UCLAOLCT-class10-new - UCLA Online Taxation of Corporations Shareholders Class 10 Mark S Hoose Agenda Unit 10 1 2 S Corps Overview Review S Corps

UCLAOLCT-class10-new - UCLA Online Taxation of Corporations...

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UCLA Online Taxation of Corporations & Shareholders Class 10 © Mark S. Hoose
Agenda – Unit 10 1. S Corps – Overview & Review 2. S Corps - Details a. Corporate Treatment b. Coordination with Sub C c. Compensation Issue d. PS – Choice of Entity, Revisited
Overview – Passthrough Taxation 1.Types of entities under law: a)Corporation – (“per se”)b)Partnership (limited, general)c)LLPd)LLCe)Sole proprietorship - individuals 2.Taxpayers in our system:
Overview – Passthrough Taxation 1.These entities can elect to be “partnerships” or “DRE” or “corporations” for tax, under “CTB”: 2.Corporations (elective or per se) can then, if eligible, elect to be:
Subchapter S Corporations – Overview 1. Purpose – allow corporate form without double taxation (since 1958) 2. Provisions a) Sections 1361-1399 3. Treatment of the Entity: a) TI computed as in case of individual b) And then “passed through” to shareholders c) No entity level tax (with some exceptions) i. Sec. 1374 - Net recognized built-in gain ii. Sec. 1375 - Net excess passive investment income iii. These only apply if entity had a prior “C Corp” history
Subchapter S Corporations – Overview 3. Treatment of the Shareholders: a) Include pro rata share of income, deduction & credit, regardless of whether distributed b) Character determined at corp. level & passes through c) Restrictions on losses – limited to basis (1366(d)) d) Distributions are tax-free if no “pre-S” E&P e) Basis Adjustments i. Basis goes up for share of corporate income ii. Basis goes down for share of corporate expenses 4. Coordination with Sub C a) General rules of Sub C (e.g., sec. 351) apply to an S Corp, unless inconsistent with specific Sub S provision
Subchapter S Corporations – Overview of Topics 1. Eligibility – small biz corporation 2. Election & Consequences 3. Shareholder treatment - passthrough: 1. Basic rules 2. Loss limitations – 1366(d) 3. Sale of stock 4. Distributions – tax-free 5. Corporation treatment – tax-free 6. Coordination with Sub C rules 7. Compensation issues (Newt, Johnny E.) 8. PS Form compared – choice of entity revisited
S Corporations - Eligibility Sec. 1361(b) - requirements to qualify as a Subchapter S corporation - generally: 1. Be a domestic corporation 2. Have no more than 100 shareholders (family= 1 shareholder for this purpose) 3. Shareholders must be individuals, estates, and certain trusts (NO C Corps!) 4. No nonresident alien shareholders 5. Have only one class of stock outstanding
S Corporations - Eligibility
Examples 1.

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