S corporations (also known as Subchapter S corporations) are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
• Have only allowable shareholders
o may be individuals, certain trusts, and estates, and
o may not be partnerships, corporations, or non-resident alien shareholders
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic international sales corporations).

In Montana (MT), as in all states, S corporations are governed by federal law, specifically Subchapter S of Chapter 1 of the Internal Revenue Code. An S corporation is a type of corporation that meets specific Internal Revenue Service (IRS) requirements and has elected to be taxed as a pass-through entity, meaning income is reported on the personal tax returns of the shareholders, and taxes are paid at the individual level, avoiding the double taxation typically associated with C corporations. To qualify as an S corporation, the entity must be a domestic corporation, have only allowable shareholders (including individuals, certain trusts, and estates, but not partnerships, other corporations, or non-resident alien shareholders), have no more than 100 shareholders, have only one class of stock, and not be an ineligible corporation (such as certain financial institutions, insurance companies, and domestic international sales corporations). While the S corporation status is a federal tax designation, Montana recognizes the federal election and treats S corporations similarly for state tax purposes. Shareholders in Montana must report their share of the corporation's income on their state tax returns and are taxed at the state's individual income tax rates.