Ch21IM - 377 Chapter 21 S Corporations SUMMARY OF CHAPTER...

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© 2009 CCH. All Rights Reserved. Chapter 21 377 Chapter 21 S Corporations SUMMARY OF CHAPTER The Subchapter S rules of the Internal Revenue Code have undergone signi f cant changes since they were f rst introduced in 1958. Corporations qualifying under the rules basically have not been taxed except possibly on built-in capital gains and excessive passive income. However, originally the S corporation had signi f cant characteristics of both the corporation and the partnership. With the Subchapter S Revision Act of 1982, qualifying S corporations are now treated more like partnerships and have just a few corporate characteristics. The main revision instituted by the 1982 Act was that items of income, gain, expense, and loss now pass through to the shareholders while retaining the same characteristic as if received by the corporation. Prior to the change, only long- term capital gains could retain their status when passed through to the shareholders. Selecting the Subchapter S Form ¶21,001 Introduction In an S corporation, the corporation in general will pay no tax, whereas the shareholders must include in gross income their proportionate share of corporate income whether or not the corporate earnings are distributed to them. The S election affects only the federal income tax consequences of the electing corporation. ¶21,009 Eligibility To qualify as an S corporation, a corporation must be a small business corporation and meet the following requirements: (1) must be a domestic corporation, (2) must have no more than 100 shareholders, (3) must include only eligible shareholders, (4) must have only one class of stock, and (5) must not be an ineligible corporation. ¶21,077 Election S corporation status must be elected by all of the shareholders of the corporation. The corporation must meet all the eligibility requirements (including shareholder eligibility requirements) for the preelection portion of the tax year. ¶21,085 Contributions to the Corporation S corporations are under the same rules as a regular C corporation when it comes to contributions to the corporation being free from tax. The three requirements of Section 351 must be met. Boot received is income to the extent of the gain realized. ¶21,105 Tax Year of the Corporation The tax year of an S corporation is required to be either a year ending December 31, or any other tax year for which it established a business purpose to the satisfaction of the Internal Revenue Service. The S corporation that elects to use a tax year other than the required tax year must generally make a “required payment” for any tax year for which such an election is in effect. S Corporation Taxation ¶21,147 Introduction An S corporation is not subject to the corporate tax, except for a tax on built-in gains, a tax on excessive passive investment income, LIFO recapture tax, and a tax imposed on early disposition of property on which general business credit was claimed by the corporation when it was a C corporation.
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This note was uploaded on 01/16/2011 for the course MBA AC553 taught by Professor Johnson during the Summer '10 term at DeVry Arlington.

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Ch21IM - 377 Chapter 21 S Corporations SUMMARY OF CHAPTER...

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