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.
S Corporation Income Taxation
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 from an S corporation’s payment of a premium on a life insurance policy were not includible in the shareholder/employee’s income.
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.
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.
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.
This item discusses the many tax ramifications of converting.
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.
Many factors must be considered when electing S status for a new corporation or converting an existing C corporation to ensure a timely election.
Regulations explicitly require elections to be made by the corporation, and shareholders themselves cannot change these elections.
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.
This discussion sheds light on these questions with an overview of the applications of Secs. 302 and 301 to S corporation redemptions.
An S corporation shareholder cannot unilaterally change an S corporation’s tax election in order to claim FICA tip credits.
The benefit of a state income tax credit, if it is earned in a state where the owner is not resident, is often lost.
In the typical closely held business context, the TCJA’s reduction of corporate tax rates to a flat 21% is far from a panacea.
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.
The IRS announced that S corporations are subject to the new extended three-year holding period applicable to carried interests.
The new deduction allows certain business owners to keep pace with the significant corporate tax cut provided by the Tax Cuts and Jobs Act.
Loans among related entities were not bona fide indebtedness that would give rise to debt basis in an S corporation for the shareholder.
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.