Free unregistered adult video chat Liquidating trust eligible shareholder s corporation

The principal limitations on S corporations generally relate to the types of entities that can elect Subchapter S treatment and the number and types of shareholders that can own stock in such an entity.These limitations have evolved in a myriad of ways over the last twenty years to significantly expand the versatility of the S corporation as a choice of entity.This article will focus on the expansion of eligible shareholders to include charitable organizations, and the implications this change has on both shareholders who wish to make charitable contributions of S corporation stock and organizations that wish to accept such gifts.

Prior to 1998, Internal Revenue Code (“Code”) Section 1361 provided that only individuals, estates, and certain trusts could own stock in a Subchapter S corporation.

A transfer of stock to an ineligible person (such as a non-U. resident) or entity would trigger a termination of the S election and tax treatment under general corporate income tax laws, including double taxation and other unfavorable provisions avoided via passthrough tax treatment.

Depending on when such a transfer was discovered by the corporation or the Internal Revenue Service (“IRS”) the result could be substantial back taxes and penalties.

At that time, S corporations were also limited to 35 shareholders and members of a family could not be treated as a single shareholder.

In 1997, Congress enacted The Small Business Job Protection Act of 1996 (P. 104-88), a wide-ranging piece of legislation that contained a number of S corporation tax reforms.

For example, the shareholder limit was increased to 75, the definition of trusts eligible to hold S corporation stock was expanded, and, importantly, banks were added to the list of organizations eligible to elect passthrough tax treatment under Subchapter S.

In addition to these and other changes, however, the strict limitation on owners of S corporation stock was expanded to include an entirely new entity type – exempt organizations.

The Small Business Job Protection Act of 1996 amended Code Section 1361(b)(1)(B) to provide that an S corporation includes any eligible corporation which does not “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…” Further, Section 1361(c)(6) permits organizations which are “(A) described in section 401(a) or 501(c)(3), and (B) exempt from taxation under section 501(a)” to hold S corporation stock.

The result of these provisions was to allow tax-exempt charities and tax-exempt retirement plans (including employee stock ownership plans “ESOPs” but not individual retirement accounts “IRAs”) to own S corporation stock.

Beginning in 1998, S corporation shareholders could now make gifts of their S corporation stock to charitable organizations.

Due to the nature of S corporations as closely-held businesses, S corporation stock may be, by far, the most valuable asset held by these potential donors – and the only means they have of making a substantial charitable donation.