When consulting on S corporation asset sales or sales treated as asset sales from a tax perspective, tax practitioners need to be aware that different tax consequences than expected can sometimes result under the installment sale rules of Sec. 453.
S Corporation Income Taxation
Final regulations were issued on S corporation shareholder basis of indebtedness of the S corporation to the shareholder only if the indebtedness is bona fide and on the deductibility of startup expenditures and organizational expenses for partnerships following a termination of a partnership.
One of the more significant changes to the tax landscape in recent years is the new 3.8% tax on net investment income under Sec. 1411. This tax, which was further clarified in recently finalized regulations, will affect many entities and taxpayers including S corporations and their shareholders. This discussion outlines noteworthy aspects of these rules pertaining to S corporations and their owners.
Final regulations under Sec. 336(e) provide special rules for S corporations and their shareholders to make an election to treat a sale or disposition, including a distribution of control of a corporation’s stock of a qualified subsidiary, as a disposition of all the subsidiary’s assets.
This article covers the taxability of distributions from an S corporation with accumulated E&P and ancillary issues and planning opportunities.
When information disclosing income that should have been included in the taxpayer’s return is provided to the IRS after the return is filed, that information is not considered to be disclosed on the return.
This two-part article provides a comprehensive review of the rules for determining the taxability of an S corporation’s distributions to its recipient shareholders. Part I provides an overview of the intent of Sec. 1368 and the related regulations, the shareholder- and corporate-level attributes that drive a distribution’s taxability, and the rules for determining the tax consequences of distributions made from an S corporation without accumulated earnings and profits.
In some situations, business owners have state-law reasons for wanting their business to be formed as a limited liability company, but for tax purposes they would prefer S corporation (rather than partnership) tax treatment.
ATRA extended the five-year recognition period for the BIG tax to 2012 and 2013 and also changed the BIG tax treatment of installment sales and carryovers of built-in gain not taxed in the year recognized because of the taxable income limitation.
Two recent Tax Court opinions focusing on reasonable compensation for S corporation shareholder-employees provide important takeaways for owners and practitioners by addressing common issues surrounding distributions and loan repayments in the context of reasonable compensation.
The IRS ruled that S corporation members of a controlled group may use the Sec. 179 election up to the maximum election amount as if they were separate entities, and are not subject to the controlled group’s overall limit.
The exclusion of S corporations from component membership in controlled groups of corporations multiplies the planning opportunities for businesses under common control but calls for vigilance by tax professionals to use this deduction wisely.
This article discusses major changes and developments that directly affect S corporations and their tax advisers during the period of this update (July 10, 2012–July 9, 2013).
A taxpayer’s basis is often scrutinized by the IRS, particularly when basis is claimed based upon debts incurred by a flowthrough entity.
The IRS recently released an information letter to clarify the treatment of the Sec. 179 limitations applied to members of a controlled group, in which certain members had made an election to be treated as an S corporation.
Chief Counsel Disregards Indemnification Agreements Under Anti-Abuse Rules in Transactions That Result in Disguised Sales
The Office of Chief Counsel advised that an indemnification agreement should be disregarded and, accordingly, the underlying partner contribution and distribution should be treated as a disguised sale.
The IRS provided a simplified method for taxpayers to apply for relief for various late S elections
An S corporation’s revocation of its S corporation status, which caused its QSub subsidiary to lose its status as a QSub, was not a post-bankruptcy-petition transfer of property of the QSub’s bankruptcy estate.
The Tax Court held that shareholders of an S corporation improperly increased the adjusted basis of their S corporation stock when the S corporation made a QSub election for its wholly owned C corporation subsidiary.
While an analysis of the tax consequences of a redemption to the shareholder usually begins with whether the transaction qualifies for sale or exchange treatment, another starting point is whether the S corporation has accumulated earnings and profits.