Which of the following actions would disqualify a corporation from making an S corporation election?
Understand the Problem
The question is asking which of the listed conditions would prevent a corporation from being eligible to elect S corporation status. This requires understanding the S corporation eligibility requirements as defined by the IRS.
Answer
Disqualifying actions include having more than 100 shareholders, non-individual shareholders (excluding estates/trusts), or non-resident alien shareholders.
Actions that would disqualify a corporation from making an S corporation election include having: more than 100 shareholders, a shareholder that is other than an individual, estate, or trust, or a shareholder who is a non-resident alien.
Answer for screen readers
Actions that would disqualify a corporation from making an S corporation election include having: more than 100 shareholders, a shareholder that is other than an individual, estate, or trust, or a shareholder who is a non-resident alien.
More Information
S corporation status allows a business to pass its income, losses, deductions, and credits through to its shareholders for federal income tax purposes, avoiding double taxation on the corporate income.
Tips
A common mistake is thinking any trust can be a shareholder, but only certain trusts qualify. Also, ensure all shareholders are either individuals, estates, or qualifying trusts, and that none are non-resident aliens.
Sources
- S Corp Election - myusacorporation.com
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