S Corporation Income Taxation

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.

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.
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