Chapter 20: S Corporations

This chapter explains the S corporation rules that combine corporate form with pass-through taxation. REG questions in this area usually hinge on eligibility, owner basis, and the special taxes or termination risks that can disrupt the intended pass-through result.

In This Chapter

• Ordinary Business Income (Loss) and Separately Stated Items explains what passes through and how it is classified.
• S Corporation Eligibility, Election Requirements, Revocation, and Termination covers how S status is obtained and lost.
• Shareholder Basis: Stock and Debt Adjustments explains the basis framework that limits deductions and affects distributions.
• Built-In Gains Tax, Passive Investment Income, and AAA vs. E&P addresses the special rules tested in transition and mixed-history situations.
• Distributions (Liquidating vs. Nonliquidating) explains how cash and property distributions are taxed.

How to Use This Chapter

• Read this chapter when S corporation questions are being treated as simple partnership look-alikes.
• Focus on eligibility, basis, and accumulated-account issues that make S corporations distinct.
• Return here whenever a question mixes built-in gains, passive income, and distribution consequences.

In this section

• Ordinary Business Income (Loss) and Separately Stated Items
  Explore how S corporations handle ordinary income, separately stated items, Section 179 deductions, charitable contributions, and distributions, including real-life examples and best-practice strategies.
• S Corporation Eligibility, Election Requirements, Revocation, and Termination
  Comprehensive coverage of S corporation eligibility and election procedures, avoidance of inadvertent terminations, and pathways to regain S corp status.
• Shareholder Basis: Stock and Debt Adjustments
  Explore step-by-step basis adjustments for income, losses, distributions, and loan repayments in S corporations. Understand ordering rules, real-life examples, and best practices.
• Built-In Gains Tax, Passive Investment Income, and AAA vs. E&P
  A comprehensive guide on the built-in gains tax, passive investment income rules, and navigating AAA vs. E&P balances in S corporations—all with practical insights and real-world examples.
• Distributions (Liquidating vs. Nonliquidating)
  Explore how shareholders of S corporations manage stock basis in nonliquidating vs. final liquidating distributions, including practical examples, diagrams, and key strategies.