S Corporation Income Taxation

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.

Potential pitfalls of state income tax incentives for passthroughs

The benefit of a state income tax credit, if it is earned in a state where the owner is not resident, is often lost.

S corporation shareholder cannot take FICA tip credit

An S corporation shareholder cannot unilaterally change an S corporation’s tax election in order to claim FICA tip credits.

Another look at C corp. vs. S corp. in light of tax reform

In the typical closely held business context, the TCJA’s reduction of corporate tax rates to a flat 21% is far from a panacea.

Sec. 336(e) elections for S corp. targets: Get a step-up without a letter ruling

Individuals, partnerships, or other noncorporate entities that could not benefit from a Sec. 338(h)(10) election may be able to qualify for a Sec. 336(e) election.

3-year holding period applies to S corporations

The IRS announced that S corporations are subject to the new extended three-year holding period applicable to carried interests.

Converting from S corp. to C corp.: Select issues for consideration

As a result of tax reform, which provides for a significant decrease in the corporate tax rate and a more modest decrease in passthrough tax rates, business owners may consider revoking S corporation elections.

Understanding the new Sec. 199A business income deduction

The new deduction allows certain business owners to keep pace with the significant corporate tax cut provided by the Tax Cuts and Jobs Act.

Intercompany transactions do not increase debt basis in S corporation

Loans among related entities were not bona fide indebtedness that would give rise to debt basis in an S corporation for the shareholder.

Longer carried interest holding period includes S corporations

The IRS announced that the new three-year holding period for carried interests applies to S corporations as well as partnerships.

Dispute between shareholders did not strip taxpayers of beneficial rights of ownership

The Tax Court held that the taxpayers’ poor relations with other shareholders of an S corporation did not affect their ownership interest in the corporation.

Tax Court holds microcaptive insurance company was not a bona fide insurer

Tax Court held that amounts passthrough business entities paid to a purported insurance company they owned were not premiums paid for insurance contracts and not deductible.

Items and factors to consider in setting reasonable compensation

All companies should maintain supporting documentation for payments.

IRS will not acquiesce to ruling on non-safe-harbor reverse Sec. 1031 exchange

IRS announced it will not acquiesce to a Tax Court ruling in which it held that a taxpayer’s disposition and acquisition of property was not a self-exchange and qualified for Sec. 1031 nonrecognition treatment.

Lack of economic substance dooms loss deductions

A taxpayer was not entitled to a passthrough loss from the dissolution of an S corporation because the dissolution was part of a tax structure that did not have economic substance.
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