S corporation elections guide.An S corporation is a popular business entity choice. Only certain corporations, however, are eligible for S status. To qualify, a corporation must be a domestic corporation, have 75 or Fewer shareholders, have only individuals (but not nonresident non·res·i·dent adj. 1. Not living in a particular place: nonresident students who commute to classes. 2. aliens Foreign-born persons who have not been naturalized to become U.S. citizens under federal law and the Constitution. The federal immigration laws determine whether a person is an alien. ), estates, certain trusts and tax-exempt tax-ex·empt adj. 1. Not subject to taxation, as the capital or income of a philanthropic organization. 2. Producing interest that is exempt from income tax: tax-exempt bonds. n. organizations as shareholders and have only one class of stock. Certain corporations (e.g., financial institutions that account for bad debts using the reserve method) do not qualify for S status. An eligible corporation elects S status by filing Form 2553, Election by a Small Business Corporation (Under section 1362 of the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. ).The form must be signed by a corporate officer; all shareholders at the time of the election must consent. Once a corporation has successfully achieved S stares, additional election may be made; for example, the corporation may elect to revoke To annul or make void by recalling or taking back; to cancel, rescind, repeal, or reverse. revoke v. to annul or cancel an act, particularly a statement, document, or promise, as if it no longer existed. its S status The guide identifies the major elections, who makes them and who must consent, how to make the elections the dates for making them and the legal authority.
Election How to make election
1. Election of S status. Form 2553, signed by a corporate
officer and consented to by each
shareholder.
2. Election to treat a wholly Form 8869, Qualified Subchapter S
owned subsidiary as a qualified Subsidiary Election (Under
subchapter S subsidiary (QSub). section 1361(b)(3) of the
Internal Revenue Code), signed
by officer of parent S
corporation.
3. Election to specify the order Separate election statement.
of deemed liquidations when Election is made by the parent S
QSub elections are made for a corporation by attaching
tiered group of subsidiaries. election statement to Form 8869.
4. Election to treat a trust as a Form 2553 or separate statement.
qualified subchapter S trust Election is made by beneficiary.
(QSST).
5. Election to treat a trust as an Separate election statement.
electing small business trust Election is made by trustee(s).
(ESBT).
6. Election to convert a QSST Separate election statement.
to an ESBT. Consent of current income
beneficiary and trustee required.
7. Election to convert an ESBT Separate election statement.
to a QSST. Consent of current income
beneficiary and trustee required.
8. Successive income beneficiary Separate election statement.
affirmative refusal to consent Affirmative refusal to consent of
to QSST election. successive income beneficiary
required.
9. Revocation of QSST election. Letter ruling request filed with
IRS National Office.
10. Revocation of ESBT election. Letter ruling request filed with
IRS National Office.
11. Revocation of S election. Separate election statement
signed by a corporate officer.
Consent of shareholders owning
more than 50% of the
corporation's outstanding stock
required.
12. Recission of revocation of Separate election statement. The
S election. consent of each person who
consented to revocation is
required. In addition, each
person who became a shareholder
after the revocation was made
must consent.
13. Election to allocate income Separate election statement
during S termination year using signed by a corporate officer.
other than pro-rata allocation. Each shareholder during S short
year and each shareholder as of
the first day of the C short
year must consent.
14. Revocation of QSub Separate election statement.
election. Election is made by parent S
corporation.
15. Elective ordering rule for Separate election statement by
adjustments to basis. the electing shareholder.
16. Election to distribute Separate election statement
earnings and profits (E&P) signed by a corporate officer.
first. All affected shareholders must
consent; see Sec. 1368(e)(3)(B)
for the definition of "affected
shareholder" for purposes of
this election.
17. Election to make a deemed Separate election statement
dividend. signed by a corporate officer.
All affected shareholders must
consent; see Sec. 1368(e)(3)(B)
for the definition of "affected
shareholder" for purposes of
this election.
18. Election to forgo previously Separate election statement
taxed income. signed by a corporate officer.
All affected shareholders must
consent; see Sec. 1368(e)(3)(B)
for the definition of "affected
shareholder" for purposes of
this election.
19. Election to terminate year Separate election statement
for purposes of allocating S signed by a corporate officer
income in the event of a and consented to by all
qualifying disposition. shareholders who held stock at
any time during the full tax
year.
20. Election to distribute E&P Separate election statement
first during post-termination signed by a corporate officer
transition period (PTTP). and consented to by all
shareholders receiving
distributions during the PTTP.
21. Election to terminate year Separate election statement
for purposes of allocating S signed by a corporate officer
income on the complete and consented to by all affected
termination of a shareholder's shareholders; see Sec. 1377(a)
interest. (2)(B) for the definition of
"affected shareholder" for
purposes of this election.
22. Election under Sec. 444 Form 8716, Election To Have a
to use other than a required Tax Year Other Than a Required
tax year. Tax Year.
23. Termination of Sec. 444 Statement with return for the
election to use other than a short period resulting from
required tax year. termination of the election.
Election Date for making election
1. Election of S status. Any time during preceding tax
year or by the 15th day of the
third month of the tax year.
2. Election to treat a wholly Any time within the 12-month
owned subsidiary as a qualified period before desired effective
subchapter S subsidiary (QSub). date or within two months and
15 days after desired effective
date.
3. Election to specify the order Due date of QSub election
of deemed liquidations when (see above).
QSub elections are made for a
tiered group of subsidiaries.
4. Election to treat a trust as a Within two months and 15 days
qualified subchapter S trust after the first day on which the
(QSST). trust must qualify as a QSST.
5. Election to treat a trust as an Within two months and 15 days
electing small business trust after the first day on which the
(ESBT). trust must qualify as an ESBT.
6. Election to convert a QSST Any time within the 12-month
to an ESBT. period before desired effective
date or within two months and
15 days after desired effective
date.
7. Election to convert an ESBT Any time within the 12-month
to a QSST. period before desired effective
date or within two months and
15 days after desired effective
date.
8. Successive income beneficiary Within two months and 16 days,
affirmative refusal to consent beginning on the date on which
to QSST election. the successive income
beneficiary becomes the income
beneficiary.
9. Revocation of QSST election. No prescribed due date; National
Office will specify effective
date of revocation (presumably,
revocation would not be effective
earlier than the date the ruling
request is filed).
10. Revocation of ESBT election. No prescribed due date; National
Office will specify effective
date of revocaton (presumably,
revocation would not be effective
earlier than the date the ruling
request is filed).
11. Revocation of S election. Any time on or before desired
effective date, or by the 15th
day of the third month of the tax
year to be retroactive to
beginning of tax year.
12. Recission of revocation of Any time before the revocation
S election. becomes effective.
13. Election to allocate income Attach to tax return for the C
during S termination year using short year.
other than pro-rata allocation.
14. Revocation of QSub Any time within the 12-month
election. period before desired effective
date or within two months and
15 days after desired effective
date. A revocation cannot be made
after the occurrence of an event
that renders the subsidiary
ineligible for QSub status.
15. Elective ordering rule for Attach to shareholder return.
adjustments to basis. Once election is made, IRS
permission is required to change.
16. Election to distribute Attach to timely filed original
earnings and profits (E&P) or amended S return.
first.
17. Election to make a deemed Attach to timely filed original
dividend. or amended S return.
18. Election to forgo previously Attach to timely filed original
taxed income. or amended S return.
19. Election to terminate year Attach to timely filed original
for purposes of allocating S or amended S return for the year
income in the event of a in which the qualifying
qualifying disposition. disposition occurred.
20. Election to distribute E&P Attach to C return for the tax
first during post-termination year in which the PTTP ends.
transition period (PTTP).
21. Election to terminate year Attach to timely filed original
for purposes of allocating S or amended S return for the year
income on the complete in which the shareholder's
termination of a shareholder's interest terminated.
interest.
22. Election under Sec. 444 File by the earlier of the 15th
to use other than a required day of the fifth month following
tax year. the month that includes the
first day of the tax year the
election will first be effective,
or the unextended due date of the
return for the tax year resulting
from the election.
23. Termination of Sec. 444 Due date of timely filed return
election to use other than a for the short period.
required tax year.
Election Authority
1. Election of S status. Sec. 1362(a) and (b); Regs. Sec
1.1362-6(a). If an S election is
not timely filed, see sec.
1362(b)(5) and Rev. Proc.
2003-43.
2. Election to treat a wholly Sec. 1361(b)(3); Regs. Sec.
owned subsidiary as a qualified 1.1361-3(a)(4). If a Qsub
subchapter S subsidiary (QSub). election is not timely filed,
see Regs. Sec. 1.1361-3(a)(6) and
Rev. Proc. 2003-43.
3. Election to specify the order Regs. Sec. 1.1361-4(b)(2).
of deemed liquidations when
QSub elections are made for a
tiered group of subsidiaries.
4. Election to treat a trust as a Sec. 1361(d)(2)(D) and Regs. Sec.
qualified subchapter S trust 1.1361-1(j)(6); see Regs. Sec.
(QSST). 1.1361-1(j)(6)(iv) for a
protective QSST election
available for certain grantor
trusts. If a QSST election is not
timely made, see Sec. 1362(f)
and Rev. Proc. 2003-43.
5. Election to treat a trust as an Sec. 1361(e)(3); Regs. Sec.
electing small business trust 1.1361-1(m)(2). If an ESBT
(ESBT). election is not timely made, see
Sec. 1362(f) and Rev. Proc.
2003-43.
6. Election to convert a QSST Regs. Sec 1.1361-1(j)(12).
to an ESBT.
7. Election to convert an ESBT Regs. Sec 1.1361-1 (m)(7).
to a QSST.
8. Successive income beneficiary Sec. 1361(d)(2); Regs. Sec
affirmative refusal to consent 1.1361-1(j)(10).
to QSST election.
9. Revocation of QSST election. Regs. Sec. 1.1361-1(j)(11).
10. Revocation of ESBT election. Regs. Sec. 1.1361-1(m)(6).
11. Revocation of S election. Sec. 1362(d)(1); Regs. Sec.
1.1362-2(a) and -6(a)(3).
12. Recission of revocation of Regs. Sec. 1.1362-2(a)(4) and
S election. -6(a)(4).
13. Election to allocate income Sec. 1362(e)(3); Regs. Sec.
during S termination year using 1.1362-3(b) and -6(a)(5).
other than pro-rata allocation.
14. Revocation of QSub Regs. Sec. 1.1361-3(b).
election.
15. Elective ordering rule for Regs. Sec. 1.1367-1(g).
adjustments to basis.
16. Election to distribute Sec. 1368(e)(3); Regs. Sec.
earnings and profits (E&P) 1.1368-1(f)(2) and (5).
first.
17. Election to make a deemed Regs. Sec 1.1368-1(f)(3) and (5).
dividend.
18. Election to forgo previously Regs. Sec. 1.1368-1(f)(4)
taxed income. and (5).
19. Election to terminate year Regs. Sec. 1.1368-1(g).
for purposes of allocating S
income in the event of a
qualifying disposition.
20. Election to distribute E&P Sec. 1371(e)(2); Temp. Regs.
first during post-termination Sec. 18.1371-1.
transition period (PTTP).
21. Election to terminate year Sec. 1377(a)(2); Regs. Sec.
for purposes of allocating S 1.1377-1(b).
income on the complete
termination of a shareholders
interest.
22. Election under Sec. 444 Sec. 444; Temp. Regs. Sec.
to use other than a required 1.444-3T(b).
tax year.
23. Termination of Sec. 444 Temp. Regs. Sec. 1.444-1T(a)(5).
election to use other than a
required tax year.
Author's note: The authors gratefully acknowledge their TRP colleagues
for their assistance with this guide.
BY LAURA Laura, subject of the love poems of Petrarch. She is thought to be Laura de Noves (1308?–1348), wife of Hugo de Sade, but this has not been proved. Laura Petrarch’s perpetual, unattainable love. [Ital. Lit. M. MACDONOUGH, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , PRINCIPAL, NATIONAL TAX DEPARTMENT, ERNST & YOUNG LLP LLP - Lower Layer Protocol , WASHINGTON Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. , DC, AND KENNETH N. ORBACH Orbach may refer to:
Florida Atlantic University, also referred to as FAU or Florida Atlantic, is a public, coeducational research university with its main campus in Boca Raton, Florida, United States. , B0CA RATON Rat´on n. 1. A small rat. , FL. MS. MACDONOUGH IS THE IMMEDIATE PAST CHAIR OF THE AICPA AICPA See American Institute of Certified Public Accountants (AICPA). TAX DIVISION'S S CORPORATION TAXATION TECHNICAL RESOURCE PANEL (TRP Trp tryptophan. TRP traumatic reticuloperitonitis. Trp tryptophan. ). DR. ORBACH IS THE CURRENT TRP CHAIR. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion