FEDERAL TAX

Pennsylvania CPA Journal, January, 2008 by Murray, Carol G; Blair, Larry S

Keep an Eye on S Corp. Eligibility Rules

"An ineligible shareholder can have disastrous consequences for an S corporation and its shareholders."

Business owners often choose S corporation status to eliminate the double taxation of profits that would occur with a C corporation election. One of the basic eligibility requirements for S corporation status is that only eligible shareholders can be owners.

S corporations are usually owned by a few individual shareholders, so the question of eligible shareholders is often not difficult. However, with more sophisticated business and tax planning, the likelihood is greater that an ineligible shareholder could become an owner of S corporation shares. Shareholder eligibility is an area where practitioners must take great...

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