Election, Termination & Conversion
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.
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.
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.
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.
To avoid the hobby
loss rules, with
their limitation on
an activity must be
engaged in for profit;
electing S status
can help a taxpayer
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.
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.
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 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.
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.
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.
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.
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.
Revoking an S election may be the best course in some cases, but timely filing and shareholder consent are required.
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.
The AICPA S Corporation Taxation Technical Resource Panel offers a summary of recent court decisions and IRS guidance.
IRS addressed whether an S corporation and its wholly owned subsidiary, a QSub, must prorate annual income following a midyear voluntary revocation of subchapter S election.
When an S election is made, requirements must be met to avoid an inadvertent termination of S status.
During the period of this S corporation tax update, some major changes that directly affect S corporations took place. This article also presents tax planning ideas for S corporations and their shareholders.
This article provides an annual update of recent IRS rulings, guidance, and other developments concerning S corporations. It discusses S corporation eligibility, elections, termination issues, second class of stock, and trusts owning S corporation stock.