S corporations offer the same legal protection to owners as C corporations.
The S corporation rules are less complex for S corporations that have earnings and profits from prior C
corporation years than for S corporations that do not have earnings and profits from prior C corporation
The same exact requirements for forming and contributing property govern S corporations and
S corporations may have no more than 50 shareholders, but members of the same family only count as
Differences in voting powers are permissible across shares of S corporation stock as long as the shares
have identical distribution and liquidation rights.
Publicly traded corporations cannot be treated as S corporations.
To make an S election effective as of the beginning of the current year, an S corporation must file Form
2553 within 3½ months after the beginning of the year.
Bobby T (95% owner) would like to elect S corporation status for DJ, Inc. Dallas (5% owner) does not
want to elect S corporation status. Bobby T cannot elect S status for DJ, Inc. without Dallas' consent.
An S corporation may be voluntarily or involuntarily terminated.
10. An S corporation can make a
of an S election if shareholders holding more than 25
percent of the S corporation stock (including nonvoting shares) agree.
11. Bobby T (75% owner) would like to terminate the S corporation status for DJ, Inc. Dallas (5% owner)
does not want to terminate the S corporation status. Bobby T can terminate the S status for DJ, Inc.
without Dallas' consent.
12. An S election is terminated if the S corporation has passive investment income in excess of 20 percent of
gross receipts for three consecutive years.
13. If an S corporation never operated as a C corporation, it may earn passive investment income without fear
of an involuntary S election termination.
14. If an S corporation shareholder sells her stock to a nonresident alien, it will automatically terminate the S
15. The specific identification method is a method an S corporation may use to allocate its income across
short tax years that result from an involuntary S election termination.
16. The specific identification method and monthly allocation method are methods an S corporation may use
to allocate its income across short tax years that result from an involuntary S election termination.
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