Problems with S elections frequently cause them to be invalid when made or to terminate. This article discusses four of the most common ones and three revenue procedures that may enable S corporations to fix them without obtaining a costly letter ruling.
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Topics
Election, Termination & Conversion
Deemed liquidation on electing QSub status
An S corporation’s qualified Subchapter S subsidiary election for an existing corporation is a deemed tax-free liquidation under Secs. 332 and 337 if certain requirements are met.
Choice-of-entity analysis with the TCJA sunset approaching
Educators as well as practitioners can model the tax effects of choice of entity and possible scenarios of tax law change.
Structuring stock dispositions to prevent S election termination
An S election can be at risk of termination by a shareholder’s disqualifying transfer of stock, but several safeguards are available.
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.
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.
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.
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.
Minimizing a hobby loss issue by electing S status
To avoid the hobby
loss rules, with
their limitation on
deductible expenses,
an activity must be
engaged in for profit;
electing S status
can help a taxpayer
establish profit
motive.
Current developments in S corporations
This update on recent developments in taxation relating to S corporations includes cases and rulings on eligible terminated S corporations, S corporation income and losses, the one-class-of-stock requirement, and other issues.
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.
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.
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.
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.
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.
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.
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.
Current developments in S corporations
The AICPA S Corporation Taxation Technical Resource Panel offers a summary of recent court decisions and IRS guidance.
employee benefits & pensions
Profits interests: The most tax-efficient equity grant to employees
By granting them a profits interest, entities taxed as partnerships can reward employees with equity. Mistakes, however, could cause challenges from taxing authorities.
