I. Corporation is a calendar year corporation owned by three individuals Adams,
ID: 2596629 • Letter: I
Question
I. Corporation is a calendar year corporation owned by three individuals Adams, Baker and Chris. It has been in existence since 1999. On February 4, 2012, the three shareholders consent to an election on the part of the corporation to be taxed pursuant to Subchapter S. What is the effective date of the election and when does P's status change from a "C" Corp to an "S" Corp? A P 1. Would your answer to part (A) be different if the election is made and consented to on April 4, 2012? 2. If Adams and Baker, but not Chris, consented to a revocation of the S election on June 8, 2014, what is the effective date of the revocation? 3. If Adams sold one share of stock to a non-resident alien individual on October 4 2014, when would P Corporation cease to be a Subchapter S corporation? B. P Corporation is a calendar year corporation owned by three individuals Adams, Baker and Chris. It was formed on November 18, 2013. If the three shareholders consent to an election to be taxed as an S corporation on December 1, 2013 what is the effective date of that election? 1. What would be the effective date of the election if the shareholders consented to the election on January 28, 2014? II. XYZ Corporation has elected to be taxed as a Subchapter S corporation. Joe Smith owned 100% of the corporation until February 28, 2013, On that date he sold 30% of his stock to Brian Bond. On June 30, 2013 he sold another 20% of his stock to Brian. For the calendar year 2013 its net book income is equal to $128,000. The following items were included in arriving at this figure Long-term Capital gains Short-term Capital losses Charitable Contributions Dividend Income Tax exempt Municipal bond interest 20,000 12,000 6,000 1,000 13,000 What is XYZ's taxable income for the year 2013 and what is Joe's share of that income as well as the separately stated items of the corporation?Explanation / Answer
I A. An election to be S Corporation should be made before the ending of 2 months and 15 days time period after start of the tax year in which change is to take place.
Period 2 months and 15 days ends of 15th March starting january 1. So if election is made on Feb 4th, effective date will be 1st jan 2012.
1. If election is made on april 4, then effective date will be 1st jan of next year i.e. 1.1.2013
2. A revocation supported by more than 50% share holders can be accepted, Any revocation made till 15th day of 3rd month shall be effective from same year. If election revocation is made on une 8, 2014, it will be efffective from 1.1.2015.
3. S Corporation can not have foreign allien as share holder as the income distributed to sharehoder who is foreign national will not be taxed. The S Corporation election will terminate on the occurance of the event. P corporation would cease to be S Corporation on October 4.
B. in case of no prior tax year greater than 2.5 months, the election should be made on or before ending of 2 months 15 days from the start of the operation, to make election as S corp to be effective from day 1 of begning of operation.
In case corporation is fomed on Nov 18 and election is made on Dec 1, election will be effective from Nov 18.
1. if election is made on 28th January, 2 moths period ends on jan 17 and 15 days period ends on 1st feb. Hence this is with in time and election will be effective from Nov 18,