S Corporation Eligibility, Basis, and Ownership-Change Compliance

This chapter covers the compliance rules that make S corporations distinct from both C corporations and partnerships. TCP questions in this area often turn on election validity, shareholder basis tracking, the residue of prior C corporation history, and the allocation of tax items when ownership changes during the year.

In This Chapter

• S Corporation Eligibility, Election Timing, and Termination Triggers covers the gateway requirements for obtaining and keeping S status.
• S Corporation Shareholder Basis, AAA, Debt Basis, and Distributions explains how basis and corporate accounts affect loss usage and distribution treatment.
• Built-In Gains Tax and Historical C Corporation E&P Integration addresses legacy C corporation attributes that remain relevant after the S election.
• Midyear Ownership Changes and S Corporation Allocation Methods explains how annual items are split when shares change hands during the tax year.

How to Use This Chapter

• Read the basis lesson immediately after the eligibility lesson because valid S status does not by itself solve shareholder-level tax treatment.
• Revisit the built-in gains and ownership-change lessons whenever a fact pattern includes conversion history or midyear transfers.

In this section

• S Corporation Eligibility, Election Timing, and Termination Triggers
  S corporation eligibility, shareholder limits, election mechanics, and termination triggers.
• S Corporation Shareholder Basis, AAA, Debt Basis, and Distributions
  S corporation shareholder basis, AAA, debt basis, and distribution-ordering rules.
• Built-In Gains Tax and Historical C Corporation E&P Integration
  Built-in gains tax rules and the carryover effect of historical C corporation earnings and profits.
• Midyear Ownership Changes and S Corporation Allocation Methods
  Midyear S corporation ownership changes and the allocation methods used to divide annual items.