder of a C corporation was partly a recovery of the former S corporation’s accumulated adjustments account (AAA) and a taxable dividend for the remaining distribution.

Terminating an S election by revocation

Revoking an S election may be the best course in some cases, but timely filing and shareholder consent are required.

Nonresident alien as an indirect S corp. shareholder

The TCJA fundamentally relaxed the rules on S corporation ownership by allowing nonresident aliens to be potential current beneficiaries of ESBTs and, therefore, indirect corporation shareholders.

Current developments in S corporations

This update on recent developments in taxation relating to S corporations includes cases and rulings on eligible shareholders, electing small business trusts, inadvertent S election terminations, and other issues, as well as changes made by the TCJA.

IRS takes narrow view of aggregation under the at-risk rules

The IRS concluded that a taxpayer was not permitted to aggregate the S corporations with the partnership for the purpose of applying the at-risk rules of Sec. 465.

Economic benefits of life insurance premium payments are not includible in income

Economic benefits from an S corporation’s payment of a premium on a life insurance policy were not includible in the shareholder/employee’s income.

Capital contribution of reduced basis S corporation debt

The passthrough of S corporation losses to the extent of the shareholder’s basis in his or her stock and debt can be beneficial, but the resulting reduced basis debt may lead to taxable income on repayment of the debt.

Converting from an S corp. to a C corp.

This item discusses the many tax ramifications of converting.

Amended returns satisfy statement-of-inconsistency requirement

A taxpayer’s amended returns sufficiently apprised the IRS of inconsistencies between the amended returns and the returns filed by the bankruptcy trustee of his wholly owned S corporation.

Using R&D credits to reduce payroll taxes: An overlooked opportunity for startups

This article discusses who qualifies to take the credit, how to make the election, the calculation and allocation of the credit, and how to report it.

Filing a timely S election

Many factors must be considered when electing S status for a new corporation or converting an existing C corporation to ensure a timely election.

Changing from cash to accrual accounting after revoking an S election under TCJA

A terminated S corporation may remain a cash-basis taxpayer if its average gross receipts for the three previous tax periods are less than $25 million.

Loan guarantee does not increase S corp. shareholder’s debt basis

This item discusses how a back-to-back loan is a viable option for shareholders who want to increase their debt basis in an S corporation.

Shareholder cannot unilaterally change an S corp.’s election

Regulations explicitly require elections to be made by the corporation, and shareholders themselves cannot change these elections.

S corporation redemptions: Navigating Secs. 302 and 301

This discussion sheds light on these questions with an overview of the applications of Secs. 302 and 301 to S corporation redemptions.
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