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Lecture Taxation of individuals and business entities 2015 (6/e) - Chapter 22: S corporations

The purpose of this chapter is: Describe the requirements and process to elect S corporation status; explain the events that terminate the S corporation election; describe operating issues relating to S corporation accounting periods and methods, and explain income and loss allocations and separately stated items;. | Chapter 22 S corporations Learning Objectives Describe the requirements and process to elect S corporation status. Explain the events that terminate the S corporation election. Describe operating issues relating to S corporation accounting periods and methods, and explain income and loss allocations and separately stated items. Explain stock-basis calculations, loss limitations, determination of self-employment income, and fringe benefit rules that apply to S corporation shareholders. Apply the tax rules for S corporation operating distributions and liquidating distributions. Describe the taxes that apply to S corporations, estimated tax requirements, and tax return filing requirements. S Corporation Elections Formation – §351 Qualification requirements Shareholder type and number limits on corporation type 1 class of stock Filing the election Effective date S Corporation Terminations Voluntary Terminations Elected by shareholders with > 50% stock Effective date Involuntary . | Chapter 22 S corporations Learning Objectives Describe the requirements and process to elect S corporation status. Explain the events that terminate the S corporation election. Describe operating issues relating to S corporation accounting periods and methods, and explain income and loss allocations and separately stated items. Explain stock-basis calculations, loss limitations, determination of self-employment income, and fringe benefit rules that apply to S corporation shareholders. Apply the tax rules for S corporation operating distributions and liquidating distributions. Describe the taxes that apply to S corporations, estimated tax requirements, and tax return filing requirements. S Corporation Elections Formation – §351 Qualification requirements Shareholder type and number limits on corporation type 1 class of stock Filing the election Effective date S Corporation Terminations Voluntary Terminations Elected by shareholders with > 50% stock Effective date Involuntary Terminations Failing S corporation requirements Passive investment income in excess of 25 percent of gross receipts for 3 years Restricted to S corporations with “earnings and profits” Passive investment income; Gross receipts Effective date S Corporation Terminations Short tax years Allocation of income across S and C corporation years. Daily method Specific identification method Tax return due dates S corporation reelections Generally available at the beginning of the 5th year after year of termination Early IRS consent Operating Issues Accounting periods and methods: Elected at entity level Methods carryover from C corporation years May choose cash, accrual, or hybrid methods Must use a calendar year-end unless establish business purpose for alternative year-end or natural business year-end Operating Issues Income and loss allocations: Allocate profit and loss pro rata, based on shares owned each day of the year If sell shares during the year, pro rata, per day allocations If all .