S Corporations vs Partnerships pentastar2 Distribution of appreciated property

S corporations vs partnerships pentastar2

This preview shows page 5 - 10 out of 34 pages.

S Corporations vs. Partnerships pentastar2 Distribution of appreciated property causes recognition of gain to the corporation: (AR $300,000 – AB $200,000) = RG $100,000 pentastar2 The $100,000 gain flows 1/5 to each shareholder. Each shareholder must now pay income tax on $20,000 of gain. As a result, Shareholder A’s basis goes up from $290,000 to $310,000. pentastar2 The distribution of $300,000 worth of property causes Shareholder A’s basis in the stock to go down from $310,000 to $10,000.
Image of page 5
S Corporations — Tax Year and Accounting Method square6 An S corporation must generally use a calendar year end. However, in some cases it may elect a fiscal tax year. square6 The accrual, cash and hybrid methods are available regardless of the size of the S corporation. Chapter 16, Exhibit 2
Image of page 6
S Corporations—Tax Model Code Sec. 702(a)(8) Income . As with partnerships, items that are always subject to ordinary treatment are lumped together. Shareholders recognize income even if no cash is actually distributed. Separately Stated Items square6 Passive income and losses from rental and other non-operating activities square6 Investment income and related expenses (e.g., dividends, investment interest, ad valorem tax on stock, investment counseling fees, etc.) square6 Code Sec. 1231 gain and loss square6 Capital gains and losses square6 Dividends eligible for a dividends-received deduction square6 Charitable contributions square6 Taxes paid to a foreign country or to a U.S. possession square6 Code Sec. 179 deduction square6 Recovery items (e.g., tax refunds, recovery of bad debts) square6 Tax-exempt income and related expense square6 Tax credits square6 Deductions disallowed in computing S corporation income
Image of page 7
Corporations must elect “S Treatment.” To be eligible for such an election, the corporation must meet the following requirements: square6 Unanimous Consent. 100% of the shareholders must consent to the S election (however, 50% consent is sufficient to revoke the election). square6 Deadline For Filing S Election. If a calendar year C corporation makes an S election by March 15, it is retroactive to January 1 of the current year. If the S Corporations—Eligibility and Election election is made after March 15, it is effective January 1 of the next year. square6 One Class of Stock. Only one class of stock is permitted. square6 Maximum 100 Shareholders. The number of shareholders may not exceed 100. square6 A nonresident alien may not own shares. square6 Each shareholder must be an individual, an estate, or a qualified trust. square6 No partnerships or corporations may be shareholders square6 Related taxpayers can elect to be treated as one shareholder.
Image of page 8
S Corporation - Accounting square6 Oftentimes, a corporation makes an election to be treated as an S corporation after years in which it operated as a C corp. During those years, the corporation has often accrued Earnings and Profits, which it has not yet distributed to the shareholders. In these cases, we must preserve those Earnings and Profits after the S corporate election to ensure that distributions are taxed as dividends to the extent of E&P.
Image of page 9
Image of page 10

You've reached the end of your free preview.

Want to read all 34 pages?

  • Fall '14
  • fabioambrosio
  • Accounting, Corporation, Limited Liability Company, C CORPORATION

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes