§1361 — S corporation defined
137 cases·18 followed·6 distinguished·4 questioned·2 overruled·107 cited—13% support
Statute Text — 26 U.S.C. §1361
For purposes of this title, the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year.
For purposes of this title, the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year.
For purposes of this subchapter, the term “small business corporation” means a domestic corporation which is not an ineligible corporation and which does not—
have more than 100 shareholders,
have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organization described in subsection (c)(6)) who is not an individual,
have a nonresident alien as a shareholder, and
have more than 1 class of stock.
For purposes of paragraph (1), the term “ineligible corporation” means any corporation which is—
a financial institution which uses the reserve method of accounting for bad debts described in section 585,
an insurance company subject to tax under subchapter L, or
a DISC or former DISC.
Except as provided in regulations prescribed by the Secretary, for purposes of this title—
a corporation which is a qualified subchapter S subsidiary shall not be treated as a separate corporation, and
all assets, liabilities, and items of income, deduction, and credit of a qualified subchapter S subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation.
For purposes of this paragraph, the term “qualified subchapter S subsidiary” means any domestic corporation which is not an ineligible corporation (as defined in paragraph (2)), if—
100 percent of the stock of such corporation is held by the S corporation, and
the S corporation elects to treat such corporation as a qualified subchapter S subsidiary.
For purposes of this title, if any corporation which was a qualified subchapter S subsidiary ceases to meet the requirements of subparagraph (B), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the S corporation in exchange for its stock.
If the failure to meet the requirements of subparagraph (B) is by reason of the sale of stock of a corporation which is a qualified subchapter S subsidiary, the sale of such stock shall be treated as if—
the sale were a sale of an undivided interest in the assets of such corporation (based on the percentage of the corporation’s stock sold), and
the sale were followed by an acquisition by such corporation of all of its assets (and the assumption by such corporation of all of its liabilities) in a transaction to which section 351 applies.
If a corporation’s status as a qualified subchapter S subsidiary terminates, such corporation (and any successor corporation) shall not be eligible to make—
an election under subparagraph (B)(ii) to be treated as a qualified subchapter S subsidiary, or
an election under section 1362(a) to be treated as an S corporation,
before its 5th taxable year which begins after the 1st taxable year for which such termination was effective, unless the Secretary consents to such election.
Except to the extent provided by the Secretary, this paragraph shall not apply to part III of subchapter A of chapter 61 (relating to information returns).
For purposes of subsection (b)(1)(A), there shall be treated as one shareholder—
a husband and wife (and their estates), and
all members of a family (and their estates).
For purposes of this paragraph—
The term “members of a family” means a common ancestor, any lineal descendant of such common ancestor, and any spouse or former spouse of such common ancestor or any such lineal descendant.
An individual shall not be considered to be a common ancestor if, on the applicable date, the individual is more than 6 generations removed from the youngest generation of shareholders who would (but for this subparagraph) be members of the family. For purposes of the preceding sentence, a spouse (or former spouse) shall be treated as being of the same generation as the individual to whom such spouse is (or was) married.
The term “applicable date” means the latest of—
the date the election under section 1362(a) is made,
the earliest date that an individual described in clause (i) holds stock in the S corporation, or
October 22, 2004
.
Any legally adopted child of an individual, any child who is lawfully placed with an individual for legal adoption by the individual, and any eligible foster child of an individual (within the meaning of section 152(f)(1)(C)), shall be treated as a child of such individual by blood.
For purposes of subsection (b)(1)(B), the following trusts may be shareholders:
A trust all of which is treated (under subpart E of part I of subchapter J of this chapter) as owned by an individual who is a citizen or resident of the United States.
A trust which was described in clause (i) immediately before the death of the deemed owner and which continues in existence after such death, but only for the 2-year period beginning on the day of the deemed owner’s death.
A trust with respect to stock transferred to it pursuant to the terms of a will, but only for the 2-year period beginning on the day on which such stock is transferred to it.
A trust created primarily to exercise the voting power of stock transferred to it.
An electing small business trust.
In the case of a corporation which is a bank (as defined in section 581) or a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act (
12 U.S.C. 1813(w)(1)
), a trust which constitutes an individual retirement account under section 408(a), including one designated as a Roth IRA under section 408A, but only to the extent of the stock held by such trust in such bank or company as of the date of the enactment of this clause.
This subparagraph shall not apply to any foreign trust.
For purposes of subsection (b)(1)—
In the case of a trust described in clause (i) of subparagraph (A), the deemed owner shall be treated as the shareholder.
In the case of a trust described in clause (ii) of subparagraph (A), the estate of the deemed owner shall be treated as the shareholder.
In the case of a trust described in clause (iii) of subparagraph (A), the estate of the testator shall be treated as the shareholder.
In the case of a trust described in clause (iv) of subparagraph (A), each beneficiary of the trust shall be treated as a shareholder.
In the case of a trust described in clause (v) of subparagraph (A), each potential current beneficiary of such trust shall be treated as a shareholder; except that, if for any period there is no potential current beneficiary of such trust, such trust shall be treated as the shareholder during such period. This clause shall not apply for purposes of subsection (b)(1)(C).
In the case of a trust described in clause (vi) of subparagraph (A), the individual for whose benefit the trust was created shall be treated as the shareholder.
For purposes of subsection (b)(1)(B), the term “estate” includes the estate of an individual in a case under title 11 of the United States Code.
For purposes of subsection (b)(1)(D), a corporation shall not be treated as having more than 1 class of stock solely because there are differences in voting rights among the shares of common stock.
For purposes of subsection (b)(1)(D), straight debt shall not be treated as a second class of stock.
For purposes of this paragraph, the term “straight debt” means any written unconditional promise to pay on demand or on a specified date a sum certain in money if—
the interest rate (and interest payment dates) are not contingent on profits, the borrower’s discretion, or similar factors,
there is no convertibility (directly or indirectly) into stock, and
the creditor is an individual (other than a nonresident alien), an estate, a trust described in paragraph (2), or a person which is actively and regularly engaged in the business of lending money.
The Secretary shall prescribe such regulations as may be necessary or appropriate to provide for the proper treatment of straight debt under this subchapter and for the coordination of such treatment with other provisions of this title.
For purposes of subsection (b)(1)(B), an organization which is—
described in section 401(a) or 501(c)(3), and
exempt from taxation under section 501(a),
may be a shareholder in an S corporation.
In the case of a qualified subchapter S trust with respect to which a beneficiary makes an election under paragraph (2)—
such trust shall be treated as a trust described in subsection (c)(2)(A)(i),
for purposes of section 678(a), the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an S corporation with respect to which the election under paragraph (2) is made, and
for purposes of applying sections 465 and 469 to the beneficiary of the trust, the disposition of the S corporation stock by the trust shall be treated as a disposition by such beneficiary.
A beneficiary of a qualified subchapter S trust (or his legal representative) may elect to have this subsection apply.
An election under this paragraph shall be made separately with respect to each corporation the stock of which is held by the trust.
If there is an election under this paragraph with respect to any beneficiary, an election under this paragraph shall be treated as made by each successive beneficiary unless such beneficiary affirmatively refuses to consent to such election.
Any election, or refusal, under this paragraph shall be made in such manner and form, and at such time, as the Secretary may prescribe.
An election under this paragraph, once made, may be revoked only with the consent of the Secretary.
An election under this paragraph shall be effective up to 15 days and 2 months before the date of the election.
For purposes of this subsection, the term “qualified subchapter S trust” means a trust—
the terms of which require that—
during the life of the current income beneficiary, there shall be only 1 income beneficiary of the trust,
any corpus distributed during the life of the current income beneficiary may be distributed only to such beneficiary,
the income interest of the current income beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust, and
upon the termination of the trust during the life of the current income beneficiary, the trust shall distribute all of its assets to such beneficiary, and
all of the income (within the meaning of section 643(b)) of which is distributed (or required to be distributed) currently to 1 individual who is a citizen or resident of the United States.
A substantially separate and independent share of a trust within the meaning of section 663(c) shall be treated as a separate trust for purposes of this subsection and subsection (c).
If a qualified subchapter S trust ceases to meet any requirement of paragraph (3)(A), the provisions of this subsection shall not apply to such trust as of the date it ceases to meet such requirement.
If any qualified subchapter S trust ceases to meet any requirement of paragraph (3)(B) but continues to meet the requirements of paragraph (3)(A), the provisions of this subsection shall not apply to such trust as of the first day of the first taxable year beginning after the first taxable year for which it failed to meet the requirements of paragraph (3)(B).
For purposes of this section—
Except as provided in subparagraph (B), the term “electing small business trust” means any trust if—
such trust does not have as a beneficiary any person other than (I) an individual, (II) an estate, (III) an organization described in paragraph (2), (3), (4), or (5) of section 170(c), or (IV) an organization described in section 170(c)(1) which holds a contingent interest in such trust and is not a potential current beneficiary,
no interest in such trust was acquired by purchase, and
an election under this subsection applies to such trust.
The term “electing small business trust” shall not include—
any qualified subchapter S trust (as defined in subsection (d)(3)) if an election under subsection (d)(2) applies to any corporation the stock of which is held by such trust,
any trust exempt from tax under this subtitle, and
any charitable remainder annuity trust or charitable remainder unitrust (as defined in section 664(d)).
For purposes of subparagraph (A), the term “purchase” means any acquisition if the basis of the property acquired is determined under section 1012.
For purposes of this section, the term “potential current beneficiary” means, with respect to any period, any person who at any time during such period is entitled to, or at the discretion of any person may receive, a distribution from the principal or income of the trust (determined without regard to any power of appointment to the extent such power remains unexercised at the end of such period). If a trust disposes of all of the stock which it holds in an S corporation, then, with respect to such corporation, the term “potential current beneficiary” does not include any person who first met the requirements of the preceding sentence during the 1-year period ending on the date of such disposition.
An election under this subsection shall be made by the trustee. Any such election shall apply to the taxable year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the Secretary.
For special treatment of electing small business trusts, see section 641(c).
Restricted bank director stock shall not be taken into account as outstanding stock of the S corporation in applying this subchapter (other than section 1368(f)).
For purposes of this subsection, the term “restricted bank director stock” means stock in a bank (as defined in section 581) or a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act (
12 U.S.C. 1813(w)(1)
)), if such stock—
is required to be held by an individual under applicable Federal or State law in order to permit such individual to serve as a director, and
is subject to an agreement with such bank or company (or a corporation which controls (within the meaning of section 368(c)) such bank or company) pursuant to which the holder is required to sell back such stock (at the same price as the individual acquired such stock) upon ceasing to hold the office of director.
For treatment of certain distributions with respect to restricted bank director stock, see section 1368(f).
In the case of a bank which changes from the reserve method of accounting for bad debts described in section 585 or 593 for its first taxable year for which an election under section 1362(a) is in effect, the bank may elect to take into account any adjustments under section 481 by reason of such change for the taxable year immediately preceding such first taxable year.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.1361-0 Table of contents
- Treas. Reg. §Treas. Reg. §1.1361-0(a) In general.
- Treas. Reg. §Treas. Reg. §1.1361-0(b) Effect of termination of QSub election.
- Treas. Reg. §Treas. Reg. §1.1361-0(c) Election after QSub termination.
- Treas. Reg. §Treas. Reg. §1.1361-0(d) Examples.
- Treas. Reg. §Treas. Reg. §1.1361-0(e) Number of shareholders.
- Treas. Reg. §Treas. Reg. §1.1361-0(f) Shareholder must be an individual or estate.
- Treas. Reg. §Treas. Reg. §1.1361-0(g) No nonresident alien shareholder.
- Treas. Reg. §Treas. Reg. §1.1361-0(h) Special rules relating to trusts.
- Treas. Reg. §Treas. Reg. §1.1361-0(i) In general.
- Treas. Reg. §Treas. Reg. §1.1361-0(j) Qualified subchapter S trust.
- Treas. Reg. §Treas. Reg. §1.1361-0(k) §1.1361-0(k)
- Treas. Reg. §Treas. Reg. §1.1361-0(l) Classes of stock.
- Treas. Reg. §Treas. Reg. §1.1361-0(m) Electing small business trust (ESBT).
- Treas. Reg. §Treas. Reg. §1.1361-0(v) Stock ownership requirements of section 332.
- Treas. Reg. §Treas. Reg. §1.1361-1 S corporation defined
- Treas. Reg. §Treas. Reg. §1.1361-1(a) In general.
- Treas. Reg. §Treas. Reg. §1.1361-1(b) Small business corporation defined—(1) In general.
- Treas. Reg. §Treas. Reg. §1.1361-1(c) Domestic corporation.
- Treas. Reg. §Treas. Reg. §1.1361-1(d) Ineligible corporation—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.1361-1(e) Number of shareholders—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.1361-1(f) Shareholder must be an individual or estate.
- Treas. Reg. §Treas. Reg. §1.1361-1(g) Nonresident alien shareholder—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.1361-1(h) Special rules relating to trusts—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.1361-1(i) Example 1—(A) ESBT election with section 663(c) separate shares.
137 Citing Cases
Petitioner argues that its case is distinguishable from Pediatric Surgical because any "profit" it makes from the services ofnonshareholder attorneys can justifiably be paid to its shareholder attorneys in consideration for business generation and other nonbillable services.
After concessions the issue remaining for our consideration is whether petitioners properly increased their adjusted bases in shares ofan S corporation pursuant to sections 1366 and 1367 after the S corporation made a qualified subchapter S subsidiary election (Qsub election) pursuant to section 1361, which resulted in a deemed section 332 liquidation ofa subsidiary.
We hold that S corporations are not individuals for purposes ofsection 36.
Effective January 1, 1997, First Forest elected to be treated as an S corporation pursuant to section 1361(a)(1) and (b)(1) and for the Bank to be treated as a qualified subchapter S subsidiary (QSub) pursuant to section 1361(b)(3)(B) .
Significantly, section 1361 makes no reference to its applicability to section 6241, which is part of subtitle F, or the regulations thereunder, nor is there any cross-reference in subtitle F to section 1361.
After concessions the issue remaining for our consideration is whether petitioners properly increased their adjusted bases in shares ofan S corporation pursuant to sections 1366 and 1367 after the S corporation made a qualified subchapter S subsidiary election (Qsub election) pursuant to section 1361, which resulted in a deemed section 332 liquidation ofa subsidiary.
After concessions the issue remaining for our consideration is whether petitioners properly increased their adjusted bases in shares ofan S corporation pursuant to sections 1366 and 1367 after the S corporation made a qualified subchapter S subsidiary election (Qsub election) pursuant to section 1361, which resulted in a deemed section 332 liquidation ofa subsidiary.
After concessions the issue remaining for our consideration is whether petitioners properly increased their adjusted bases in shares ofan S corporation pursuant to sections 1366 and 1367 after the S corporation made a qualified subchapter S subsidiary election (Qsub election) pursuant to section 1361, which resulted in a deemed section 332 liquidation ofa subsidiary.
After concessions the issue remaining for our consideration is whether petitioners properly increased their adjusted bases in shares ofan S corporation pursuant to sections 1366 and 1367 after the S corporation made a qualified subchapter S subsidiary election (Qsub election) pursuant to section 1361, which resulted in a deemed section 332 liquidation ofa subsidiary.
An S election does not alter the corporation’s corporate status; it merely alters the corporation’s Federal tax implications. See generally secs. 1361, 1363(a); sec. 1.1363-l(a), Income Tax Regs. Items of income, deduction, loss and credit generally pass through to the shareholders. Sec. 1366; cf. Knott v. Commissioner, T.C. Memo. 1991-3
Section 1362(a)(1) allows a small business corporation, as defined pursuant to section 1361, to elect S corporation status.
Hobby Lobby, an arts and crafts retailer, is an S corporation within the meaning of section 1361.4 The Trusts and the Greens owned more than 99% of Hobby Lobby during the 2011 and 2012 tax years (years at issue).
Hobby Lobby, an arts and crafts retailer, is an S corporation within the meaning of section 1361.3 In 2011 and 2012, Hobby Lobby donated to the Museum of the Bible, Inc.
§§ 1361 and 1362.1 HCM claimed a loss deduction of $855,882 on its 2016 Form 1120S, U.S. Income Tax Return for an S Corporation, related to its portion of the asset seizures, and Mr. Hampton reported a corresponding passthrough loss on his 2016 Form 1040, U.S. Individual Income Tax Return, on account of HCM’s reported loss. The Commissioner determin
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Pro
Under section 1371, the provisions of subchapter C of the Code are applicable to S corporations. See I.R.C. §§ 301–385. Section 385(a) authorizes the Secretary to prescribe “regulations as may be necessary or appropriate to determine whether an interest in a corporation is to be treated . . . as stock or indebtedness,” i.e., equity ver
Section 1361 doesn’t say, but we know that run-of-the-mill debt isn’t a second class of stock. § 1361(c)(5)(A). And neither are differences in common-stock voting rights. § 1361(c)(4). The regulation gives us a little more help. It generally treats a corporation as having only one class of stock so long as all the shares confer equal rights to divi
12 [*12] On their joint 2010 Form 1040, petitioners reported adjusted gross income, less deductions, totaling –$1,023,834, resulting in zero tax due. Petitioners claimed an NOL deduction of $694,139, resulting in a claimed NOL of $329,695 available for carryback, which RA Kostelnick allowed. RA Kostelnick further determined that p
Section 1366(a)(1) provides that an S corporation shareholder determines his or her tax liability by taking into account his or her pro rata share of the S corporation’s income, losses, deductions, and credits for the S corporation’s taxable year ending with or in the shareholder’s taxable year.
3 If a business satisfies the requirements of section 1361, it may elect to become an “S corporation” and in turn avoid paying corporate tax.
While in law school he put his accounting 2 If a business meets the requirements of section 1361, it may elect to become an “S corporation” and pay no corporate tax.
While in law school he put his accounting 2 If a business meets the requirements of section 1361, it may elect to become an “S corporation” and pay no corporate tax.
While in law school he put his accounting 2 If a business meets the requirements of section 1361, it may elect to become an “S corporation” and pay no corporate tax.
While in law school he put his accounting 2 If a business meets the requirements of section 1361, it may elect to become an “S corporation” and pay no corporate tax.
While in law school he put his accounting 2 If a business meets the requirements of section 1361, it may elect to become an “S corporation” and pay no corporate tax.
1366(a)(1) provides that an S corporation shareholder determines his or her tax liability by taking into account his or her pro rata share ofthe S corporation's (continued...) - 12 - [*12] settlement payment should be deducted on a Schedule C¹° as an ordinary and necessary expense ofa business activity other than employme
His contract--one that included a $220,000 base salary, performance bonuses, a company car, and stock ¹ A business that meets the requirements ofsection 1361 may elect to be treated as an "S corporation" and generally avoid corporate tax.
1366(a)(1) provides that an S corporation shareholder determines his or her tax liability by taking into account his or her pro rata share ofthe S corporation's income, losses, deductions, and credits for the S corporation's taxable year ending with or in the shareholder's taxable year.
And a letter dated December 12, 2002, began with "[e]nclosed is the compiled material and 4 An S corporation is a business that meets the requirements ofsection 1361 and elects to have its income and losses flow through to its shareholders without paying corporate tax.
(All section references are to the Internal Revenue Code and regulations in effect at all relevant times, and all Rule references are to the Tax Court Rules ofPractice and Procedure, unless we say otherwise.) 4 Ifa business meets the requirements ofsection 1361, it may elect to be treated as an "S corporation" and generally avoid corporate tax.
And a letter dated December 12, 2002, began with "[e]nclosed is the compiled material and 4 An S corporation is a business that meets the requirements ofsection 1361 and elects to have its income and losses flow through to its shareholders without paying corporate tax.
There are six involved in these cases: ¹ Ifa business meets the requirements ofsection 1361, it may elect to be treated as an "S corporation" and pay no corporate tax.
There are six involved in these cases: ¹ Ifa business meets the requirements ofsection 1361, it may elect to be treated as an "S corporation" and pay no corporate tax.
Drefke had Lawrence make an election to treat his firm as an S corporation,3 and Drefke prepared the initial S corporation tax return, 3 Ifa business meets the requirements ofsection 1361, it may elect to become an "S corporation" and pay no corporate tax.
Drefke had Lawrence make an election to treat his firm as an S corporation,3 and Drefke prepared the initial S corporation tax return, 3 Ifa business meets the requirements ofsection 1361, it may elect to become an "S corporation" and pay no corporate tax.
Drefke had Lawrence make an election to treat his firm as an S corporation,3 and Drefke prepared the initial S corporation tax return, 3 Ifa business meets the requirements ofsection 1361, it may elect to become an "S corporation" and pay no corporate tax.
If a business meets the requirements of section 1361, it may elect to·become an "S corporation" and pay no corporate tax.
Petitioner relies on an example in the regulations under section 1361 that addresses whether an S corporation with - 13 - distributions that-differ in timing should be treated as having more than one class of stock.
If a business meets the requirements of section 1361, it may elect to·become an "S corporation" and pay no corporate tax.
oss, of .their Federal income tax return for 2005 a $15,371 . "flow-through" loss from Evergreen Construction (Evergreen) . In 2005 Curtis_Riggins (petitioner) was president and owner of one- third of the, shares of Evergreen, an S corporation under section 1361 . Evergreen was a drywall contractor . Respondent examined 'The Court will dismiss Annie Riggins for failure to properly prosecute and will enter a decision against her consistent with the decision entered against Curtis Riggins . 3 - pe
he issues in this case. An appropriate order will be issued. Reviewed by the Court. Colvin, Wells, Gale, Thornton, Marvel, Wherry, Kroupa, GustaFSOn, Paris, and Morrison, JJ., agree with this majority opinion. If a business meets the requirements of sec. 1361, it may elect to become an “S corporation” and pay no corporate tax. An S corporation’s income and losses, like a partnership’s, flow through to its shareholders, who then pay income tax. All section references in this Opinion are to the In
1785, Congress amended section 1361 ( b)(1)(B) and added section 1361 ( c)(6) to permit certain tax-exempt.
account qualifying as an IRA also meets the qualifications to be a shareholder of an S corporation.” According to petitioner, the beneficiary of the custodial account — in this case, Mr. DiMundo — should be considered the shareholder for purposes of section 1361. In support of that argument, petitioner cites section 1.1361-l(e)(l), Income Tax Regs., which provides that “The person for whom stock of a corporation is held by a nominee, guardian, custodian, or an agent is considered to be the share
h (Chrysler). The members sell new and used automobiles in Kentucky. At least one of each married pair of petitioners owns stock in one or more of the members. Each of the members has elected to be treated as an S corporation under the provisions of section 1361. 2 Hereafter, all section references are to the Internal Revenue Code of 1986, as amended and in effect for the years in issue. - 4 - Use of Inventories The members of the Huffman group all sell merchandise (new and used automobiles). Ea
h (Chrysler). The members sell new and used automobiles in Kentucky. At least one of each married pair of petitioners owns stock in one or more of the members. Each of the members has elected to be treated as an S corporation under the provisions of section 1361. 2 Hereafter, all section references are to the Internal Revenue Code of 1986, as amended and in effect for the years in issue. - 4 - Use of Inventories The members of the Huffman group all sell merchandise (new and used automobiles). Ea
h (Chrysler). The members sell new and used automobiles in Kentucky. At least one of each married pair of petitioners owns stock in one or more of the members. Each of the members has elected to be treated as an S corporation under the provisions of section 1361. 2 Hereafter, all section references are to the Internal Revenue Code of 1986, as amended and in effect for the years in issue. - 4 - Use of Inventories The members of the Huffman group all sell merchandise (new and used automobiles). Ea
ers v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13229-01, 13230-01, Filed April 27, 2004. 13231-01, 13232-01, 13233-01, 13234-01, 13235-01, 13236-01, 13237-01, 13238-01. Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile. C also provides a per diem allowance of 9 cents per mile. Ps deducted 80 percent of the per diem allowance paid to the drivers. 1 Cases of the following petitioners are
ers v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13229-01, 13230-01, Filed April 27, 2004. 13231-01, 13232-01, 13233-01, 13234-01, 13235-01, 13236-01, 13237-01, 13238-01. Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile. C also provides a per diem allowance of 9 cents per mile. Ps deducted 80 percent of the per diem allowance paid to the drivers. 1 Cases of the following petitioners are
ers v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13229-01, 13230-01, Filed April 27, 2004. 13231-01, 13232-01, 13233-01, 13234-01, 13235-01, 13236-01, 13237-01, 13238-01. Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile. C also provides a per diem allowance of 9 cents per mile. Ps deducted 80 percent of the per diem allowance paid to the drivers. 1 Cases of the following petitioners are
ers v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13229-01, 13230-01, Filed April 27, 2004. 13231-01, 13232-01, 13233-01, 13234-01, 13235-01, 13236-01, 13237-01, 13238-01. Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile. C also provides a per diem allowance of 9 cents per mile. Ps deducted 80 percent of the per diem allowance paid to the drivers. 1 Cases of the following petitioners are
ers v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13229-01, 13230-01, Filed April 27, 2004. 13231-01, 13232-01, 13233-01, 13234-01, 13235-01, 13236-01, 13237-01, 13238-01. Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile. C also provides a per diem allowance of 9 cents per mile. Ps deducted 80 percent of the per diem allowance paid to the drivers. 1 Cases of the following petitioners are
ers v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13229-01, 13230-01, Filed April 27, 2004. 13231-01, 13232-01, 13233-01, 13234-01, 13235-01, 13236-01, 13237-01, 13238-01. Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile. C also provides a per diem allowance of 9 cents per mile. Ps deducted 80 percent of the per diem allowance paid to the drivers. 1 Cases of the following petitioners are
certified welder. During each year in issue, petitioner was employed as a welder by, among other employers, Certified Welding Services, Inc. (CWS), a Georgia corporation that he organized - 3 - and incorporated. In 1984, CWS made an S election, see sec. 1361, that remained in effect for the years in issue. Petitioner married Madris Gutierrez (Ms. Gutierrez) in 1975. They remained married to each other throughout the years in issue, they separated during 1996, and they were divorced in 1997. At o
n was no longer valid after 12/31/96." Discussion Petitioners' argument on brief is that they did business as a proprietorship for the years at issue but, if they were doing business as a corporate entity, then such entity was an S corporation under section 1361. Respondent's position is that petitioners failed to make an election under section 1362. Respondent further argues that petitioners have not shown that they were doing business as a proprietorship in 1997 and 1998, but that even if they
, Charles William Wright, CPA, A/C (also known as Charles William Wright, CPA, Accounting Corporation), and Victor Grigoraci, CPA, A/C (also known as Victor Grigoraci, CPA, Accounting Corporation). In 1996, Wright S Corp. was an S corporation under section 1361. Its sole shareholder was Charles Wright, an individual. Mr. Wright is a certified public accountant and has been affiliated with TWA or its predecessors, since 1972.6 In 1996, Donald E. Trainer, CPA, A/C was also an S corporation (Traine
Charles William Wright, CPA, A/C (also known as Charles William Wright, CPA, Accounting Corporation), and Victor Grigoraci, CPA, A/C (also known as Victor Grigoraci, CPA, Accounting Corporation). In 1996, Wright S Corp. was an S corporation under section 1361. Its sole shareholder was Charles Wright, an individual. Mr. Wright is a certified public accountant and has been affiliated with TWA or its predecessors, since 1972.6 In 1996, Donald E. Trainer, CPA, A/C was also an S corporation (Trainer
, Charles William Wright, CPA, A/C (also known as Charles William Wright, CPA, Accounting Corporation), and Victor Grigoraci, CPA, A/C (also known as Victor Grigoraci, CPA, Accounting Corporation). In 1996, Wright S Corp. was an S corporation under section 1361. Its sole shareholder was Charles Wright, an individual. Mr. Wright is a certified public accountant and has been affiliated with TWA or its predecessors, since 1972.6 In 1996, Donald E. Trainer, CPA, A/C was also an S corporation (Traine
(Wondries Chevrolet), an S corporation within the meaning of section 1361(a).3 For convenience, we shall hereinafter refer to Wondries Chevrolet and the C-corporation petitioners collectively as petitioners.
Cost Less was an S corporation under section 1361 during the years in issue.
ssued to its shareholders, Mr. Spencer and Mr. Boozer.9 Following SPC-SC's incorporation, Mr. Spencer and Mr. Boozer each owned 50 percent of SPC-SC's stock. During the years in issue, SPC-SC was a calendar year S corporation within the meaning of section 1361. Mr. Spencer was the chief executive officer and treasurer of SPC-SC, and Mr. Boozer served as its chief operating officer. Petitioner Patricia M. Spencer (Mrs. Spencer), also a corporate officer, worked at SPC-SC as an office clerk. Nomin
During the years in issue, SPC-SC was a calendar year S corporation within the meaning of section 1361.
2282, as reprinted in 1986-3 C.B. (Vol. 1) 186-199, did not foreclose the possibility of avoiding capital gains taxes at the corporate level upon sale of all assets. A subchapter C corporation can convert to a corporation described in subchapter S (I.R.C. § 1361, et. seq.) and avoid recognition of any gain, if the corporation retains the assets for a period of ten years from the date of conversion to an S corporation. See I.R.C. § 1374(d)(7). One of petitioner's experts recognized this possible
k issued to its shareholders, Mr. Spencer and Mr. Boozer. Following spc-sc’s incorporation, Mr. Spencer and Mr. Boozer each owned 50 percent of SPC-SC’s stock. During the years in issue, SPC-SC was a calendar year S corporation within the meaning of section 1361. Mr. Spencer was the chief executive officer and treasurer of spc-sc, and Mr. Boozer served as its chief operating officer. Mrs. Spencer also a corporate officer, worked at SPC-SC as an office clerk. Nominal Resale of Carolina Assets to
-2282, as reprinted in 1986-3 C.B. (Vol. 1) 186-199, did not foreclose the possibility of avoiding capital gains taxes at the corporate level upon sale of all assets. A subchapter C corporation can convert to a corporation described in subchapter S (I.R.C. § 1361, et. seq.) and avoid recognition of any gain, if the corporation retains the assets for a period of ten years from the date of conversion to an S corporation. See I.R.C. § 1374(d)(7). One of petitioner’s experts recognized this possible
As a result of the termination of WAI's S corporation - 24 - election, petitioners argue that they are not subject to tax on WAI's income because WAI would be treated as a C corporation and "petitioners would only be taxed on distributions received [from WAI] in the form of dividends in 1987 of which there were none." Section 1361 defines a small business corporation in relevant part as follows: SEC.
As a result of the termination of WAI's S corporation - 24 - election, petitioners argue that they are not subject to tax on WAI's income because WAI would be treated as a C corporation and "petitioners would only be taxed on distributions received [from WAI] in the form of dividends in 1987 of which there were none." Section 1361 defines a small business corporation in relevant part as follows: SEC.
fd. 899 F.2d 905 (10th Cir. 1990). We agree with respondent, however, that the payments of the processing fees by Dura-Craft to Northwest were shams. Dura-Craft is a subchapter C corporation, and Northwest is a subchapter S corporation as defined in section 1361. The profits of a C corporation are subject to corporate income tax, sec. 11, and any distributions to shareholders are then subject to the shareholders' personal income tax, secs. 61(a), 316. The profits of a subchapter S corporation, h
fd. 899 F.2d 905 (10th Cir. 1990). We agree with respondent, however, that the payments of the processing fees by Dura-Craft to Northwest were shams. Dura-Craft is a subchapter C corporation, and Northwest is a subchapter S corporation as defined in section 1361. The profits of a C corporation are subject to corporate income tax, sec. 11, and any distributions to shareholders are then subject to the shareholders' personal income tax, secs. 61(a), 316. The profits of a subchapter S corporation, h
Section 1362(a)(1) allows a small business corporation, as defined under section 1361, to elect S corporation status.
fd. 899 F.2d 905 (10th Cir. 1990). We agree with respondent, however, that the payments of the processing fees by Dura-Craft to Northwest were shams. Dura-Craft is a subchapter C corporation, and Northwest is a subchapter S corporation as defined in section 1361. The profits of a C corporation are subject to corporate income tax, sec. 11, and any distributions to shareholders are then subject to the shareholders' personal income tax, secs. 61(a), 316. The profits of a subchapter S corporation, h
The corporation qualified as an S corporation under section 1361, and the loss sustained by that corporation was reported by petitioners on their 1992 individual tax return.
are to the Tax Court Rules of Practice and Procedure. - 3 - The common denominator in these consolidated cases is the claim of tax losses arising from an investment in Good Shepherd Home, Inc. (Good Shepherd), an S corporation within the meaning of section 1361. We must determine whether such losses are allowable, and, if not, whether petitioners are liable for the additions to tax determined by respondent.2 FINDINGS OF FACT Introduction Some of the facts have been stipulated and are so found. T
are to the Tax Court Rules of Practice and Procedure. - 3 - The common denominator in these consolidated cases is the claim of tax losses arising from an investment in Good Shepherd Home, Inc. (Good Shepherd), an S corporation within the meaning of section 1361. We must determine whether such losses are allowable, and, if not, whether petitioners are liable for the additions to tax determined by respondent.2 FINDINGS OF FACT Introduction Some of the facts have been stipulated and are so found. T