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13 Cards in this Set
- Front
- Back
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Qualified Corporations |
- Domestic - Can own interest in C Corp but can not file a consolidated return |
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Shareholders |
- individual, estate, or trust - U.S. citizen - Not partnerships or corporations - No more than 100 shareholders - One class of stock (no preferred stock) but can have different voting rights |
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Electing S Corporation Status |
- All shareholders must consent to election - If before March 15, then retroactive to beginning of year - New shareholders do not have to consent after it is elected and 50% owners can choose to terminate the election |
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Effects of election on corporation |
- Required 12/31 year end - No tax on corporation - Taxes imposed on S Corps LIFO Recapture Tax Built in Gains Passive Income Tax |
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LIFO Recapture Tax |
Excess of inventory computed under FIFO over LIFO |
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Built In Gains Tax |
Unrealized built in gain results under two conditions - A C corp. elects S Corp status and - The FMV of the corp. assets exceeds the adjusted basis of corporate assets on the election date Exemptions: - S corp. was never a C corp - Sale or transfer did not occur within 10 years - S corp can demonstrate appreciation occured after the S election - S corp can demonstrate assets were acquired after S election - Net unrealized gain has been completely recognized in previous years |
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Built In Gains Tax Calculation |
35% of the lesser of - recgonized built in gain for current year - taxable income of S corp if it were a C corp. |
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Effects on S Corp Election on Shareholders |
- Net income/loss is passed through to shareholders - report both separately stated items of income and deductions and non-separately stated items of business income and loss - Allocations are made on a per-share, per-day basis - Losses limited to adjusted basis in S corp plus loans to corporation (guarantees do not increase basis) |
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Flow through to shareholders |
Shareholders taxed when earned not when receive distribution - Ordinary Income - Rental Income/loss - Portfolio Income/loss - Tax-exempt Interest - Percentage Depletion - Foreign Income Tax - Section 1231 gains and losses - Charitable contributions - Expenses deduction for recovery property - Unrecaptured section 1250 income - gain/loss from sale of collectibles |
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Fringe Benefits |
Deductible - non-shareholder employees owning 2% or less Nondeductible - shareholders owning over 2% |
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Accumulated Adjustments Account |
AAA at inception of S corp is 0 tax effects of distributions paid to shareholders that has accumulated earnings and profits since inception are computed using the AAA |
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Shareholders Basis in S Corp Stock |
Initial Basis + Income Items (including tax-free income) + Additional shareholder investments in corp stock - Distributions to Shareholders - Loss or expense items = Ending Basis |
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Termination |
- Holders of majority stock consent to termination - fails to meet eligibility requirements - More than 25% of companies gross receipts come from passive income for 3 consecutive years Can reelect after 5 years of the termination |
