Federal Tax

S Corporations: Corporate Tax Issues (Portfolio 731)

  • The Portfolio, S Corporations: Corporate Tax Issues, reviews the special tax status of S corporations, including S corporation shareholders, who are taxed pro rata on the corporation’s income.


Tax Management Portfolio, S Corporations: Corporate Tax Issues, No. 731, reviews the special tax status of S corporations. While S corporations generally avoid federal income tax at the corporate level, S corporation shareholders are taxed pro rata on the corporation’s income, which is passed through to them, whether or not distributed. The Portfolio also discusses S corporation operations.

The Portfolio examines the limited circumstances in which the S corporation is taxed, discusses the mechanics of the flow-through of income and loss items, analyzes the taxation of shareholders and distributions, and explains the calculation of shareholder basis in stock and indebtedness. Special rules are also examined, including the passive loss limitations and at-risk rules, the built-in gain rules, and allocation of interest expense. Among other areas, the use of S corporations in an international context is explored.

Table of Contents

I. Taxation of the S Corporation
II. Tax Treatment of Income and Losses to Shareholders
III. Shareholder Basis in Stock and Indebtedness
IV. Treatment of S Corporation Distributions
V. Fringe Benefits, Reasonable Compensation and Family Allocations
VI. Redemptions, Liquidations, Taxable and Nontaxable Mergers and Acquisitions
VII. Buy-Sell Agreements for S Corporations and Their Shareholders
VIII. Foreign Operations
IX. Other Issues

Samuel Starr
Special Counsel
IRS Office of Associate Chief Counsel - Pass-Through Entities
Horacio Sobol
PricewaterhouseCoopers LLP
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