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S-corporations

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).



State Statutes for the State of Texas

CHAPTER 21 - FOR-PROFIT CORPORATIONS

(5) maintains the status of the corporation as an electing small business corporation under Subchapter S of the Internal Revenue Code; (A) maintaining the corporation's status as an electing small business corporation under Subchapter S of the Internal Revenue Code;

Federal Statutes

§ 1379. Transitional rules on enactment

If a corporation was an electing small business corporation for the last preenactment year and is an S corporation for the 1st postenactment year, any carryforward to the 1st post­enactment year which

§ 1362. Election; revocation; termination

shall be terminated whenever (at any time on or after the 1st day of the 1st taxable year for which the corporation is an S corporation) such corporation ceases to be a small business corporation. is an S corporation) such corporation ceases to be a small business corporation. (A) so that the corporation for which the election was made or the termination occurred is a small business corporation or a qualified subchapter S subsidiary, as the case may be, or

§ 461. General rule for taxable year of deduction

corporation for any taxable year from farming businesses attributable to the partnership or S corporation (A) a partnership or any other enterprise other than a corporation which is not an S corporation engaged in the trade or business of farming, if at any time interests in such partnership or enterprise have (B) a partnership or any other enterprise other than a corporation which is not an S corporation engaged corporation for any taxable year from trades or businesses attributable to the partnership or S corporation

§ 45R. Employee health insurance expenses of small employers

section 401(c)(1), (ii) any 2-percent shareholder (as defined in section 1372(b)) of an eligible small business which is an S corporation, (iii) any 5-percent owner (as defined in section 416(i)(1)(B)(i)) of an

§ 41. Credit for increasing research activities

(C) in the case of a qualified small business other than a partnership or S corporation, the amount of the business credit carryforward under section 39 carried from the taxable year (determined before which is an S corporation, the return required to be filed under section 6037, and (III) in the case (C) Special rule for partnerships and S corporations In the case of a qualified small business which is a partnership or S corporation, the election made under this subsection shall be made at the entity

§ 641. Imposition of tax

(A) the portion of any electing small business trust which consists of stock in 1 or more S corporations

§ 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation

substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance.

§ 465. Deductions limited to amount at risk

taxpayer actively participates in the management of such trade or business, or (ii) such trade or business is carried on by a partnership or an S corporation and 65 percent or more of the losses for the taxable