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This post addresses S corporations and related issues.

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1. What are the eligibility requirements that a corporation must meet in order to qualify under Subchapter S?

2. What limits are placed on the selection of a tax year of an S corporation? How do these limits differ from those applicable to C corporations and partnerships?

3. Durrabusiness is organized as a regular C corporation in 1986. At the beginning of the present year, Durrabusiness elects to be an S corporation. Will the election cause a recapture of the general business investment credit taken on any property purchased while a C corporation?

4. Several individuals form Lang Corporation on May 1, 2010. The corporation begins acquiring assets on June 1, 2010, and begins business on August 1, 2010. What is the latest date that Lang can file Form 2553 requesting S corporation status?

5. A shareholder purchases 30 percent of the stock of an S corporation two-thirds of the way through the year for $20,000. The S corporation incurs an operating loss of $300,000 for the year. What is the amount that the shareholder may deduct on his personal income tax return, assuming the at-risk and passive activity rules do not apply?

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Solution Preview

1. What are the eligibility requirements that a corporation must meet in order to qualify under Subchapter S?

2. What limits are placed on the selection of a tax year of an S corporation? How do these limits differ from those applicable to C corporations and partnerships?

3. Durrabusiness is organized as a regular C corporation in 1986. At the beginning of the present year, Durrabusiness elects to be an S corporation. Will the election cause a recapture of the general business investment credit taken on any property purchased while a C corporation?

4. Several individuals form Lang Corporation on May 1, 2010. The corporation begins acquiring assets on June 1, 2010, and begins business on August 1, 2010. What is the latest date that Lang can file Form 2553 requesting S corporation status?

5. A shareholder purchases 30 percent of the stock of an S corporation two-thirds of the way through the year for $20,000. The S corporation ...

Solution Summary

The solution provides a detailed discussion for each question presented involving S Corporations, Lang Corporation, and stock purchases. All five questions are thoroughly answered.

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2.How low can the S corp owner set his own salary?
3.How are distributions taxed under an S corp?
4.Can an S corp owner forgo a salary for a distribution?
5.Is rental income considered active income?
6.How are C corporations different from and similar to S corporations?
7.Describe the three hurdles a taxpayer must pass if he wants to deduct a loss from his share in an S corporation.
8.How does the tax treatment of employee fringe benefits reflect the hybrid nature of the S corporation?

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